More Evidence on the Impact Regime Worsening on Slow Recovery

Regime Uncertainty and Slow Recovery

Robert Higgs at the Beacon again reminds us that “anemic investment recovery evinces, at least in part, the prevailing regime uncertainty brought about by the Fed’s and the Bush and Obama administrations’ massive, ill-advised, and counter-productive interventions in the economy during the past five years.”

Higgs provides the chart on RGDI, but private non-farm employment closely follows RGDI up and down over the relevant period and remains anemic as well.

Some non-Austrian economists have also made similar arguments relative to anemic growth and slow recovery. For details see John Taylor’s blog post from May, “More Evidence on What Is Holding the Economy Back.”   Here, using a Freidman Plucking Model as the basis that recovery from a severe recession or pluck should be strong, he argues, “Of course something is now interfering with the usual economic response, because our current recovery is certainly not springing back to normal. I have argued that economic policy is holding the economy back, and I think recent research by Ellen McGrattan and Ed Prescott (on increased regulations) and by Scott Baker, Nick Bloom, and Steve Davis (on policy uncertainty) supports this view. Their work is part of a forthcoming [now out] book (Government Policy and the Delayed Economic Recovery) edited by Lee Ohanian, Ian Wright and me.”

Critics of regime uncertainty; in reality a real threat of regime worsening relative to property rights, return on investment, and economic freedom, as a significant contributor to the slow growth have argued that significant recessions accompanied by financial crisis are followed by slow, not rapid recoveries. However, this argument is not supported by economic history as recently shown by Michael Bordo, in a Wall Street Journal, editorial contribution, “Financial Recessions Don’t lead to A Weak Recovery. He concludes, “The evidence since 1880 shows a faster pace of recovery, The [Bush] Obama years are the exception.”

More reasons and more evidence that QE infinity will be just as ineffective as QEI and QE II.

I share now as I have in the past, Dr. Higgs’s pessimism, “Policy makers have cost the U.S. economy a decade or more of normal economic growth. How long will people in their capacities as political and financial actors continue to tolerate this foolish, destructive policy making? I do not know, but I believe I know what the result of these misguided ongoing experiments will be—economic stagnation at best, relapse or another bust at worst.”


  1. John,


    Something we have to understand is that like him or hate him Mitt Romney is our only hope in November. Any other choice will support the election of Barak Obama. In January 2013 we will go over the fiscal cliff, it is already baked into the cake. Our only hope is what will happen after that.

    Obama has agree with his past advisors Peter Orszag and Larry Summers that he wants the Bush tax cuts to expire on everyone, middle class included. He has only moderated this position because the votes are in the middle class. When the economy fall off of the fiscal cliff he will get what he wants without the blame. He can blame the Republicans.

    No, Romney is not an Austrian, he is wrong on monetary policy, he has been wrong on stimulus, and wrong on a host of other issues, but he is our only hope to begin to reverse these disastrous policies. The alternative is almost unthinkable.

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