Without mentioning it, Michael Boskin provides supports Robert Higgs’s contention the Regime Uncertainty is a, if not the, major contributing factor to the current stagnating economy. Per Higgs, regime uncertainty is a “pervasive lack of confidence among investors in their ability to foresee the extent to which future government actions will alter their private-property rights.” Michael Boskin in “How Washington Whittles Away Property Rights” makes a similar argument. He states what should be obvious, but is too often neglected in Washington and state capitals, “Property rights and the rule of law are essential foundations for a vibrant economy. When they are threatened, or uncertain, the result is inefficiency, rent-seeking, a larger underground economy and capital flight.”
Boskin then provides ample reasons for why worried investors would eliminate, postpone, or reduce investments necessary for recovery and sustained prosperity creating economic growth such as:
1. A Supreme Court decision which “gutted the Constitution’s “public use” restriction on eminent domain (Kelo v. City of New London, 2005), allowing local governments to take the property of some individuals for the benefit of others, especially private developers.”
2. President Obama’s decision to trample “the legal rights of secured Chrysler bondholders to transfer billions of dollars to unions.”
3. EPA wetlands compliance freezing land use.
4. With the “biggest future threat” coming from unfunded entitlements coupled with massive government spending which places the right to “the fruits of one’s labor” at great risk.
5. “Taxes explicitly designed for redistribution—instead of revenue”… .
He then argues, “Ultimately, behind this and other attacks on property rights is the notion that the government owns all income, leaving to you only what it doesn’t demand.”
I argued elsewhere, even before it was apparent that the stagnation would stretch over 5 years, the correct road to a “free and prosperous commonwealth” would include a return to sound money, competitive markets, and the rule of law with a total level of government spending and tax burden that, as suggested by Gwartney, Holcombe, and Lawson (The Scope of Government and the Wealth of Nations) is no more than 15% of GDP. Mises would most likely go even lower. As Adam Smith put it many years ago in a 1755 paper,
Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about the natural course of things. All governments which thwart this natural course, which force things into another channel or which endeavor to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.