Keynes, Friedman, and Higgs

by Don Boudreaux on December 9, 2011

in Seen and Unseen, State of Macro, The Crisis, The Profit Motive

The December 2011 edition of Cato Unbound features a lead essay by Tim Congdon, and reply essays by Dean Baker, Bob Hetzel (his still forthcoming), and myself.  In this, my first essay, I argue that “regime uncertainty” – as explained by Robert Higgs – has at least as much power as is packed by Keynesianism and monetarism to explain inadequate private investment.

Note especially the quotations, from Alfred P. Sloan and even Keynes, near the end of my essay that support Higgs’s thesis.

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{ 136 comments }

Daniel Kuehn December 9, 2011 at 12:07 pm

I’m intrigued at how/why you contrast animal spirits and regime uncertainty. I’ve always thought of them as very closely related. I guess it’s because Krugman criticizes the confidence story – but it’s important to remember he’s talking about something very specific: the idea that austerity is expansionary because it makes investors feel better about the availability of loanable funds, interest rates, and future tax liabilities.

One can think that proposition of “expansionary austerity” is nonsense without rejecting the regime uncertainty story. I’m glad you quote Keynes, though. It’s very important not to let the people who think this is the “fight of the century” succeed in confusing people on these points.

However – on that Keynes letter – if I’m not mistaken it was written in 1938, not 1933. You might want to fix that.

Don Boudreaux December 9, 2011 at 12:12 pm

The Keynes letter is dated 1933, and refers to the N.I.R.A. as if it is still a live institution. That Act was declared unconstitional by the Schechter Poultry decision in 1935. So I suspect that the 1933 date on the letter is correct – or, at least more correct than 1938.

Daniel Kuehn December 9, 2011 at 12:17 pm

Aha – there is a February 1938 letter to Roosevelt that is also often quoted as well. My mistake. Anyway – a nice piece. I think it’s a big mistake to pretend economics is a clash of the titans instead of recognizing that we all know there are multiple processes acting simultaneously, and perhaps we just disagree on what factors are the most important. For that reason, it’s always good to bring things like the Keynes points on uncertainty in.

anthonyl December 10, 2011 at 12:01 pm

I think most people understand its media hype intended to highlight the debate these two economists engaged it.

Invisible Backhand December 9, 2011 at 1:21 pm

If you study the history of regime uncertainty, it disappeared from our dimension from 1998 until 2008. It’s only dragged out of the closet during Democratic administrations. It’s partisan economics, but then again partisan economics is what Russ and Don are paid to do.

Seth December 9, 2011 at 1:30 pm

One possible explanation is the actions of Republican administrations tend to be relatively certain. Not always, granted. But what uncertainty there was, until the late years of W, was orders of magnitude less than the ‘let’s try a bunch of stuff and see if anything sticks’ approach.

Invisible Backhand December 9, 2011 at 1:32 pm

Another possible explanation is that is conservative propaganda. Would you like me to rehash for you who pays Russ and Don?

Hal December 9, 2011 at 2:32 pm

If follow the money is all you have, then this is pure ad hominem.

Don and Russ receiving funds from X doesn’t imply that Don and Russ are wrong because you don’t like X. Implying that Don and Russ are wrong because you don’t like X is a straight forward ad hominem attack.

If Don and Russ are wrong, then you should find out why. Follow the money is a useful tool after establishing that their claims are wrong by providing a possible reason for them being wrong. But for follow the money to even be taken seriously, first you have to demonstrate that Don and Russ’s claims are wrong.

For example assume I claim that tax cuts increase economic activity and boosts productivity. If you discover that I received funding from Charles Koch, this says nothing about the validity of my claim. If you analyze my data and methodology and find that I did sloppy work, only then can you possibly state that my original claim was wrong. In this instance, follow the money can provide possible reasons for my sloppy work

However, if you were to simply state that I was wrong because I received funding from Charles Koch, all you’ve done is level an empty accusation without any force or legitimacy. Following the money doesn’t establish sloppy work.

Methinks1776 December 9, 2011 at 2:39 pm

Good luck reasoning with the unreasonable, Hal.

Daniel Kuehn December 9, 2011 at 4:02 pm

Yes I’m sure Part D and the Iraq War under Obama would have been treated as “certain”.

The man can’t even safely wind down an inherited war without getting grief.

Hal December 9, 2011 at 4:21 pm

Total cost of Iraq War in 9 years: ~$1,000B
Total cost of part D since 2003: $395B
Cost of Obama’s stimulus: $787B

On the stimulus alone Obama has spent, in three years, half what Bush spent in 8+ years.

Number of large companies Bush took over: 0
Number of banks Bush made other banks buy: 0

Obama took over GM, forced BoA to buy Countrywide (and lied about the financial situation of Countrywide to make the purchase more palatable) and forced BB&T to accept federal funds with strings attached. In the process of taking over GM, Obama ignored the rule of law established for bankruptcy procedures.

Amount of Bush rhetoric demonizing companies and business people: none.

Amount of Obama rhetoric demonizing companies and business people: every time he opens his mouth.

The rule of law and property rights mean nothing to Obama. He makes that clear in every speech he makes. Because he speaks and acts as if he can do whatever he wants with others stuff, he creates far more uncertainty the Bush did, even with the Iraq War and medicare part D.

g-dub December 9, 2011 at 6:10 pm

In the process of taking over GM, Obama ignored the rule of law established for bankruptcy procedures.

That indeed is horrific — especially for a so-called
“constitutional law professor.” (Oh gawd, that constitutional law professor garbage means absolutely nothing — Obama is a scofflaw.) Worse is just the outright bald corruption of buying votes in the Chrysler & GM cases.

Patriotic American December 9, 2011 at 9:09 pm

Hal, you moron, you can’t count what Obama spent to fix Bush fuckups against Obama. Jesus.

muirgeo December 9, 2011 at 9:25 pm

Hal counts Obama’s stimulus tax cuts ( about $200 hundred billion) but leaves out the cost of Bush’s tax cuts and the loss of receipts from the drop in GDP thanks to Bush’s economy.

Hal you should either work on understandfing the facts better or work on your intellectual honesty… which ever it is causing you to make such absurd post.

Here this might help…

http://blog.faithinpubliclife.org/Budget%20CBPP%20chart%20on%20TAX-CUTS-DEBT%202001%20to%202019.jpg

Daniel Kuehn December 9, 2011 at 9:31 pm

Hal -
re: ““On the stimulus alone Obama has spent, in three years, half what Bush spent in 8+ years.”

Hmmm lets think here. Stimulus in 2009 in a depression. Part D in 2006 in a boom. Iraq War in 2003 in a boom. Stimulus very temporary. Part D permanent. Iraq War a decade, with years after that of geopolitical instability.

As the wise muppets of Sesame Street once said: one of these things is not like the others, one of these things does not belong…

Methinks1776 December 9, 2011 at 10:38 pm

Let’s see. Stimulus is temporary. Paying for it is not. Obamacare is a permanent drag. Dodd-Frank is a permanent drag. Those got left off the list by our resident disingenuous deep thinker. I guess Deep Thinker assumes that throttling the economy with enormous amounts of regulation in a depression is stimulative.

Of course, the Iraq war (a waste, true) will cause geopolitical instability in a corner of the planet that was (before the Iraq war) a model of geopolitical stability. Damn Bush. Oh, but Obama, the Peace Prize winner, went to war in Libya. Surely that’ll contribute to world peace. And won’t cost anything.

Methinks1776 December 9, 2011 at 11:28 pm

Mr. Methinks (rather noisily) insists I take back my remarks about the stimulus. It is not temporary in any way.

The “one time” stimulus is now part of our dear government’s annual (unpublished) budget and is one reason the cowards in The Swamp don’t want to pass a budget – it’ll make the implicit explicit. We will have stimulus forever.

Seth December 9, 2011 at 11:48 pm

I agree that those things caused uncertainty. Not sure I would classify the Iraq war as ‘regime’ uncertainty. Part D possibly.

But, as you occasionally suggest, it seems like comparing the size of these things to GDP would be fair to get a relative sense of the magnitude. If Hal’s numbers are accurate, that would seem to support my case.

But, my understanding is that even the spending isn’t necessarily “regime uncertainty”, though it might be a reasonable proxy.

My understanding is that regime uncertainty is more about the uncertainty about how much meddling and regulatory change might come from government that is willing to take big, bold, blind swings at problems.

And, to be clear, I’m not an apologist for Republicans or W. In my view, they simmered regime change for the better part of 8 years, set it to medium-high on the way out and then it went to high.

I was just offering an alternative explanation that also fit IB’s observation. Which, btw, whether it actually disappears and reappears as an explanation based on who’s in control, says nothing about whether it is indeed happening or not.

Hal December 10, 2011 at 2:17 am

Hmmm lets think here. Stimulus in 2009 in a depression.

Yes. Let’s think. Goverment spending trillions of dollars since the beginning of 2009, mortgaging American’s future for an obvious failure, failure most saw coming, in the middle of a recession. That isn’t thinking at all.

Part D in 2006 in a boom. Iraq War in 2003 in a boom.

To clarify, it’s stupid for government to spend money when government revenue is high, but intelligent to spend even more when government revenue is low. Is that the point of this statement?

Iraq War a decade, with years after that of geopolitical instability.

Bush, and only Bush, is responsible for geopolitical instability in the Middle East? This Middle East was stable before 2003? If that’s true why has every president I can remember talked about stabilizing the Middle East? Has anyone in the last 80 years thought of the Middle East as stable?

vikingvista December 10, 2011 at 1:28 pm

PA: Hal, you moron, you can’t count what Obama spent to fix Bush fuckups against Obama. Jesus.

Okay. Now that he’s spent the money, when is he going to get around to fixing the fuckups? Last I heard, ObamaCare was going to expand Part D enrollment.

muirgeo December 9, 2011 at 6:30 pm

http://www.usatoday.com/money/perfi/columnist/krantz/2005-12-02-presidents_x.htm

If they knew history you’d think they’d be over this regime uncertainty. Same old story. We are always told a democratic president will be bad for the economy but history consistently says otherwise. It’s no coincidence…it’s all about policy.

GAAPrulesIFRSdrools December 10, 2011 at 12:24 am

Useless Today… geez, couldn’t find something in Weekly World News?

SmoledMan December 9, 2011 at 5:04 pm

There is a difference between government spending for physical infrastructure(roads, bridges, dams, utilities, fiber optic cabling) and welfare payments. You know the difference right?

Ubiquitous December 9, 2011 at 7:39 pm

However – on that Keynes letter – if I’m not mistaken it was written in 1938, not 1933. You might want to fix that.

http://newdeal.feri.org/misc/keynes2.htm

Title: An Open Letter to President Roosevelt
Author: Keynes, John M.
Source: FDRL: PPF: 140: Frankfurter, Felix
Date: December 16, 1933
Type: Letter
Listed Under: Economic Policy
Notes: Introductory letter to FDR from Felix Frankfurter. Keynes letter was published in the New York Times later in the month.

Daniel Kuehn December 9, 2011 at 9:32 pm

yes – we dealt with that several hours ago.

Ubiquitous December 10, 2011 at 4:59 am

yes – we dealt with that several hours ago.

A quick Google search on your part would have made it unnecessary to deal with it at all.

I know you’re just dying for posters to Cafe Hayek — in fact, anyone at all — to think of you, and refer to you, as “Professor Kuehn”, but, baby, you’re a long way off from that auspicious moment. You’re too lazy and biased for anyone here to consider you as anything but a 3rd rate scholar.

Good luck with your mid-terms.

Daniel Kuehn December 9, 2011 at 12:13 pm

This, I think, is technically true but somewhat misleading: “It’s worth emphasizing that nothing about regime uncertainty—as understandably warned of here by Young, Sloan, and Keynes—will be mitigated by more government spending or by looser monetary policy.”.

The reason why we worry about regime uncertainty is that it will reduce investment demand by reducing the expected yield of future profits and therefore the marginal efficiency of capital. Government spending and looser monetary policy improves the expected yield of future profits and investment demand, and lowers the marginal efficiency of capital required to make an investment worthwhile. So perhaps its fair to say that these policies won’t mitigate regime uncertainty directly, but it’s misleading to suggest that we can’t get our way out of a depression with them. The important point is – get rid of the regime uncertainty and pursue reasonable fiscal and monetary policies, and make “reforms” that need to be made, but as Keynes says – make sure you’re willing to weigh that against any threat to recovery.

Don Boudreaux December 9, 2011 at 12:18 pm

Daniel: You continue to assume – along with most modern macroeconomists – that the underlying micro-analytic relationships in a slumping are pretty much all just fine, and so the only problem is excess money demand or, alternatively, inadequate aggregate demand.

The thesis of regime-uncertainty has a very different focus. It focuses attention on distortions in the underlying micro-analytics – insecurity of property rights, uncertainty of future tax burdens and fears that these might be confiscatory, and other enterprise-quashing government policies and attitudes. None of these deep problems is curable by increasing aggregate demand.

Daniel Kuehn December 9, 2011 at 12:31 pm

I don’t think I’ve ever assumed that Don. In fact, one of the things I do worry about is precisely that in a depressed economy micro relationships are not fine and are distorted from what they are in a fully employed economy. The relative demands at the micro level of a family with a laid off bread winner are much more distorted if their income is cut to zero during job search than it is if they have an unemployment check paid out of years of payroll tax contributions (which is not to say that I think two years of benefits necessarily makes sense).

This certainly isn’t true: “None of these deep problems is curable by increasing aggregate demand.”

Future tax burdens are very closely related to aggregate demand. It’s true security of property rights and enterprise-quashing aren’t solved by increasing aggregate demand, but they also aren’t in conflict with increasing aggregate demand. So let’s protect property rights and address inadequate demand!

Greg Mankiw once said that he’s not a demand-side economist or a supply side economist, he’s a supply-and-demand economist. Me too. And I’d add that it’s important not to be just a macroeconomist or just a microeconomist – you have to keep an eye on both when you’re thinking about policy (which isn’t to say, of course, that there aren’t benefits to personal professional specialization).

Methinks1776 December 9, 2011 at 1:01 pm

So let’s protect property rights…

That ship has sailed and you haven’t noticed. Regulation is the state commanding how you may use your property and we have tons of it coming. Not a peep from you – except in general support. Krugman explicitly said he’d like to use regulation to force businesses to spend for the sake of spending. Yet, not a peep from you except a week attempt at contorting Krugman’s plain words into meaning the opposite of what he wote. It’s hard to believe your commitment to property rights exists anywhere outside of the fantasies in your head.

Methinks1776 December 9, 2011 at 1:01 pm

week = weak.

SmoledMan December 9, 2011 at 5:05 pm

You make it sounds as though 2011 America is already the Soviet Union. You don’t really believe that.

Methinks1776 December 9, 2011 at 5:27 pm

Do you think the defining characteristic of the Soviet Union was state regulation of private industry, SmoledMan?

Hopefully this shows up in the correct spot this time.

SmoledMan December 9, 2011 at 5:29 pm

Methinks – regulation of industry is not by itself the definition of what the USSR was. It’s 100% ownership and running of all industry by government, collective farms, gulags, etc…

Methinks1776 December 9, 2011 at 5:53 pm

Okay. Well then, what in my comment gave you the impression that I think we’re already a second Soviet Union?

( BTW, regulation of industry was not a characteristic of the Soviet economy. It’s redundant to regulate what you already own).

SmoledMan December 9, 2011 at 6:00 pm

Methinks – my point is when was America ever a true free market nation? Don’t mention the pre-Civil War period as slavery was allowed.

Methinks1776 December 9, 2011 at 6:15 pm

SmoledMan, what does that have to do with anything?

If the option for no government regulation doesn’t exist, it still matters how much government regulation does. More is worse than less – even if less is not none at all.

Invisible Backhand December 9, 2011 at 1:23 pm

Daniel, Boudreux will not respond.

GAAPrulesIFRSdrools December 9, 2011 at 2:53 pm

No, but BoudreAux will, just not to trolls.

g-dub December 9, 2011 at 3:05 pm

dk> I don’t think I’ve ever assumed that Don.

It sure reads like you do, despite the ex post facto hemming and hawing.

Daniel Kuehn December 9, 2011 at 4:04 pm

Name where. Not only have I never assumed that I usually operate on the exact opposite assumption.

A more likely explanation is that this is a canned criticism that gets thrown at people taking issue with Don’s side without much thought.

Methinks1776 December 9, 2011 at 4:24 pm

Yes, g-dub. You’re just sloppy and thoughtless. DK is a graduate student. He always thinks deeply. To be fair, to engage in the olympic level mental gymnastics DK engages in regularly to justify the unjustifiable, you’d have to.

Methinks1776 December 9, 2011 at 5:19 pm

Do you think the defining characteristic of the Soviet Union was state regulation of private industry, SmoledMan?

Methinks1776 December 9, 2011 at 5:26 pm

wrong spot.

Ubiquitous December 9, 2011 at 9:54 pm

So let’s protect property rights and address inadequate demand!

Impossible. Addressing “inadequate demand” requires violation of property rights.

anthonyl December 10, 2011 at 12:15 pm

How do you increase aggregate demand using a government? Spend other peoples money.

anthonyl December 10, 2011 at 12:19 pm

But the point is that macro doesn’t do anything except provide government an excuse to steal our wealth.

GAAPrulesIFRSdrools December 9, 2011 at 3:31 pm

The reason why we worry about regime uncertainty is that it will reduce investment demand by reducing the expected yield of future profits and therefore the marginal efficiency of capital.

It doesn’t have to reduce expected yield, it merely needs to make them less predictable, which is what you consistently hear “we just don’t know how [INSERT HEAVY HANDED FEDERAL ACTION HERE] is going to affect our costs” .

The same expected yield, with less certainty produces less investment.

After all it’s called regime “uncertainty”, not regime “reduction”.

GiT December 9, 2011 at 4:02 pm

Unforunate, then, that Higgs builds regime ‘expansion’ into his definition of regime ‘uncertainty’ and makes his supposed measure of uncertainty a measure of expected impact.

GAAPrulesIFRSdrools December 9, 2011 at 11:35 pm

If you are replying, it helps to have a coherent response, related to the post.

muirgeo December 9, 2011 at 6:33 pm

“It’s worth emphasizing that nothing about regime uncertainty—as understandably warned of here by Young, Sloan, and Keynes—will be mitigated by more government spending or by looser monetary policy.”.

Yeah , because contractors who build roads and bridges all hate this talk about infrastructue spending.

Greg G December 9, 2011 at 12:36 pm

There are obvious problems that cripple the usefulness of Regime Uncertainty Theory. The main problem is that it can always be invoked and never disproven. Investing always involves uncertainty. Actually, times when confidence is high and everyone thinks “This time is different” may be the worst times to invest. The highest paying investments are often the ones made at times of greatest uncertainty. Political rhetoric is one of the many things the market is good at correcting for.

And we have no way to measure uncertainty. But the theory requires us to come to some kind of aggregate macro psychological judgment on that. Then you claim to know the effects of that on the larger economy. Sounds like exactly the kind of thing you guys are always warning us against when it doesn’t lead to the policy recommendations you prefer.

Don’t you think there was plenty of regime uncertainty during the 50′s among libertarians and business people? First we had the McCarthyism craze. Then the formation of The John Birch Society (with the Koch family in on the ground floor). They suspected Eisenhower was a Communist. You would think that would have caused a lot of uncertainty and a very poor economy if this theory worked then.

nailheadtom December 9, 2011 at 12:58 pm

Yeah, there’s lots of uncertainty in life. It might rain, it might not. My daughter might come home pregnant, she might not. There’s plenty of uncertainty over which nobody has any control. But who needs uncertainty that exists only because of decisions made on the basis of the desires of politicians and their cronies?

Bastiat Smith December 9, 2011 at 1:02 pm

Greg,

In contrast to what?

The 1950s was a HUGE freeing of capital and labor in contrast to the war years. But this reinforces the point that we can see what we want and use unprovable theories in the face of seemingly contrary data.

Regime uncertainty is a fine narrative and may be supported by polls and logic. But science it ain’t. We do well to recognize its applicability and limitation.

GAAPrulesIFRSdrools December 9, 2011 at 1:05 pm

Also, be assured, whatever suspicion there was of Eisenhower as a communist, we have no similiar suspicion of you. You are a troll.

Greg G December 9, 2011 at 1:16 pm

Bastiat Smith

I think I mostly agree with you. The huge freeing of capital and labor (in the 1950′s) in contrast to the war years, explains a lot. The Higgs uncertainty principle doesn’t, although it is available for those who wish to construct a narrative.

muirgeo December 9, 2011 at 6:46 pm

Yeah so in the 50′s when they already knew the top marginal tax rate was 91% there was NO regime uncertainty. Now the uncertainty is great because it might go up from 35 to 39%… wow that makes one reconsider… makes on very uncertan.

Regime uncertainty is complete BS by pushed by the Ministies of Economic Propaganda…. nothing more.

Ubiquitous December 10, 2011 at 6:12 am

Yeah so in the 50′s when they already knew the top marginal tax rate was 91% there was NO regime uncertainty.

Because no one actually paid a 91% tax. There was enough certainty about the existence of loopholes and the ability to exploit them, that the effective tax rate was far lower.

But you’ve been told this many times before. Are you stupid, forgetful, or just plain intellectually dishonest?

muirgeo December 10, 2011 at 7:50 am

Don’t let the fact that the effective tax rate for the wealthy is lower than it has been in a long time have you not believing in the Uncertainty Fairy. Is logic imprtant to you?

Greg Webb December 10, 2011 at 8:17 am

“Are you [muirgeo] stupid, forgetful, or just plain intellectually dishonest?”

Actually, Ubiquitous, Muirgeo is all three. But, mostly, he’s intellectually dishonest.

Ubiquitous December 10, 2011 at 11:17 am

stupid, forgetful, or just plain intellectually dishonest…
Actually, Ubiquitous, Muirgeo is all three.

Yes, he’s a triple-threat.

Methinks1776 December 10, 2011 at 1:36 pm

Yes, he’s a triple-threat.

To the gene pool.

brotio December 11, 2011 at 1:32 am

But, mostly, he’s intellectually dishonest.

Gotta disagree with you, there. To be intellectually dishonest, one must first have an intellect.

GAAPrulesIFRSdrools December 9, 2011 at 1:04 pm

Don’t you think there was plenty of regime uncertainty during the 50′s among libertarians and business people? First we had the McCarthyism craze. Then the formation of The John Birch Society (with the Koch family in on the ground floor). They suspected Eisenhower was a Communist. You would think that would have caused a lot of uncertainty and a very poor economy if this theory worked then.

Where was the uncertainty? How was any of these events going to affect the ability of a business 6to function?

You are rapidly distinguishing yourself as a master of non-sequitirs, Troll.

Try, try to make a coherent argument rather than just take any subject as an opportunity to provide another stanza in the song book of leftist grievances.

Greg G December 9, 2011 at 1:25 pm

@drools with vitriol

Don’t you think those who feared that Eisenhower was a Communist should have feared too much for their property rights to invest and “6to (sic) function” properly if regime uncertainty works the way we are being told it does?

GAAPrulesIFRSdrools December 9, 2011 at 2:58 pm

Mostly, they were like you Grudge G, a small minority, to small and barred from positions of significant authority due to an inability to conceal iraationality.

Greg G December 9, 2011 at 3:16 pm

“Mostly, they were like you Grudge G, a small minority, to (sic) small and barred from positions of significant authority due to an inability to conceal iraationality(sic).”

A small minority yes. But not like me. More like today’s libertarians. In fact libertarians have been a small minority ever since they separated themselves from the mainstream by opposing the Constitution and supporting the Confederacy.

GAAPrulesIFRSdrools December 9, 2011 at 3:36 pm

“More like today’s libertarians.”

Since I’ve been accused of being a libertarian and accused of not being a libertarian, I won’t bother to be offended by your attempt to categorize me and then dismiss the category.

You on the other hand, have distinguished yourself, by your own assiduous effort and merit as a troll and an intellectual pinata in that you invite being repeatedly battered. At least a pinata has a prize inside, you have nothing but bile.

Greg G December 9, 2011 at 3:48 pm

Drools

I don’t know or care whether you self identify as a libertarian. I made a statement about those who do identify as libertarians. I don’t think they would deny they are a small minority.

The point about the Birchers and today’s libertarians is your prize from the pinata. You can trace the continuity through the Koch family.

Dude, I’m dunking on you. Step up the defense.

Sam Grove December 9, 2011 at 5:35 pm

In fact libertarians have been a small minority ever since they separated themselves from the mainstream by opposing the Constitution and supporting the Confederacy.

But not before?

Greg G December 9, 2011 at 5:45 pm

Sam

No, not before. They almost stopped the Constitution from being ratified due to concerns about the centralization of power. They were a strong force back then and almost carried the day on that issue.

g-dub December 9, 2011 at 6:15 pm

…libertarians have been a small minority ever since they separated themselves from the mainstream by opposing the Constitution and supporting the Confederacy.

Gee, I don’t suppose you’d care to unwind that one for us.

Greg Webb December 10, 2011 at 1:14 am

“More like today’s libertarians. In fact libertarians have been a small minority ever since they separated themselves from the mainstream by opposing the Constitution and supporting the Confederacy.”

Greg G, I see that you are still pretending at knowledge. This time history.

Libertarians would have felt quite at home in the Federalist camp. Federalists would shoot today’s libtards on sight as being the King’s agents for their big-government views.

Both Federalists and Anti-Federalists fought a war to throw off the shackles of big government, which is quite unlike today’s libtards who want to regress back to the days when a self-appointed elite told everyone else what to do.

Greg Webb December 10, 2011 at 1:47 am

“Dude, I’m dunking on you. Step up the defense.

LOL! The words of a fool getting whipped in a debate. If you feel the need to tell everyone that you are winning Greg G, it’s because you know that you are losing. If you really were winning, you would not feel the need to convince others.

Greg G December 10, 2011 at 7:39 am

GW

The debate between those who wanted to approve the Constitution and those who wanted to stick with the Articles of Confederation was a straightforward argument about whether or not more, or less, centralized government power was needed.

The Anti-federalists were the libertarians of their day, warning that more centralized power was a threat to liberty. The fact that they agreed with the Federalists about wanting to be free of the British does not change that one bit.

Those who bemoan the trend toward more democracy are the real elitists. They insist the masses cannot be trusted to use their votes responsibly so political rights need to be reserved for the experts.

Greg Webb December 10, 2011 at 12:10 pm

Greg G, you must live in a color blind world given your simplistic view of history. The Federalists and the Anti-Federalists disagreed about how to control governmental power. They have much more in common with each other than they do with big-government advocates of today.

Greg Webb December 10, 2011 at 12:14 pm

“Those who bemoan the trend toward more democracy are the real elitists. They insist the masses cannot be trusted to use their votes responsibly so political rights need to be reserved for the experts.

False. Those who insist that individuals have no rights relative to the mob are political opportunists seeking chaos in order to achieve despotism. See, the French Revolution.

Greg G December 10, 2011 at 1:13 pm

In many ways the founders had a narrower view of liberty than we have today. They passed the Alien and Sedition Acts for example, which limited freedom of the press in ways that would never be viewed as constitutional today.

Do you believe that George Washington chopped down the cherry tree too?

Greg Webb December 10, 2011 at 1:31 pm

More disingenuous comments from Greg G.

That’s what power does to people. It corrupts them. Even some founders were corrupted by power enough to pass the Alien and Sedition Acts. It was an unconstitutional power grab that so offended the people who believed in the principles of the Constitution that they left the Federalist Party in droves such that it was soon gone from the political scene.

George Washington was a man and, as such, was capable of both good and bad as are all people. I don’t care if he chopped down a cherry tree. I do care that he believed in the principles of the Constitution enough that he stepped down from power instead of using that power to become emperor as Napoleon did. But then, he may have realized that enough people believed in the principles of the Constitution to know that he would have been overthrown if he had attempted to establish a monarchy or dictatorship.

Darren December 9, 2011 at 12:46 pm

Just a thought. It occurs to me that favoratism to some actors (cronyism) in an industry over others or simply to existing businesses would add to regime uncertainty. Smaller businesses considering expanding their own activity, for example, would be dissuaded to some degree if larger existing (and more politically connected) businesses are given an advantage bestowed by regulations. How much this amounts to is open to question, but I think it would be a contributor.

Methinks1776 December 9, 2011 at 12:56 pm

Of course. Would you invest if you knew that the government has already chosen a winner and a loser? In fact, you wouldn’t invest if you thought that there’s a good chance it will do so in the future.

John Hall December 9, 2011 at 1:04 pm

1) I don’t know how to untangle regime uncertainty from other kinds of uncertainty. We certainly have financial market volatility, but it is very tricky to tell how much of that is due to the situation in Europe (actually this could be described as regime uncertainty in Europe!), weak expected earnings growth (holding the regime constant) in the U.S., or regime uncertainty.
2) Strictly speaking, it is incredibly unlikely that we will get anything from Obama as disruptive as NIRA and his alphabet soup. I wonder what exactly Obama has done to create regime uncertainty so large as to disrupt investment spending to this extent.
3) Business fixed investment spending in the U.S. may be below trend, but it has also grown quite strongly over the past 7 quarters (~10% each). Is the argument that absent regime uncertainty it would have grown stronger? Further confidence and measures of financial market volatility had generally improved (along with investment) from Q1 2009 though Q1 2011. It wasn’t until Q2 and Q3 that these measures deteriorated (but not investment) and it is hard to say that deterioration was due to regime uncertainty in the same way that Higgs was talking about regime uncertainty.
4) You may be interested in this: I regressed log changes in the quantity index for business fixed investment against the levels of the VIX and ISM manufacturing since 1986 (R^2 is like 45%), and looked at the residuals (to consider a measure of investment spending adjusted for confidence). This confidence-adjusted business investment was roughly flat until the mid-90s, when it rose strongly, before peaking around 2000s and has been in a downtrend ever since.

Methinks1776 December 9, 2011 at 1:20 pm

1.) General market uncertainty exists naturally. The government threatening new regulations, taxes and just generally creating an environment where business is painted as evil or some businesses will be favoured over others is regime uncertainty. The word “regime” is the clue.

2.) From Obama we got Obamacare and Dodd-Frank and at least 379 new lending regulations in 365 days last year alone. The EPA is looking to achieve that which the legislature could not (it was so unpopular). The list goes on.

3.) Certainly all deterioration in investment can’t be blamed on regime uncertainty, but why hamper investment at all if you have the power to refrain from doing so?

4.) The VIX has to be one of the most misunderstood indices we have. It appears you incorrectly used the VIX as a proxy for business confidence.

g-dub December 9, 2011 at 3:11 pm

mt Certainly all deterioration in investment can’t be blamed on regime uncertainty,…

Yeah. We have to hold some out for utter government stupidity, which is very certain, not uncertain. lol!

Methinks1776 December 9, 2011 at 4:14 pm

I know you “loled”, but I did want to clarify that I was talking about market uncertainty. That’s also increased, as John Hall said.

RGDP December 9, 2011 at 5:51 pm

Higgs is just plain wrong.

The BEA breaks business investment into three categories:

1. Residential structures (new homes and renovation)
2. Nonresidential structures (office towers, power plants, hotels, etc.)
3. Equipment and software.

Investment in residential structures as a percent of GDP is the lowest in the series due to the housing bust. Investment in many categories of nonresidential investment is low due to high vacancy rates. But investment in equipment and software has boomed since the 2009 recession trough and at three times the rate compared to the 2001 recession trough.

According to Higgs, there must have been way more regime uncertainty in the Bush administration than in the Obama regime.

nailheadtom December 9, 2011 at 6:41 pm

“If you are constantly changing policies and taxes … that instability causes a lot of problems,” said Hisel, who after 30 years in the business is widely accepted as a South Dakota economic leader.

Words coming out of Director Paul Lucy of North Dakota’s economic development office sound a lot like what Minnesota Republicans and business leaders say.

“They have some level of certainly regarding their future tax liability,” Lucy said about businesses.
_________________________
http://capitolchat.areavoices.com/2011/01/23/it-is-dakotas-david-vs-goliath-minnesota/

McBrideR December 9, 2011 at 1:14 pm

I am very much sympathetic to the concept of Regime Uncertainty as a real problem in the economy. Unfortunately, I think the name and the very common use in the public debate of the term “uncertainty” is not helpful towards moving a consensus. In my view, there is a high level of certainty amongst those who might be able to move the economy forward that they will be unable to benefit from investment, or at least unable to benefit enough to interest them. I also think that regulatory costs are not well considered in the discussions, either because they are too hard to measure or because they are assumed to be adequately communicated in pricing information such as not to require explicit consideration.

nailheadtom December 9, 2011 at 1:45 pm

Consensus? We might be able to come up with a consensus on the date of the full moon or the distance from Tucumcari to Tehachapi but there won’t be a consensus on a meat loaf recipe or regime uncertainty.

McBrideR December 9, 2011 at 2:20 pm

Well, true. Best I can tell, there is not much consensus on much of anything. Poor choice of words on my part. What I really meant was that it doesn’t move thinking in a way that impacts policy. I’m still talking shorthand, but I’m not willing to devote enough time to produce an essay on the subject.

GiT December 9, 2011 at 2:27 pm

As long as regime uncertainty is ideologically tied to the effects of the uncertainty of a particular kind of policy content, the concept is intellectually bankrupt.

The deleterious effects of a certain type of policy (simply put, high tax/regulation vs low tax/regulation) need to be distinguished from the deleterious effects of uncertainty about the stability of a current policy regime.

Or, to put it perhaps more artfully, one would need to distinguish between the effect of a particular type of policy change, the effect of uncertainty about policy change, and the interaction effect between uncertainty-about and the-consequences-of a particular policy change. The larger question would be whether there is a meaningful difference in general with regards to the interaction effect between policy uncertainty about ‘big government’ policies and policy uncertainty about ‘small government’ policies.

Another way to think of this would be the difference between policies expected to increase profitability and those expected to decrease profitability (but then the question becomes, ‘for whom?’ do we measure in the aggregate? how do we develop that measure?)

The market would face the same sort of effects from changes in policy that would potentially remove subsidies, taxes, barriers to entry, etc. which have been consistently depended upon in shaping a particular industry or firm’s advantages and ‘patterns of trade and specialization.’

Merely think of the potential effects of large scale, real debate on eliminating farm or military subsidies; or trade protections for, say, textiles; or legalization of marijuana; or a radical opening of the borders or amnesty program – this would clearly be regime uncertainty, but it would have nothing to do with the particular ideological cast Higgs gives to regime uncertainty.

This partisan thinking is endemic to Higgs’ treatment of the concept – and it is repeated in Higgs’s previously linked evaluation of Baker, Bloom, and Davis at http://cafehayek.com/2011/10/some-links-122.html, where Higgs cites a study which analyzed uncertainty in both directions of policy change (big gov/small gov, increased profits/decreased profits) as evidence for his theory that regime uncertainty is unique to ‘big gov,’ ‘profit lowering’ policies.

GiT December 9, 2011 at 3:18 pm

Or, to put it succinctly, if we’re actually measuring ‘regime uncertainty,’ then what we should be looking at is the stability of a current policy regime, not only uncertainty with respect to policies that might increase taxes or regulations. Any risk of change in the incentive system structured by the state would induce uncertainty among actors in the market. This must be separated from the effects of a particular type of change.

GiT December 9, 2011 at 3:10 pm

You’d think an actual small business owner would be willing to come out and say that potential increases in tax rates affect their hiring decisions. Funny it’s only the politicians who step forward.

http://www.npr.org/blogs/itsallpolitics/2011/12/09/143398685/gop-objects-to-millionaires-surtax-millionaires-we-found-not-so-much?sc=fb&cc=fp

So much for micro-foundations…

GAAPrulesIFRSdrools December 9, 2011 at 3:58 pm

Don’t look very hard for non-confirmatory evidence, huh?

Starbucks CEO Criticizes Obama Administration | Brian Koenig
Aug 18, 2011 … Starbucks, the business most infamous for its $5 cups of coffee, has a beef with
the Obama administration, at least, its CEO does.

brianekoenig.com/…/starbucks-ceo-criticizes-obama-administration/ – Cached

Nokia Unveils Smart Phone; Intel’s CEO Criticizes Obama’s
QUEST MEANS BUSINESS. Nokia Unveils Smart Phone; Intel’s CEO Criticizes
Obama’s Economic Plan. Aired September 14, 2010 – 14:00:00 ET. THIS IS A …

transcripts.cnn.com/TRANSCRIPTS/1009/14/qmb.01.html – Cached – Similar

Casino CEO criticizes OBAMA BIG TIME during conference call …
Jul 19, 2011 … Wynn Resorts CEO Steve Wynn came out and called a spade a spade! [LEFT]
Read more: Wynn CEO Goes On Epic Anti-Obama Rant On …

http://www.city-data.com/…/1334137-casino-ceo-criticizes-obama-big-time.html – Cached – Similar

Greg G December 9, 2011 at 4:04 pm

Wow! A few anecdotes from whining CEO’s. I guess that settles it.

Methinks1776 December 9, 2011 at 4:20 pm

As opposed to your whiney, thoughtless drooling? I’ll take the CEOs.

As it happens, the survey on which people like Krugman rely to refute regime uncertainty as a factor ranks tax increases and increased regulation as the number two biggest concerns for business.

GAAPrulesIFRSdrools December 9, 2011 at 11:39 pm

Not much into logic huh? You see, an absolute “Funny it’s only the politicians who step forward” is contradicted by a SINGLE example, and I provided three, but I didn’t have time to dig through the 200,000 hits,,

Dude, I just dunked on you. Time to put your shorts on and find the court..

GAAPrulesIFRSdrools December 9, 2011 at 11:41 pm

Your assertion:

“Funny it’s only the politicians who step forward.”

Put down the crackpipe.

GiT December 9, 2011 at 4:10 pm

Ah yes, famous small-businesses Nokia (42 billion revenue), Starbucks (10 billion revenue), and Wynn Resorts (3 billion revenue).

Who is it that’s not looking very hard?

“The argument is that many *small-business owners* report company profits on their individual taxes because of the way their businesses are structured. Sen. John Thune, R-S.D., says the surtax would hurt their ability to hire.”

Jon Murphy December 9, 2011 at 4:22 pm

Gentlemen, please!

There is more to the story than this.

Both sides are correct.
Yet both sides are wrong.

The question itself is confusing: will a cut in payroll taxes, paid for by an increase on the taxes of millionaires, hurt hiring?

As NPR notes, some small businesses report their operating profits on their owner’s personal income taxes. This, of course, would mean that some business owners pay a higher tax rate than they would otherwise. The proposed tax increase would increase that rate.

However, the payroll tax cut (theoretically) offsets this. By lowering the cost of hiring, businesses would hire more (there is more to the story than this, which I will discuss later tonight in a broader post).

So, at least in theory, it’s a wash.

The tax is on personal incomes. Since business owners do not hire based upon personal income levels, but rather MPL (Marginal Product of Labor, or how much additional benefit the company gets when they hire a new person minus the cost of adding that one extra person), the question is a red herring. Of course a personal tax on a group of people will not affect hiring.

So, really the question being asked is unimportant. Both parties are idiotic for focusing on the unimportant personal tax as opposed to the very important payroll tax. I’ll discuss this further in a post here (and probably on my blog, too).

In summation:
Both sides are right.
Both sides are wrong.
It’s a wash.

Jon Murphy December 9, 2011 at 4:24 pm

I didn’t see Methinks had posted before I had.

So, edit to the opening sentence:

Ladies and gentlemen, Please!

GiT December 9, 2011 at 4:36 pm

Why should ‘ the left’ be unconcerned if ‘the right’ is using spurious arguments to advance its policy prescriptions?

Both parties may be idiotic in general, but on this specific issue the idiocy goes one way. Republicans are using a bullshit argument, and Democrats are saying the argument is bullshit. There is nothing idiotic about calling out another’s bullshit.

GAAPrulesIFRSdrools December 9, 2011 at 11:43 pm

The Democrats work in bullshit like Michaelangelo worked with paint.

Methinks1776 December 9, 2011 at 4:49 pm

As NPR notes, some small businesses report their operating profits on their owner’s personal income taxes. This, of course, would mean that some business owners pay a higher tax rate than they would otherwise. The proposed tax increase would increase that rate.

Where are you going with this? Small businesses are generally organized as either an LLC or a partnership. Both are “disregarded entities” for tax purposes. They wouldn’t be organized this way if it resulted in a higher tax bill. In fact, incorporating means double taxation.

All an increase in the income tax rate would mean is a lower after tax return on investment. Full stop.

It’s not a wash even in theory. Payroll is pre-tax expense. In theory, your current employees will cost you slightly less and that will offset a little bit of the rate increase on the owner. by increasing profit margins.

But, the payroll tax holiday is temporary. By the time the employee makes it up the learning curve, you’ll only get a few months of productive work out of him before the tax holiday is over. Why would any business hire permanent employees based on a temporary tax break?

Of course a personal tax on a group of people will not affect hiring.

I think you’re looking at this too narrowly. A business hires when a business grows. Income taxes reduce return for a given level of risk. When taxes increase, fewer projects are worth undertaking. That, in an indirect way, reduces hiring by depressing economic activity.

Personal tax rate is not unimportant because it effects the return for a given level of risk and employment tax is not unimportant because it effects the price of labour. Although, I’m not so sure the employment reduction accrues to the business owner. It seems to me that it would accrue to labour.

Jon Murphy December 9, 2011 at 5:16 pm

“But, the payroll tax holiday is temporary. By the time the employee makes it up the learning curve, you’ll only get a few months of productive work out of him before the tax holiday is over. Why would any business hire permanent employees based on a temporary tax break?”

You’re getting ahead of me :-P

Methinks1776 December 9, 2011 at 5:20 pm

Well, catch up!

Methinks1776 December 9, 2011 at 5:50 pm

I just did a “back of the envelope”. I didn’t include all the other taxes the Dumbocrats would like to pile on – like the special penalty for being too successful. Just looking at eliminating the Bush tax rate cuts (they were not actual tax cuts), it’s not a wash.

If a revenue is 200 and the only expense is labour (100), then the the income to the business owner is 100. After the 35% tax (let’s assume no other income taxes), his income drops to $65.

I think employment tax is nearly 16% (I’m including the medicare portion). The break is on half the rate, I think – call it 8%. Expenses are reduced by about $7. The pretax income jumps to 107. At a 40% tax rate, the owners after tax income drops to $64.22 from $65 (before the employment tax break and after the income tax increase). The tax increase is not offset by the employment tax break.

But, I don’t think this is how it works. I believe the tax break is on the employee’s “portion” of the tax. That is, the employee sees an 8% increase in his paycheck. The Employer’s costs don’t go down since the employer must continue to pay his portion of the FICA on behalf of the employee. I suppose advocates assume that means that employers can lower wages because of the tax break, but short of that assumption, I don’t understand how this particular tax cut is supposed to boost employment or offset any of the tax increases politicians are salivating over. Especially if it’s temporary.

Methinks1776 December 9, 2011 at 5:57 pm

Bad math. $108, $64.8 after tax. Sorry.

Jon Murphy December 9, 2011 at 7:08 pm

“Well, catch up!”

Some of us have to work for a living! :-P

See my post below.

g-dub December 9, 2011 at 10:39 pm

mt> The Employer’s costs don’t go down since the employer must continue to pay his portion of the FICA on behalf of the employee. I suppose advocates assume that means that employers can lower wages because of the tax break, but short of that assumption, I don’t understand how this particular tax cut is supposed to boost employment or offset any of the tax increases politicians are salivating over.

I agree, and maybe that is what they are claiming, but doesn’t “no boost” also mean on the other side that the payroll tax deduction uncertainty has no effect on an employer’s propensity to hire?

I mean, won’t this only affect the payroll tax for the owner alone? (That isn’t to say his/her total net doesn’t affect decisions.)

Sorry if I have misread it; late friday wine time shortens my already diminished attention span.

Methinks1776 December 9, 2011 at 11:14 pm

If you’re evaluating a project, you evaluate it by discounting the estimated future free cash flow. Labour is the largest expense for most businesses. Ceteris Paribus, reducing the cost of labour increases free cash flow and increases the value of the project. This is a big deal since a decrease in estimated future costs can lift a marginal project from uneconomic to economic. If more investments are projected to be economic, then it’s not so far-fetched to assume that more labour will be demanded to carry out those projects.

If this is the thinking behind the boosting employment argument, then I can’t disagree. However, the pre-FICA tax wage would have to come down for the employee (the after FICA tax wage would not) for the savings to accrue to the employer.

However, if the tax break is only temporary, then it’s going to do exactly nothing. Imagine the insignificance of a dip in expenses for one year in a model that assumes perpetuity – or at least many years (depending on the project).

It’s ineffective primarily because it’s temporary. IMO.

g-dub December 10, 2011 at 12:08 am

Yeah, I think I get what you’re saying. Any + effect to hire relies on being able to pay slightly less than otherwise due to the cushion provided by the payroll tax deduction to the employee. Plus, the temporary nature obviates even that.

But minus that presumption of available lower pay, the effect is zero. It would take a sustained lowering to drive to the “new equilibrium” — an integration of the cushion.

I thought I heard Obama on TeeVee making associated claims about putting $1k in the pockets of family’s this next year due to sustaining this temporary reduction. That’s fine — as a transient, it may just do that, but it would do little more, as I think we agree.

Methinks1776 December 10, 2011 at 8:32 am

I guess it can be argued that taxing labour would make it cheaper to the employer than it would otherwise be. It’s an empirical question, but I suspect that even a permanent reduction in the cost of labour would be more than offset by rising regulation and threats of increased taxes, which would make more projects uneconomic.

The whole thing is sold, though, as the TOTUS said, as a way of giving more money to employees (the government giveth and the government taketh away). It’s just a blatant attempt at vote buying.

Ryan Vann December 9, 2011 at 3:19 pm

How is this for an explanation of “inadequate private investment,” the entire financial system appears to be fraudulent. This goes beyond mere cautiousness about policy or animal spirit uncertainty.

Charlie December 9, 2011 at 3:30 pm

There is a lot of macroeconomics study of “regime uncertainty.” The reason Higgs’s work is not more influential is that his definition of regime uncertainty has to do with a change in the guarantee of private property rights. That ends up not holding empirical weight. For a recent example look at (http://www.stanford.edu/~nbloom/uncertaintyshocks.pdf).

When uncertainty is actually measured, it tends to be much more dependent on changes in monetary policy, war, resource shocks, and not property rights that causes effects. It’s not that people haven’t looked; it’s just that it doesn’t matter very much.

If you really disagree though, I encourage you to write the paper. Find a reliable data set, build a measure of uncertainty, and team up with someone who knows Recursive Dynamic Macro. If you have a good method, the paper would be extremely influential. Maybe team up with Lee Ohanian. He’s been working on such questions, but so far his results aren’t large enough for the kind of influence you want.

muirgeo December 9, 2011 at 3:47 pm

I love Don’s example of regime uncertainty at work, ”

“Consider, in this light, a lament, from a business executive named “Mr. Young,” given to New Dealer Raymond Moley immediately following a 1939 hearing of the U.S. Temporary National Economic Committee:

Therefore, the extent to which adventurous men and adventurous dollars are discouraged or paralyzed, you will have idle dollars awaiting investment and idle men awaiting employment. Indeed, you will have more, you will have stagnation of spirit, you will have so-called realism, which for the most part, as now used, is another name for destructive cynicism, in place of productive imagination and daring action. If the success of men and dollars in productive enterprise is to be scorned, rather than honored, if it is to be penalized by taxation, other than for revenue purposes, or be blackened by suspicion, there will be no adventure and no spirit of adventure, and, consequently, restricted opportunity for savings.[3]

His lament was followed by I believe some 25% increase in investment… and somethinglike 10% growth in GDP.

Regime Uncertainty = Economic Mysticism

GAAPrulesIFRSdrools December 9, 2011 at 4:09 pm

And in 1939, uncertainty was reduced as it became clearer that HItler was going to be a BIG problem and there would be no more screwing around with frivolous prosecutions of former Treasury Secretaries (Mellon) for taking legimate tax deductions or poultry merchants (Schecters, among my personal heros) for engaging in the cardinal sin of haggling.

g-dub December 10, 2011 at 12:13 am

As war loomed, the “brain trust” theorists were “out,” and business people were “in” for FDR, as he needed people with actual administrative skills to run the war machine.

Getting rid of the “brain trust” was the first step to recovery.

Slappy McFee December 9, 2011 at 4:46 pm

Tell me good doctor, is it easy or difficult to comply with a health care law that was signed into law in March of 2010 and the rules have yet to be fully written?

Or, as I suspect, do you believe that regulations are a free lunch and provide benefits to companies regardless of what they are?

muirgeo December 9, 2011 at 4:56 pm

In countries where they have universal public health care it’s very easy. The government provides the care and business’s don’t even have to consider it. In our country where the private health insurance lobby is strong it’s difficult indeed for companies to sort thorugh the morass of legislation they might need to comply with that serves mostly the interest of the health insurance and phamacuetical mafias not those of other businesses or of people seeking health care.

Again ours being the ONLY country that allows for profit health insurance and hospitals is the one that eats up 17% of GDP compared to those with no for profit health care where it is more like 10% of GDP and EVERYONE is covered. In those counties people leave one job to the next with out concerns about health coverage and our more free to start their own business.

muirgeo December 9, 2011 at 10:47 pm

The government provides the care and business’s don’t even have to consider it.

Government provides the care whether patients want it or not, or whether they like it or not. And the resulting lack of expensive cutting-edge treatments, combined with longer waiting periods even for screening tests, does a lot to explain why you have a 16% greater chance of dying from cancer in Canada than you do in the U.S.

But who cares? The point is that the ineffective treatments are free. The point is not to have effective cancer treatments; it’s to have free treatments. Clearly, then, the Canadian government is benevolent and greatly loves its people. The U.S. should be so lucky to have a government that loved its people enough to kill them like that.

But then, I’m a humanitarian. I’m a doctor.

GAAPrulesIFRSdrools December 9, 2011 at 11:48 pm

We need to OCCUPY med street!!! Doctors charge way to much

Of course you could go to any of those Nirvanas, as my grandmother used to tell me when I was five and threatened to run away, don’t let the door hit you on the backside, need change for the cab?

muirgeo December 9, 2011 at 4:48 pm

On regime uncertainty Don states, ” In fact, regime uncertainty is a more substantive—and, hence, a scientifically more legitimate—”

Notice all the “scientific” evidence that follows on as support of the claim. Like the thorough discussion of the current lowest marginal tax rates, the current lowest overall tax rates, the current lowest corporate tax rates, all in a very long time. Or the discussion of the trade agreements or the deregulatory regime of the last 30 years and of the Obama tax cuts.

Notice the detailed discussion of the complete Republican lead gridlock that makes passage of any significant reforms completely unlikely and should squelch any concerns of regime change possibilities. In fact, for the profiteers this is the most certain of times ever… and that’s why corporate profits are at an all time high while the true economy and jobs are going no where. Notice the discussion of free money from the Fed being invested in T-bills and how certain a bet that is.

Again to any reasonable person watching and reading Don’s claims of regime uncertainty it’s clear what a pathetic attempt this is to hold up a clearly dead ideology. It is right up there with their claims that Hoover was a Keynesian interventionist. It’s very sad to see such an aversion to reason… to objectivity and to reality itself.

muirgeo December 9, 2011 at 6:59 pm

I just checked in with the small business people and once again they said sales were their number one problem…

“Sales remain a major problem for small firms—26 percent of the owners indicated, “poor sales” is their top business problem, apparent in the frequency of reported weaker sales trend.”

http://www.nfib.com/research-foundation/surveys/small-business-economic-trends

Those bastards… they don’t believe in the Uncertainty Fairy…. next they’ll try to destroy Christmas.

Sam Grove December 9, 2011 at 7:54 pm

Duh!

Doctors are useful for observing symptoms after all.

brotio December 10, 2011 at 2:12 am

http://www.youtube.com/watch?v=rXEASHre_Nw

Between 3:20 and 3:30 of this video, Yasafi explains why he can’t be outsmarted.

Jon Murphy December 9, 2011 at 7:07 pm

Let’s look at a real-life and current example of regime uncertainty: the payroll tax cut.

The payroll tax cut was introduced and passed with the goal of increasing employment. One year later, the tax has been…less than thrilling. Why is this? I propose a cause could be regime uncertainty.

Before I continue, I want to make perfectly clear I am not suggesting regime uncertainty is the cause of the payroll tax cut facing problems, or even it is a major cause. I am just suggesting it is a cause.

So, why has the tax cut faced headwinds? When one cuts taxes, consumption is supposed to increase, right? Shouldn’t a cut in the tax, thus reducing the cost of hiring, increase hiring? Yes, IF IT IS PERMANENT. A temporary tax cut is essentially a tax hike. Think about it like this: if you hire a worker and, for the first 6 months of his employment for you, you are paying 6% payroll tax. Suddenly, that 7th month is January. The cut expires. Now you are playing 10% tax on that employee. You’ve essentially had your rate hiked. Why would a temporary cut spur you, as an employer, to hire?

Now, it’s December. Congress is debating about the cut. Why would you hire now if the cut will just expire, either next month or some time down the road? Likewise, what if you are just hiring for the season (November thru January). If you do not know what taxes you’ll pay on your workers (whether they’ll stay the same or increase), you don’t know how many you can/should hire.

Just some food for thought

Methinks1776 December 9, 2011 at 7:31 pm

Now layer eternal unemployment benefits into this and see what kind of mess you come up with.

Sam Grove December 9, 2011 at 8:04 pm

Regime uncertainty? Ha!

Soak the rich.

muirgeo December 9, 2011 at 9:29 pm

Yeah,… we wouldn’t want to soak the rich. The rich provide all the jobs. That’s why now that they are richer then ever there are so many jobs… yeah it’s tough to keep up with your brilliance Sam.

GAAPrulesIFRSdrools December 9, 2011 at 11:50 pm

Pony up jerk, you are a doctor, so write a check to the treasury.

No doubt you’ll pull a Clinton and try to get a charitable deduction for your underwear.

Sam Grove December 10, 2011 at 12:50 pm

Point….missed.

Sam Grove December 11, 2011 at 11:19 pm

See, you jumped off in your own direction and thoroughly missed the point which is in the context of regime uncertainty and not income differential.

kyle8 December 9, 2011 at 11:04 pm

How is Regime Uncertainty any different than the Ricardian Equivalence?

Ricardo said that the expectations of higher taxes, or higher inflation due to government spending would effect the markets whether the funding was done by taxes or inflation.

It seems to me that that is the very heart of what we call Regime uncertainty.

When the government embarks on a variety of silly and non-economic schemes, then the expectation is that either taxes, or inflation will of necessity increase to pay for these follies.

It seems that many people (mostly Keynesians ) have poo-poo ‘ed the Ricardian Equivalence, but in my mind, it is very real. ESPECIALLY in modern times.

Consider this, in the nineteenth century, perhaps it was difficult to discern a real Ricardian Equivalence since the levels of government borrowing was low. However, in the present day, we have huge, unprecedented increases in government debt, we have an actual decrease in our bond ratings, and we have the example of several European nations currently defaulting on their debt.

THAT! it seems, might well lead to regime uncertainty.

Ryan vann December 11, 2011 at 7:02 pm

Ricardian Equivalence is constrained to tax policy. Regime uncertainty is much more broad.

Randy December 10, 2011 at 6:44 am

Not seeing how either “regime uncertainty” or “animal spirits” can be measured, but in an environment in which political behavior plays such a significant role both concepts are most meaningful in their relationship to the political behavior. That is, while any change in one of many millions of market relationships can be only an insignificant factor to the total environment, any change in political behavior is always a significant factor because political behavior is so large an element of the economic environment that it is always a significant factor.

Indeed, it seems to me now that the entire purpose of any “theory” of “aggregates” is an attempt to make the impact of market relationships seem meaningful in comparison to the impact of political behavior… an attempt to focus blame somewhere else.

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