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Regime Uncertainty Is Real … and Dangerous

Here’s a letter to the Wall Street Journal:


Wayne Stoltenberg and Merrill Matthews make a compelling case that oil exploration, drilling, and refining will remain depressed for as long as government keeps threatening to suffocate that industry with regulation and taxes. (“Why Energy Companies Won’t Produce,” June 9). This depressed investment reflects an instance of what economic historian Robert Higgs calls “regime uncertainty,” which he describes as “a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns.”*

Ominously, regime uncertainty’s lethality to economic growth need not be confined to a single industry. Higgs documents that such uncertainty was the root cause of the Great Depression’s length:** As FDR’s administration became increasingly hostile, in both word and deed, to free markets, the entrepreneurs and investors who drive economic growth became dormant economy-wide as they feared that they’d be robbed of the fruits of their efforts and investments.

If Progressives persist in their infatuation with socialism, while many prominent conservatives demand industrial policy and draconian regulation of Big Tech, regime uncertainty will surely expand beyond the energy industry to asphyxiate much, and perhaps all, of the economy.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* Robert Higgs, Depression, War, and Cold War (New York: Oxford University Press, 2006), page 5.

** Robert Higgs, “Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War,” Independent Review, Spring 1997, pages 561-590.