Tuesday, March 15, 2011

Making FDR's Mistake III

My contention for the last couple of years is that investment is being held back by uncertainty. A lack of investment means a painfully slow recovery. Businesses have plenty of money available to invest and banks have plenty of excess reserves to lend. Neither is happening because businesses are uncertain about their future costs as well as the future regulatory regime being put in place by the federal government.

Alan Greenspan made the same point, with a lot more clarity and precision earlier today.

What is most notable in sifting through the variables that might conceivably account for the lacklustre rebound in GDP growth and the persistence of high unemployment is the unusually low level of corporate illiquid long-term fixed asset investment...

I infer that a minimum of half and possibly as much as three-fourths of the effect can be explained by the shock of vastly greater uncertainties embedded in the competitive, regulatory and financial environments faced by businesses since the collapse of Lehman Brothers, deriving from the surge in government activism. This explanation is buttressed by comparison with similar conundrums experienced during the 1930s.

In other places, this is referred to as "regime uncertainty."



Anonymous Anonymous said...


March 17, 2011 at 8:01:00 PM MST  

Post a Comment

Subscribe to Post Comments [Atom]

<< Home