President Obama would do us all a big favor if he'd ask himself this: "Would I start or expand a business without knowing what regulations or taxes government will impose next year?"
If he'd just stop and ask that, he'd have a sense of what's wrong with the economy. He'd understand why a country that must create 120,000 new jobs each month just to absorb newcomers created only 69,000 last month.
Past recoveries were quicker. Something is different. What could it be?
Let's remember that the economy -- which is to say, us -- is already burdened by byzantine bureaucratic impositions. Every week, the feds add another thousand pages of rules and proposals for rules. Local governments add their own. My mayor, in New York City, even proposes micromanaging the size of the drinks restaurants may sell.
On top of the existing mountain of red tape, the Obama administration has piled on more, with more to come. Obamacare was less a specific prescription than a license for the Department of Health and Human Services to write new rules, lots of which are yet to be written. No one knows how the bureaucrats will micromanage health insurance.
Then there's Dodd-Frank, the 2,300-page revamp of finance industry regulation. Again, the bill left the rule-writing to regulatory agencies. Who knows what they will come up with?
Every year, Congress makes thousands of changes to tax laws. And no one can guess what will happen in 2013 if the 2001 and 2003 rate cuts expire.
There is an irresistible temptation for politicians to "do something" whenever real or imagined problems appear. The number of on-the-fly programs in recent years (from attacks on unpaid internships to Cash for Clunkers) has been astounding. This uncertainty kills job creation. If you cannot tell what will happen next week, next month, next year, why make a significant commitment? The next law or executive order might make a mockery of your plans.
America faces a humongous debt, and its trajectory is upward. If nothing changes, the whole budget would be consumed by interest payments. No politician wants that -- if only because there'll be no money to buy votes.
How will the problem be dealt with? Higher taxes? Massive inflation? Some combination? Where does that leave someone today who might, in a more stable policy environment, be eager to launch some big, long-term investment project?
In the dark, that's where.
Economist John B. Taylor of the Hoover Institution summed it up aptly: "Unpredictable economic policy -- massive fiscal 'stimulus' and ballooning debt, the Federal Reserve's quantitative easing with multiyear near-zero interest rates, and regulatory uncertainty due to Obamacare and the Dodd-Frank financial reforms -- is the main cause of persistent high unemployment and our feeble recovery."
Historian Robert Higgs of the Independent Institute calls it "regime uncertainty."
We should have learned the lesson during the Great Depression. Today's problems are nowhere close to the 1930s, but there is a similarity in Franklin Roosevelt's policy fog. Higgs writes:
"The insufficiency of private investment from 1935 through 1940 reflected a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns. ... The willingness of businesspeople to invest requires a sufficiently healthy state of 'business confidence,' and the Second New Deal ravaged the requisite confidence ... ."