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    Dysfunctional Governance Kills Jobs – Duh!

    10/12/2011

    4.  Moral and Legal Authority

    A government with moral and legal authority promulgates written rules and universally, impartially and uniformly enforces the rules, which provides a predictable and stable legal order on which to base economic and personal decisions.  The law prevails, not the proclamation or arbitrary decision of a ruler, government bureaucrat, the enforcer (e.g., policeman) or judge.

    “Measuring Economic Policy Uncertainty” by Scott Baker, Nicholas Bloom and Steven J. Davis,

    Dysfunctional Governance Kills Jobs – Duh!  

    A stable and predictable legal order in which citizens use to base economic and personal decisions is essential for prosperity.  Currently, America lacks a stable legal order. 

    Scott R. Baker, Nicholas Bloom and Steven J. Davis are three scholars who have concluded that incoherent policies imposed by government will substantially cause uncertainty, which  in-turn cripples economic growth.  Bloomberg reports:

    A major factor behind the weak recovery and gloomy outlook is a climate of policy-induced economic uncertainty.  

    As common sense would dictate, uncertainty restricts people – consumers, investors, and business executives – from expanding economic activity.  In particular, Baker, Bloom and Davis found that incoherent policies and politicalone-upmanship stifles economic growth.  As shown in their research:  

    … it reflects deliberate policy decisions, harmful rhetorical attacks on business and “millionaires,” failure to tackle entitlement reforms and fiscal imbalances, and political brinkmanship.

    As it relates to present day America, the scholars found the uncertainty created by ObamaCare, the conflict between the National Labor Relation Board and Boeing, the debt ceiling imbroglio, scheduled expirations of the Bush/Obama tax cuts, tax code changes attached to the American Jobs Act, and the ongoing debt crisis in Europe and failure to restructure Social Security and Medicare are incoherent policy decisions thwarting economic growth.  

    How much do our dysfunctional Congress and President affect the economy?  Baker, Bloom and Davis proferred 2.5 million jobs would be gained.

    We estimated that restoring 2006-levels of policy-uncertainty would yield an additional 2.5 million jobs over 18 months. Not a full solution to the jobs shortfall but a big step in the right direction.  

    Additionally, ideology-driven restrictions on energy and environmental regulations greatly suffocates economic expansion and jobs.

    When government provides a stable and predictable legal order, America will rebound with exceptional speed.  To date, all the other gimmicks have failed and only a stable and predictable legal order will free Americans to save, invest and purchase.  This is the basis of a great society.  

     

    *Scott R. Baker and Nicholas Bloom are economists at Stanford University. Steven J. Davis, an economist at the University of Chicago Booth School of Business, is a contributor to Business Class. The opinions expressed are their own.