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    Government and the Uncertainty Trap

    08/30/2010

    Governance and Freedom 2:

      Consistent and Universal Application of Laws

     With assurance of consistent and universal application of societies’ rules, a person plans and invests his mental, physical and wealth in opportunities to expand and exchange ideas, goods and services. 

     

    Government and the Uncertainty Trap


    It's not a lack of liquidity that's holding back our economy. Investors and business leaders are waiting to learn more about future taxes and regulations.

     In the Wall Street Journal, Thomas F. Siems of the Federal Reserve Bank of Dallas reviews the historical sequence of financial bubbles and governments’ reaction.  More important, he states what the American government must do, "provide a stable and consistent legal order."  Siems does not write about personal freedom, but his solution describes a governance system dedicated to freedom. 

    First, while the economy slumbers and unemployment prevails, nobody trusts government to provide a stable and consistent legal foundation.  New and proposed taxes and regulations thwart and retard everyone’s investment of time, talent and wealth.  Hence our economy wobbles.  As mentioned in Siems' article:

    Consumers, investors and business leaders are nervous and uncertain regarding the economic outlook, the legislation newly passed and proposed, and how federal, state and local governments will manage public finances. This uncertainty is inhibiting spending and investment and leading to slower economic growth.

    Businesses, waiting to understand the impact of new and proposed legislation, hold off hiring new workers and investing in plants, equipment and technology.

    As one CEO stated: "we are hoarding cash and postponing hiring and capital equipment decisions until the November election."

    Consumers, waiting to understand the impact that continued deficit spending will have on long-run economic growth and future tax rates, hold off making purchases.

    Investors hoard cash and sit on the sidelines

    Siems implores government to provide a stable and consistent rule of law on which investors and others can rationally make intelligent decisions:  It is plain that the government must now take much more seriously the effects of its actions on the general uncertainty and lack of confidence pervading the economy.

    The Governance and Freedom lesson:   

    With assurance of consistent and universal application of societies’ rules, a person plans and invests his mental, physical and wealth in opportunities to expand and exchange ideas, goods and services. 

    Because of new and proposed taxes and regulations, the commercial world is hoarding cash.  President Obama, Majority Leader Reid and Speaker Pelosi continue to push their legacy agendas - medical, financial, and environmental legislation.  State and local governments have serious debt problems and the federal government is printing money to bailout state employees.  All entail new taxes and regulations.  Unemployment is high.  Employers are not hiring or investing.  Our economy wallows.

    Moreover, a governance system for freedom is not only for investors and businesses.    Also essential for a free society is a stable and predictable governance system where every America can rationally anticipate the risks and rewards of investing their time, intellect, skill and money.  A stable and predictable legal order liberates and facilitates America’s greatest asset – the ingenuity, initiative and creativity of all Americans.