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Have your student look at this report as well:


The significance of this is not being discussed for the political economy problems that have to be addressed.


Since you like to blame Obamacare for the current round of regime uncertainty, it might be worth noting that recent polls suggest that the largest element of that is the uncertainty over whether or not it will be implemented, aggravated by all the lawsuits bringing brought against it.

These polls also suggest that two items contributing more to current uncertainty are the eurozone crisis and the near failure of the Congress to raise the debt ceiling during the summer, something unprecedented in the 94 years the US has had a debt ceiling, and which was the immediate trigger for the debt downgrade the US has received.

Oh, while I am at it being an annoying you know what, let me also note that the most recent decline lpfr appears to be mostly among women recently laid off by state and local governments, the main sector that has been responsible this year for declining employment.

So that explains it. Those state attorneys-general bringing those lawsuits against Obamacare have increased regime uncertainty, which has led to the state and local governments engaging in a wave of major layoffs, partially offsetting the private sector job creation that has been going on for over two years now. Right?

Definitely Steve - I think the regime uncertainty arguments make a lot of sense. But the issue is precisely what Barkley raises - identifying an instance of regime uncertainty and differentiating regime uncertainty from regime certainty is not particularly straightforward.

The empirical liabilities associated with stimulus/austerity are primarily associated with identifying the model. People can't simply point to the Romer-Bernstein chart and think they've established the failure of stimulus because of all the counterfactual issues we all know about. That's all well understood, and the problem is identifying the model - not deciding what is and isn't "government spending".

The empirical liabilities associated with regime uncertainty are much greater. It has all the endogeneity concerns that come with stimulus spending that are often not carefully dealt with. In addition, simply identifying an instance of "regime uncertainty" is much harder than identifying an instance of "government spending". Some of the worst discussions of regime uncertainty seem to assume that entrepreneurs see the world and assess policy the same way that libertarian economists do. That's not a very easily defended assumption!

It's not my imagination Barkley, it's businesspeople themselves reporting that health care issues are the number one source of uncertainty. And every time I've spoken about this point, I note that it's not just the content of the law, but the question of whether it will be repealed or held unconstitutional that's part of the problem. Of course even if it survives, a huge issue is the amount of administrative interpretation and discretion that will be required in its wake. That's a huge issue, regardless of the particular decisions that implementers might make.

I can understand that regime uncertainty (or other things that cause business to be perceive a higher level of risk) will cause a drop in investment (a movement of the demand curve for investment funds to the left).

Its less clear to me why this should cause people to take themselves out of the labor market. Would not one expect the regime uncertainty to cause a drop in the demand for labor that would cause a movement along the supply curve but that the supply curve would itself remain unchanged ?

I strongly suspect political intervention here manipulating the numbers.

I wonder about the impact that Obama snare (not care) is having on physicians' behavior. Specifically I wonder if some are putting in more hours now to earn more dollars now, anticipating the caps of physician charges that will kick in under Obama snare? If there is an uptick in procedures physicians are performing there might be an interesting research project for some economist(s) with more time than I have available at the moment.

If government mandates that firms pay for their employees health care, that will reduce the demand for labor at any given wage rate. If wages are sticky downwards, then firms expecting this to happen will demand fewer workers now.

If the program is implemented, the firms will start paying for the health care and the currently low wage part of compensation will be equilibrium. If they program is bloked, then workers will get raises.

Anyway, the amount of money firms are willing to pay now will be depressed. Added to a higher minimum wage, employment will be depressed.

All of this will heavily impact low wage workers. The high unemploment and the falling labor force partication rates for younger workers fits this.

I don't think using "regime uncertainty" helps. The prospect of requiring benefits for low wage workers is nothing like Roosevelt railing against economic royalists. Tying that to our current situation fits in better with right wing propaganda about how Obama is the most socialist President ever.

Liquidationist -
re: "Its less clear to me why this should cause people to take themselves out of the labor market"

I think labor market categories need to be thought about very carefully - it's not as clear cut as a single statistical definition that corresponds to a supply and demand curve. We have a pretty good grasp on "employed" and what that means. That's everyone to the left of the employment level on a supply and demand graph.

If you are not employed you are "jobless". Jobless means everything to the right of the employment level on a labor supply and demand graph.

We like to make these pronunciations that "unemployment" is labor surplus (it's not) or that "discouraged" workers are not on the supply curve (maybe, maybe not - maybe they are happy to supply labor at a somewhat higher reservation wage and are passively open to job opportunities but just tell the survey administrators they aren't looking for work).

It all gets very muddled very quickly. "Employment" is much easier to explain with economics than "unemployment"/"discouraged"/"out of the labor force". Those groups are at least as much about how people think about themselves as they are about economics.

I agree.

Assuming those "discouraged workers" would actually take work if they could get a high enough wage, then the term would imply that they have simply given up hope (if they were thinking in terms of economic theory) of the demand curve for labor shifting back to the right and allowing that to happen. If that is a correct assumption then they would still contribute to to the supply curve even in their discouraged state.

You have raised the idea that regime uncertainty, by suppressing or delaying capital investment, may likewise indirectly suppress or delay hiring labour complementary to the capital investment. Seems reasonable, although I suppose in some cases it could conceivably encourage the hiring of labour which is a substitute for the capital, on the presumption that the potential for sunk costs is lower, e.g., hiring 40 guys with shovels for the afternoon rather than buying one snow plow (I'm Canadian). Costs of hiring and firing and government-mandated minimum labour costs would obviously affect the decision.

I have always assumed that regime uncertainty, if present, would also directly affect not only the capital investment decision but the hiring decision. There are sunk costs or costs that are not easily reversed/repurposed associated with hiring more staff (search, training, office space leases, office furniture & equipment, potential government or union imposed constraints on downsizing, etc.), as well as costs associated with letting them go. Regime uncertainty might also affect the labour supply side as well, given that there can be (often significant) sunk costs and opportunity costs associated with taking a new job in a new field or new location.


This is an older post, but it bears quite nicely on your question: http://streetwiseprofessor.com/?p=5493

Attempted post but does not seem to have taken. Trying again.

Sorry, Steve, but not a single poll I see supports your claim about businesspeople claiming Obamacare top source of regime uncertainty. One example (there are others) is one for WSJ on July 11, not too long after debt ceiling raised, thus reducing it as a concern, http://wallstcheatsheet.com/stocks/new-is-small-business-poll-says-uncertainty-is-impeding-hiring.htm .

Bottom line from this on sources of hiring-reducing uncertainty? 49% said general economic uncertainty, 47% said debts and deficits, 39% said health care, 36% said overregulation.

Other stories support what I said, that a substantial part of the concern there is about health care is indeed uncertainty about whether it will be implemented or overturned, which has certainly been aggravated by all those lawsuits trying to block or overturn it.

And for the record, I am not all that much of a fan of Obamacare, although it has some good features (anybody want to go back to letting private insurers refuse to carry people with preexisting conditions?). It may be slightly better than what we had before, but not by much.

Of course, all the people who have whooped it up as socialism are totally out to lunch. It was the brainchild of people at the Heritage Foundation, preserves our largely private insurance system, and with less than universal coverage, leaving the US to continue to be the only OECD nation of which this is true. And, we shall continue to be the only OECD nation besides Mexico where more than 50% of health care will be privately financed. Socialism? Not.

And again, while maybe he changed his mind, and maybe Mises and Rothbard never agreed, Hayek did support national health insurance. Places like France and Germany do a whole lot better than either us or UK, with their intermediate systems that avoid the weird nonsense we have.

Important constitutional issues are associated with Obamacare, so the current legal status is hardly a surprise. It is not something anyone should take lightly, especially those in a position to challenge it in the courts.

President Obama, who is a former constitutional law professor, and others in his administration surely anticipated the current legal limbo.

I think folks are offering up pieces of the puzzle. For instance, Obamacare is part of the regime uncertainty. Obama has been attacking the rich and that has caused much distress among the businessmen I know.

I'd add labor mismatch, on which I've commented before. Barkely tightly brings up wage adjustment. Extending unemployment benefits for 100 weeks has turned the system into a new form of welfare. But I suspect there is still an unexplained residual.


I stand corrected on my use of "number one." It's, as you say, in the top 3 or so, close behind what you mention. Worth noting that it's the only specific piece of legislation/regulation firms mention.

This is interesting too: http://www.frbatlanta.org/news/speeches/lockhart_111110.cfm


Just a terminological point. Capital, whether thought of as capital goods or a sum of the value of such a set of capital goods can never be "discouraged."

It is capital owners and users who are discouraged. And why are they "discouraged" -- hesitant -- to employ or invest in the use of capital?

Clearly, for the reasons you and others have brought up.

I wonder if W. H. Hutt's analysis of the reasons for unemployment of otherwise scarce factors of production in his, "The Theory of Idle Resources," might not be of use here.

Richard Ebeling


I posted an extended response to your question here:

"I wonder if W. H. Hutt's analysis of the reasons for unemployment of otherwise scarce factors of production in his, "The Theory of Idle Resources," might not be of use here."

Based on this comment I read that today. I believe it is very relevant to this discussion. They key insight is that we actually are in a kind of equilibrium - its just that the supply and demand curves have been totally messed up by interventionist policy.

I'm not sure if I'm correct but many economists - including some who might claim to be free-market - seem to have come to the conclusion that we are in disequilibrium and we need more intervention on the demand-side to correct things.

One has to be careful with polls. How are they worded? What were the options?

And of course Obamacare isn't socialism. But if I were to design a system that would fail in such a way that one could blame everything on the private sector and justify complete nationalization, I would have put Obamacare in place.

More evidence that regime uncertainty is, you know, a real thing. From WSJ, courtesy of Mises.org:


(Since the question was raised) I want to go back to permitting people to interact non-coercively in a market, with regard to medical insurance and most other things as well. Barkley Rosser and others (including myself) who wish to help people in need who were unable or unwilling to make provision for their needs in a timely manner have the option of contributing charitably to that end. Nor do I place all that much stock in what other countries are doing. How many were empires and kingdoms when the US became a republic? Should our founders have followed suit?

f you missed it you can also get it online. Shipping is $3 but there appears to be no limit.

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