Macroscope | Regime uncertainty posing problem to US economy
Not all rosy in America as current policies point to more subdued confidence and low rates of bank money and credit growth
Shortly after the Great Recession started, I wrote a column in December 2008 titled "A Great Depression?" In it, I stressed the findings contained in Robert Higgs' book Depression, War and Cold War: Studies in Political Economy.
Higgs concluded that because of regime uncertainty, investors were afraid to commit funds to new projects during the Depression. They simply didn't know what President Franklin Roosevelt and the New Dealers would do next.
I warned, back in December 2008, that regime uncertainty might pose a problem in the current crisis. As I saw it, the political classes were intent on blaming the markets. They certainly were not going to point their accusatory fingers at themselves, and neither were the world's central bankers.
Nominal final sales to domestic buyers, which is the best proxy for aggregate demand, is still rather anaemic. Its current year-on-year growth is only 3.9 per cent - well below the trend of 5 per cent. So, the US remains mired in a growth recession.
Thanks to continued regime uncertainty and weak monetary growth - broad money is only growing at a 2.5 per cent annual rate - the economy has failed to lift off.