Reason for Slow Recovery: Bad Government

Here is Gary Becker:

While slow recoveries from major financial crises are common, employment would have increased considerably more rapidly, and unemployment would have fallen much faster, were it not for several factors special to this recovery. Scott Baker, Nicholas Bloom and Steven Davis have studied changes in economic policy uncertainty since 1985, and have constructed an index of the degree of economic policy uncertainty during the past 26 years (see their “Measuring Economic Policy Uncertainty”)…

[S]ome of the uncertainty during this financial crisis was avoidable if Congress and the president had not passed an ineffective stimulus package over a divided Congress, if they had resolved the budget deficit and debt ceiling issues (especially by trying to get entitlements under control), if agreement on tax policy toward broader and flatter taxes had been achieved, and if clearer policies were adopted about which companies would be allowed to go bankrupt and which would be bailed out.


Comments (4)

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  1. Brian Williams. says:

    The Uncertainty during President Obama’s term has never fallen below the Uncertainty we felt on 9/11.

  2. brian says:

    Let’s say the tax laws do not expire – that would certainly bring down the uncertainty. But by how much? From the graph, it looks like the debt ceiling issue is one of the biggest causes of the uncertainty. Also, would the Eurozone crisis worsening in the coming years prevent the uncertainty index from improving considerably?

  3. Vicki says:

    Wow. One graph says a lot.

  4. Devon Herrick says:

    These issues Becker raises are all important. Another aspect that I believe people ignore is that in a bubble economy after years of prolonged expansion, there is an excessive amount of bad investments. These take years to unravel. Money tied up in bad real estate cannot easily be recovered. Neither can money be recovered that is spent hiring and training people, and building companies that are not sustainable in a normal economy.