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Thursday, November 4, 2010

Gridlock and Regime Uncertainty

They aren't the same.

For those of us who want to see the role of the State reduced in the bedroom, the boardroom, and the war room, election day always brings mixed feelings.  However, the one outcome that sometimes cheers us up happened this week: one party in control of the presidency and the other in control the Congress.  What is often called “gridlock” is often good for freedom, at least in relative terms, since it checks the power of any either party to ram through its nearly-always anti-freedom agenda.

In the current environment, anything that halts the forward march of government control over economic decision-making would be a good thing.  This is particularly so because the economy currently seems to be suffering from what economic historian Robert Higgs calls “regime uncertainty.” For Higgs this term refers to the uncertainty generated by government policies that generally trend toward more State control.
Even proposals that have passed, such as health care and financial “reform,” are so complex and confused that no one is sure exactly what they will mean for the business community.  As a result, Higgs argues, the private sector hesitates to invest.

With both a Democratically controlled Congress and presidency for the past two years, this sort of uncertainty has been solidly in place.  One would think that divided government might end that uncertainty.  More recently, though, some observers have argued that Republican control of Congress might actually increase it because many new members, especially those associated with the Tea Party, will be trying to pass major legislative changes, such as repealing the health care law, reforming the Fed, or trying to put major limits on other government spending programs.  These possible shifts in policy, it is argued, creates new uncertainty.

Not Paralysis

I think this argument misses a fundamental point about the nature of the uncertainty generated by bad government policy.  The term “gridlock” itself is part of this confusion since it suggests that with divided government comes paralysis.  When the two parties check each other’s worst tendency, nothing “gets done,” and it is assumed that is bad.  This of course treats anything government does as good and ignores that most of the good in the world “gets done” by individuals, families, and firms figuring out new and better ways to do things in the private sector and civil society.  To the extent that “gridlock” slows or halts the growth of government, it enhances, at least in relative terms, the freedom of people to make those improvements in their own lives and those of others.  That’s not “gridlock” or “paralysis;”  that’s an expansion of the range of human freedom.

To the degree that gridlock stops the growth of the State, it stops the growth in uncertainty inherent in enlarged State power and provides some hope for the private sector that it will be able to get on with its business without having to worry about what the next set of regulations or taxes will be.

Rolling back the size of the State simply extends this same argument.  It’s true that eliminating programs or whole agencies or departments, or dramatically reducing spending, changes the rules under which the private sector operates.  The critics would say this increases regime uncertainty.  But they misunderstand the central point:  The source of uncertainty is the discretion that comes with State power. Rolling back the State changes the rules, but does so by eliminating the source of regime uncertainty.  It is State power that both tends to expand and does so in complex and unpredictable ways.  Returning power to the people gives them more control over their lives and thus reduces the debilitating uncertainty that is hampering recovery.

Divided government’s gridlock does not halt recovery.  Instead, it stops, or at least slows down, the growth of the State and the discretionary power that destroys the incentives for wealth creation in the private economy.  Regime uncertainty is indeed a serious problem, but it’s a problem that is part and parcel of giving increasing power to politicians and bureaucrats.  Their ability to change the rules on a whim or use them to attenuate private property rights, and do so in ways that are more complex than the citizenry or the bureaucracy itself can understand, causes regime uncertainty.

The world of divided government is no utopia, but it is probably the best we can hope for in a world of ever-growing State power.  We will know more in two years, but the most optimistic scenario is that during that time we will have each party blocking the worst instincts of the other.  We could do a lot worse than a stalemate, as the last two years demonstrate.

  • Steven Horwitz was the Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University, where he was also Director of the Institute for the Study of Political Economy. He is the author of Austrian Economics: An Introduction.