The market is a yo-yo following the S&P downgrade – investors are searching for stability amid the policy flux created by the current Congress and Administration. Businesses and investors are struggling to create and sustain stable and accurate expectations as to the rules they are likely to face in the future. Steve Horowitz gives an example here and the extent of the problem runs much, much deeper. Property rights have become less secure by way of policies such as the deficit spending, healthcare policy, QE I, QE II, bailouts, etc, etc.
Let’s be clear: The S&P downgrade did not cause this regime uncertainty—the downgrade is a response to the existing political practices of the past few years.
The Independent Institute’s own Robert Higgs shows that this same regime uncertainty was responsible for prolonging the Great Depression. Everyone engaged in the current debate should read this article.
Murray Rothbard once said, “It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”
Policy makers and pundits that refuse to educate themselves on evidence so germane to the fiscal and economic problems of public policy have no business perpetuating falsehoods and misconceptions.