The first chapter in Robert Higgs’ anthology Depression, War, and Cold War: Studies in Political Economy (Oxford University Press, 2006) is titled “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War.” This is a fitting title for a piece penned by the scholar who first nailed down the regime uncertainty idea and who rigorously dealt with it. According to Higgs:
“…regime uncertainty pertains above all to a pervasive uncertainty about the property‐rights regime—about what private owners can reliably expect the government to do in its actions that affect private owners’ ability to control the use of their property, to reap the income it yields, and to transfer it to others on voluntarily acceptable terms. Will the government simply take over private property? Will it leave titles in private hands, but strip the owners of real control and profitable use of their properties? These questions fall under the rubric of regime uncertainty.”
Higgs explains why the New Deal policies embraced by President Roosevelt generated regime uncertainty and why the Great Depression lasted so long and was transformed into the Great Duration.
Treasury Secretary Henry Morgenthau knew that FDR was turning off businessmen, private investment and the economy. The Treasury Secretary repeatedly attempted to persuade FDR to back off. Indeed, in a cabinet meeting in 1937, Morgenthau was forced to put the matter to the President and put it to him in clear terms: “What business wants to know is: are we headed toward Socialism or are we going to continue on a capitalist basis?”
The Treasury Secretary was no match for the President, however. FDR didn’t back off and the country staggered into WWII.
We are staggering again under the weight of regime uncertainty. The Wall Street Journal’s editorial “How Not to Grow the Economy” contains data that amply support that conclusion.
It’s time for a powerful insider to present President Obama with the “Morgenthau Question.”