Since the Great Recession of 2009, regime uncertainty has been elevated. This has been measured by Scott R. Baker of Northwestern University, Nicholas Bloom of Stanford University and Steven J. Davis of the University of Chicago. Their "Economic Policy Uncertainty Index for the U.S." measures, in one index number, Higgs' regime uncertainty. In addition, there is a mountain of other evidence that confirms the ratcheting up of regime uncertainty during the tenures of Presidents George W. Bush and Barack Obama. For example, Pew Research Center surveys find that the percent of the public that trusts Washington, D.C. to do the right thing has fallen to all-time lows.
So, President Trump has inherited a legacy of regime uncertainty, which has caused both private investment and productivity to sag. Trump's challenge will be to reduce regime uncertainty, and also introduce tax and regulatory policies that encourage private investment. If he fails, private investment and productivity will continue their downward secular trends, and the economy will continue to underperform.
Just how bad is Trump's inherited legacy? As the accompanying chart shows, gross private domestic business investment, which does not include residential housing investment, has rebounded modestly since the Great Recession. But, most of this gross investment has been eaten up in the course of replacing capital that has been used up or became obsolete. Indeed, the private capital consumption allowances shown in the chart are huge. While these capital consumption figures are approximate, they are large enough to suggest that there is little left for net private business investment. This means that the total capital stock, after actually shrinking in 2009, has grown very little since then. This is bad news, as productivity is dependent on the quality and size of the economy's private capital stock.