Regime uncertainty

In some of the recent commentaries on the current financial problems in the US an idea that is being mentioned is that of "regime uncertainty". For example at Cafe Hayek Don Boudreaux writes

What I find most scary about the current market turmoil are the shenanigans it fuels on Capitol Hill and its immediate environs.

Uncle Sam is, I worry, on the verge of creating the same kind of "regime uncertainty" that Bob HIggs effectively argues deepened and prolonged the Great Depression.

while Peter Boettke at The Austrian Economists blog says,

To my mind, one of the most important economic concepts to be developed in the past decade is Bob Higgs's idea of "regime uncertainty" and the application to which he has put that concept to use to explain the deepth and length of the Great Depression. Given the earlier application, the relevance of the concept of "regime uncertainty" to our current situation should be evident.

As pointed out by both Boudreaux and Boettke the notion of regime uncertainty is due to the economic historian Robert Higgs. Higgs introduced the idea in a paper Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War. His purpose was to explain why the depression lasted so long in the US. Higgs writes,

I shall argue here that the economy remained in the depression as late as 1940 because private investment had never recovered sufficiently after its collapse during the Great Contraction. (p.563)

The Great Contraction refers to the macroeconomic collapse that occurred between 1929 and 1933. Higgs goes on to say,

I shall argue further that the insufficiency of private investment from 1935 through 1940 reflected a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns. (p.563)

If businesspeople are uncertain as to whether or not they will capture the returns to their investments they will be reluctant to invest. Later Higgs explains,

The hypothesis is a variant of an old idea: the willingness of businesspeople to invest requires a sufficiently healthy state of “business confidence,” and the Second New Deal ravaged the requisite confidence. (p.568)

and

To narrow the concept of business confidence, I adopt the interpretation that businesspeople may be more or less “uncertain about the regime,” by which I mean, distressed that investors’ private property rights in their capital and the income it yields will be attenuated further by government action. (p.568)

While Higgs work was to do with the depression of the 1930s in the US, I wonder if the idea can not also be applied to recent New Zealand economic history, perhaps right up to today. As Bryce Wilkinson explains in the preface to his recent report A primer on property rights, takings and compensation,

Yet ill-justified confiscations of property rights continue to abound, be they foresters' cutting rights, developers' and landowners' rights, the foreshore and seabed issue, or investors' rights to the infrastructure they own and even their rights to freely buy and sell shares. Some of these takings have treated individuals unjustly and polarised communities. Investment confidence and potential economic growth have been undermined. (emphasis added)

Higgs makes the point that

Such attenuations [of property rights] can arise from many sources, ranging from simple tax-rate increases to the imposition of new kinds of taxes to outright confiscation of private property. Many intermediate threats can arise from various sorts of regulation, for instance, of securities markets, labor markets, and product markets. In any event, the security of private property rights rests not so much on the letter of the law as on the character of the government that enforces, or threatens, presumptive rights. (p.568)

Higgs later notes, with regard to the depression era in the US, that

... during the next two presidential terms, the Roosevelt administration proposed and Congress enacted an unparalleled outpouring of laws that significantly attenuated private property rights. (p.570)

Wilkinson notes in the New Zealand context that

The New Zealand Bill of Rights Act does not acknowledge any human right to the quiet enjoyment of one's possessions, let alone to private property in general. The Resource Management Act allows possibly ephemeral political majorities to dictate, within limits, the use to which private land is put without the consent of landowners and without compensation.

while in the introduction to the Wilkinson report Richard Epstein writes

In order to illustrate this theme, the report details the conflict between two visions of land use regulation: the classical liberal theory on the one hand and, on the other, the more interventionist attitudes embodied in other New Zealand statutes, most notably the New Zealand Bill of Rights Act 1990 and the Resource Management Act 1991. The former statute is noteworthy for its refusal to consider the right to own and retain private property as one of the fundamental freedoms in New Zealand. The latter statute is not directed toward ownership and retention of property but toward limiting its use. And the statute explicitly allows the state through its planning agencies to limit any future use or development of property unless it is done in accordance with some proposed plan on either a district or a regional level.

The governments willingness to interfere with the rights of owners of infrastructure, as in the case of Telecom, or the rights of owners of shares to freely buy and sell those shares, as in the Auckland Airport case, are examples which raise concerns about the security of property rights. But the current period is not the only one in recent New Zealand history in which it could be argued that property rights have been under attack. Under the National governments of Robert Muldoon property right could be seen as being insecure. The economic question this raises in what effects has this regime uncertainty had on private investment in New Zealand and indirectly on our productivity? Have we seen the same chilling effect on investment in New Zealand as Higgs showed for the US during the depression? Is such uncertain a cause of New Zealand's recent poor economic performance?