Regime Uncertainty and Market Uncertainty

Published by the Mercatus Center at George Mason University.

Donald Boudreaux (chapter 5) makes the important distinction between "regime uncertainty" and "market uncertainty." He draws on Bob's work on the duration of the Great Depression and regime uncertainty— the expectation by private investors that their private property rights in capital and income will be weakened through government policy. Boudreaux uses this as an entry point to compare regime uncertainty to market uncertainty— the uncertainty inherent in purely private markets. From the perspective of one economic school of thought — the equilibrium-always economists most often associated with the Chicago school—the economic efficiency of markets is complete, meaning market uncertainty is a nonissue, and can only be undermined by government interventions and regime uncertainty. In contrast, those working in the Austrian tradition place economic uncertainty at the center of their theory of the market process. Boudreaux discusses how market institutions, in contrast to political institutions, create an environment conducive to economic actors navigating a world of uncertainty in welfare-improving ways.

Find this chapter in The Legacy of Robert Higgs, available on Amazon.