What Erratic Government Does to a Country

Unpredictability is bad for business.

Donald Trump holds his first cabinet meeting on February 26. (Photo by Andrew Harnik/Getty Images.)

When the economist Robert Higgs coined the phrase “regime uncertainty,” he aimed to solve a historical puzzle: why did the Great Depression endure for so long? The immediate causes of the 1929 crash—expansionary and then deflationary monetary policies—were clear enough. But the years-long economic contraction was something of a mystery.

Higgs’ key insight was that the New Deal led to unprecedented government control over American businesses. More importantly, however, FDR’s policy of “bold, persistent experimentation” created an environment of pervasive uncertainty. Unsure of what new regulation or edict would come next, investors waited on the sidelines of the economy, effectively stalling economic recovery. The same can be seen today in autocratic regimes around the world: corruption and arbitrary power, without a firm rule of law, produce unpredictability where basic rights of property and contract are hopelessly insecure.

But the costs of legal and regulatory instability are not limited to developing countries. They’re making a comeback here in the United States.

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The Economic Cost of Right-Wing Populism

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Consider, for example, the tumult created by the Trump administration’s announcements of tariffs levied against both America’s allies and its adversaries. Many economists have warned that if the goal is to strengthen our economy, tariffs are exactly the wrong approach. American auto manufacturers, for example, were particularly hard hit by the first Trump administration’s duties on steel and aluminum. As reported by the Wall Street Journal, profits at General Motors alone took a $1 billion hit and employment in domestic manufacturing that relies on these metals plummeted and has yet to fully rebound.

Given how stunningly wrongheaded it is to think that tariffs will strengthen our economic position, it’s tempting to breathe a sigh of relief when we hear that such plans are delayed or might be walked back. But the uncertainty created by a whiplash of on-again, off-again announcements may be just as damaging as the tariffs themselves. Such announcements are not just signals that a new set of rules is in place. They are signals that the rules can change at any time and in any manner that suits the president. This is precisely why our constitutional system is supposed to vest these powers with Congress, where changes can be made more orderly and securely by legislation, and not by letting the president raise or lower tariffs on a whim.

To be clear, change itself is not a bad thing. The dynamism of markets—innovation, shifting consumer preferences, new competitors—are part of the bargain of commercial life. Markets work precisely because businesses have to learn and adapt in the face of change.

Regime uncertainty, on the other hand, is an entirely different beast. Lack of clarity about future taxation, property rights, and government intervention discourages risk-taking that could otherwise produce fruitful results. When businesses and individuals cannot confidently predict the legal and economic environment they will operate in, they become reluctant to invest or expand. This hesitation, in turn, causes stagnation and declining economic security.

But as concerned as I am about the effects that massive tariffs and a looming trade war will have on the financial health of the U.S. economy, my deeper concern is that regime uncertainty appears to be the Trump administration’s primary governing principle. This dynamic will not only drag down the American economy; it will also crush the American Dream.

Consider the roughly 37 million immigrants living in the United States legally—naturalized citizens, permanent residents, and those with Temporary Protected Status (TPS). They are investors in every sense, founding over half of America’s billion-dollar startups and creating a quarter of new employer businesses. And they serve as the lifeblood of industries like agriculture, hospitality, and construction upon which ordinary Americans rely.

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But immigrants invest more than money and labor. They bet on America itself, risking everything for a better life. They buy homes, put down roots, and build communities—unless the rules change beneath their feet.

The administration’s sweeping executive orders touch nearly every aspect of immigration law. The expansion of expedited removals, which bypass due process, leaves both documented and undocumented workers afraid to leave their homes. The narrowing of legal pathways for asylum seekers is keeping families apart. And even though courts have stalled the effort to end birthright citizenship, the attempt itself—and the chance that it could ultimately prevail—has sent shockwaves through immigrant communities.

As a result many are retreating from public life, staying home from work, avoiding religious services, and keeping children out of school. The chilling effect of regime uncertainty is unmistakable.

The American Dream is rooted in the promise that hard work won’t be undone by political whim. Americans, native or foreign-born, will build a life here—but only if they are reasonably confident that the rules of the game will hold. America has always thrived by welcoming builders and dreamers. Restoring their confidence, then, isn’t just good policy—it’s essential to our country’s future. The Dream depends on it.

Emily Chamlee-Wright is the president and CEO of the Institute for Humane Studies.

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