On Regime Uncertainty and Legal Entrepreneurship

According to economic historian Robert Higgs (1997), an important reason why the Great Depression lasted as long as it did was the prevalence of what he terms "regime uncertainty" -- that is, the kind of uncertainty that businesspeople, investors, and entrepreneurs feel in a political and legal environment that threatens to tax and regulate their wealth-generating activities to the extent that they can in many cases no longer expect these activities to be profitable. In other words, the problem is not the uncertainty produced by unpredictable consumer behavior or natural phenomena, but the uncertainty that politicians and bureaucrats create. However, insofar as the ability to forecast uncertain future accurately can be seen as the main source of entrepreneurial profits, people may wonder why the emergence of regime uncertainty should be viewed as an especially destructive deterrent to entrepreneurship rather than as an obstacle that entrepreneurs should be uniquely suited to deal with.