POTUS introduces instability and unpredictability

This is a quote from a blog post from 2012.

A government with moral and legal authority promulgates written rules and universally, impartially and uniformly enforces the rules, which provides a stable and predictable legal order on which to base economic and personal decisions. The law prevails, not the proclamation or arbitrary decision of a ruler, government bureaucrat, the enforcer (e.g., policeman) or judge.

The author is correct. Without a stable and predictable legal and fiscal environment, it becomes difficult or impossible to make long term investments. No one, for example, is going to open a new factory in Venezuela. No matter what assurances the investors receive from the Venezuelan government, the future is too unpredictable to create a business plan. Long term investments and business plans require stable, predictable legal and financial environments.

The United States has long provided such an environment. It’s constitutional rule and its support for reasonably free enterprise has created a long terms stable environment for investment. That isn’t a given, however. For example, how do you think the owner, shareholders and employees of this business feel today?

We can assume the business owner has millions tied up in real estate and inventory. He likely has a line of credit or is retains a factoring partner. He has many employees in sales and service and must make payroll each week. He has taxes to pay and a business plan that likely extends many years into the future.

This week the POTUS threatened to, by fiat, increase the retail price of his product by 35 percent. That represents a significant destabilizer for his business plan.

He certainly fears the for the future of his business and will refrain from hiring or capital improvements. Maybe his lender has acquired a case of ‘altitude sickness’ regarding the loans he has outstanding and lowered the borrowing base of his line of credit. Maybe his most trained employees are getting worried and will start looking for work in other dealerships. Maybe potential customers decide to eschew his product in anticipation of the dealership closing and service being unavailable.

It could all be true and it could all be happening right now. There are almost a thousand American owned VW and BMW dealerships in the US and, without even doing anything but talking, the POTUS has introduced instability and unpredictability into their business plans. This will certainly have a negative effect.

The role of a government that wishes to cultivate economic growth, create jobs and see prosperity is to provide as stable and predictable an environment as is possible. Any deviation from that discipline will cause chaos and the opposite of the desired effect.