Production Versus Consumption - Regime Uncertainty

Those more enamoured with the Austrian view of economics emphasise production over consumption as a means to wealth creation and a viable economy. This seems like common sense to me, after all, isn't human demand unlimited? Aren't resources scarce? Isn't technological development only incremental? The Austrian economist Peter Schiff writes

"But as usual, they have it exactly backwards. The savings that they find so unproductive is actually the foundation upon which the economy rests. Nothing can be consumed until it is produced. The act of spending is meaningless without something to buy. The savings of the rich forms the capital that funds business investment which increases productivity. The more that society produces, the more that can be consumed. The key here is the supply, not the demand. The grass that feeds the zebras comes from seeds, not rain. Capitalists provide the surplus seeds that are planted.

Demand always exists and does not need to be stimulated by cash redistribution. 21st century Americans are no more desirous of cell phones than their parents were. But in 1980 cell phones were in very limited supply and were therefore very expensive. They were the trophy possessions of the super-rich. The reason why they are now as ubiquitous as key chains is not that government stimulated demand, but that industry figured out how to supply them far more efficiently. The supply satisfied the demand. Investment in the telecom sector, which came from real savings of Americans, allowed for that increased productivity."

In light of this, government activity that discourages investment, either through direct encroachment via taxation or other confiscatory means, or mere threats on private property, can make a society worse off. Therefore, the most efficient tax systems should target consumption as did John Howard's GST (though not perfect as Henry Ergas points out, and significantly weakened by the Australian Democrats at the time) as here admitted by this Australian Treasury report. Far less efficient taxes target production such as a progressive income tax, wealth taxes, or Australia's industry punishing Carbon Tax.

Ominously, many economists both of the Austrian and non-Austrian kind have been sounding the alarm about what Robert Higgs calls 'Regime Uncertainty' - the fear amongst prospective investors that future policies by government will harm the returns on their investment. Thomas Sowell writes

"The short-run quick fixes that seem so attractive to so many politicians — and to many in the media — create many unknowns that make investors reluctant to invest and employers reluctant to employ. Politicians may only look as far ahead as the next election, but investors have to look ahead for as many years as it will take for their investments to start bringing in some money.

The net result is that both our financial institutions and our businesses have had record amounts of cash sitting idle while millions of people can’t find jobs. Ordinarily these institutions make money by investing money and hiring workers."

Higgs has also argued, in line with Sowell, that RU helped prolong the depression and that the weak US recovery in recent years may also be so attributable due to the intrusive nature of the Bush and Obama regimes and the Federal Reserve's ever willingness to debase the currency. Other economists like John Taylor concur. Very recent news from the WSJ;

"Corporate executives say they are slowing or delaying big projects to protect profits amid easing demand and rising uncertainty. Uncertainty around the U.S. elections and federal budget policies also appear among the factors driving the investment pullback since midyear. It is unclear whether Washington will avert the so-called fiscal cliff, tax increases and spending cuts scheduled to begin Jan. 2.

Companies fear that failure to resolve the fiscal cliff will tip the economy back into recession by sapping consumer spending, damaging investor confidence and eating into corporate profits. A deal to avert the cliff could include tax-code changes, such as revamping tax breaks or rates, that hurt specific sectors."