Some facts: Markets like predictability, Politicians like chaos
Interesting and useful article, on world investment climate.
1. Markets like predictability. What tax system is best? Whatever one we have, if we keep it and are sure it won't change. What exchange rate is best? The current one, whatever it is. And so on.
2. Politicians crave chaos. What tax system is best? The one I am "reforming" to achieve. What exchange rate is best? I can't tell you, because central bank data are secret, but you'll see. What new policies will help the economy, save the poor, and improve health care? Just TRY to guess what I'm thinking now! Uncertainty is the preferred habitat of politicians and speculators. The politicians are the predators, and the speculators are carrion birds and hyenas that follow the predators around. Amazingly, after investment is destroyed, the politicians actually have the eggs to blame the speculators. Impressive, that the lion would blame the hyena, just because the hyena happens to be seen chewing on the deer the lion killed.
In a stable system, politicians are almost irrelevant. No one is afraid, things are getting better, and there is lots of investment. In an unstable system, we all hang on every word from our "leaders."
The Great Depression was caused by bad monetary policy, and an over activist response by Hoover. (Yep, I said Hoover. Look it up. He pressured the Fed to cut money supply, and worked behind the scenes to raise prices and force financial enterprises to "capitalize" losses. The "do nothing" description is a myth.)
Then Roosevelt, a political genius, realized that the chaos Hoover had created could be used to the advantage of the Democrats and their crony capitalist allies. So Roosevelt consciously choose taxes, pricing regulations, and make-work projects that would create a continuing crisis. (Read Amity Shlaes' fantastic book, THE FORGOTTEN MAN, for a detailed historical account).
The only reason we got out of the Great Depression was that anticipation of WWII made Roosevelt realize that chaos was bad for production and investment. And in a war, everybody listens to politicians anyway, so he was able to end the artificial domestic crisis in favor of a real international crisis. Roosevelt clearly called off the dogs in 1939 and 1940, as you can see from memos telling investors and manufacturers in plain language that they were now free to invest and make things without fear of government attacks.
Like Roosevelt, President Obama is a man of excellent political instincts and zero understanding of markets and the causes of prosperity. We are entering another stage of artificial continuing crisis, and it could last for years. Higher business taxes, a transactions tax, new regulations of finance, new federal ownership of manufacturing in automobiles, steel, and other industries. Anything to make investment returns less predictable, and preserve the power of the government.