Vagueness Impedes Economic Growth – Why?

Writing in The Wall Street Journal this week, Daniel Henninger suggests a “void-for-vagueness doctrine” for Congress.  What does he mean by “vagueness?”  And, why is this suggestion so very important for economic growth?  Let’s talk about it now.

The impetus for The Wall Street Journal column was the recent Supreme Court decision that found that the “honest services fraud” law was too vague, thereby helping former Enron CEO Jeff Skilling gain a partial victory in his attempt to overturn his conviction.

Indeed, vagueness in a law is an issue.  Justice George Sutherland in 1926 even went so far as to say that a vague law “… violates the first essential of due process of law.”  The point is simple: if people can’t understand a law because it is too vague, then how can the government hold people accountable to it.  It’s a matter of justice and fairness.

In addition, vagueness is vitally important today.  Congress continues to pass large and unwieldy laws that most Americans don’t have the time or energy to read.  Even our Senators and Representatives often skip reading the laws that they are voting on.  Two examples are the health care bill and the financial reform bill.  Because parts of the bills lack specificity, we might all have to wait months or even years to see what they really mean and how they will impact America.

Economic growth is predicated on investment in new businesses, new products and services, and new jobs.  But, vagueness - in current legislation passed (such as health care) and in potential new legislation (such as financial reform, cap-and-trade, and VAT taxes) – means uncertainty.  Investors can be very reluctant to invest in a climate of vagueness and uncertainty.

Vagueness impedes economic growth.  Investors and economic growth both require a climate of reasonable rules and regulations, enforced under the rule of law, and low to moderate investment taxes.

Citizen Economics Blog – News, Analysis, Insight, Practical Knowledge by Gerard Francis Lameiro, Ph.D.