The Bunk of the Economic Uncertainty Crowd

UncertaintyNoah Smith is one of those super smart guys who also often annoys me. On Tuesday, he wrote, Don’t Blame Uncertainty for the Slow Recovery. Now, I am in complete agreement with him on this issue. But it bugs me when people take clearly silly ideas far too seriously. And this is one of those cases, although I’m glad that Smith is out there setting the record straight for all the fools who believe such hogwash.

The “uncertainty” hypothesis is that businesses have not invested since the financial crisis because they are afraid of the uncertainty of government policy. By this silly idea, businesses were frozen in terror, not knowing if they should buy new equipment for fear that the top marginal tax rate might go up. So companies were just sitting on piles of case waiting until they were absolutely certain what the future would be. If this sounds absurd, that’s because it is.

There are a lot of economists who I greatly admire. And even the ones I disagree with are brilliant in their way. But most of them don’t have much of a clue what it is like to run an actual business. Growing up, my parents owned a gas stations then a convenience store and finally a construction company. In addition, I’ve had micro-businesses all my life. And I spent a year working a business at the San Jose full-time flea market — the closest you will ever come to a perfectly free market. All of these experiences have colored the way I see business.

Rule number one in business is that it is all about uncertainty. Running a business is a matter of dealing with uncertainty. If you are fretting about how quickly you will be able to depreciate a piece of equipment that you buy next year, you have too much time on your hands. Actual business people generally won’t buy anything or hire anyone unless they absolutely, positively have no other choice. And they certainly don’t think in terms of the taxes they will pay on profits they haven’t made yet. And it isn’t just little old me saying this. I’ve heard the same things from Nick Hanauer and Warren Buffett.

If business were about certainty, then wouldn’t everyone have a business? And it doesn’t get any less absurd if you focus on political uncertainty. We live in a democracy. Because of the way elections are staggered, we get changes every year. Even at the federal level, we get different congresses every two years and potentially new presidents every four years. Change is a given. What those who have spent the last seven years run around complaining about uncertainty are really talking about is that they don’t like the policies on offer. It wasn’t uncertainty that they were unhappy about. Obamacare was gradually put into place and it was very clear exactly what was going to happen and when. The real complaint was that the policy was going to destroy business, because they didn’t like that policy.

We all know why this recovery has been so slow. Paul Krugman put together the following graph that explains everything we need to know. It compares the number of government jobs that were created after the last two recessions: one under George W Bush and the other under Obama. Every other recession looks just like Bush, but under Obama — because of Republican intransigence — the government has made the recession worse. This is really an amazing graph. (Note: the spike is temporary workers for the Constitutionally required 2010 census.)

Government Jobs After Recessions

So I’m glad to see that there is actual data that shows that uncertainty is the hogwash it always obviously was. But the original work was only taken seriously because there were people who wanted to push the idea for ideological reasons. And this new paper won’t stop those people from continuing to claim that the problem is Obama and all his newfangled ideas.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

20 thoughts on “The Bunk of the Economic Uncertainty Crowd

  1. Oh I can believe that large business executives were super uncertain. But not about what the government was going to do-more about what their bonuses were going to be for working 200 hours that week.

    Then again, that bunch were also the ones whining they needed more imported workers because they could not find any home grown talent at the reduced prices the executives were willing to pay.

    • It’s all such nonsense. It is all about getting something for nothing. The one thing that big businesses don’t believe in, it is competition.

      • They want to have a 100% monopoly because then they can be the spoiled princesses of the insurance market: doctor malpractice insurance companies.

        • It’s natural. When you are striving, you want competition. Once you are rich, you want to keep it. But you can’t tread water (my second novel’s name: Treading Asphalt). That’s why empires fall. It’s why ours is.

            • And it’s a good thing. Immortality would be the ultimate curse. But most people don’t understand that. And certainly empires don’t understand that.

              • Why would they? No one has been immortal long enough for us to see the downsides. Countries barely have endured long enough and depending on how you view them, they actually don’t seem to last much longer than what, about two to three hundred years?

                We lasted barely a century before we became an empire.

                • People should understand that immortality is a curse because it means that you would experience every possible pain. Meanwhile, the universe would continue on as it does. It would be boring. So being immortal would be painful and boring. Personally, I’d like to have a bit more time. But not with my intellectual decline that is soon to enter my life.

                  • I suppose 19 years doesn’t seem like much time when you are your age. Then again I keep being surprised I am almost 40.

                    • I don’t know what 19 years refers to. But I believe the rule is that you can call yourself old after the age of 35. I had planned to be dead by then. And I very nearly succeeded!

                    • Did I do my math wrong? Anyway, I suppose then I am old and decrepit. *gets out a cane*

                    • Being old is the best thing that ever happened to me. I just need my teeth fixed. I love not having to worry about young people stuff. And I love not giving a sh*t about what other people think.

                    • I probably will still worry about what people say about me-I hate being disliked. It makes me feel like I failed as a person which is completely illogical.

                      However I will be happy to smack people with canes at the cat house I plan on running in Nevada during my retirement.

                    • Yeah. It’s probably more this blog that has toughened me up. It’s nice to be king of your own tiny kingdom.

                    • What happens when you finish fixing your teeth? Does this mean you will be happy?

                    • I’m happy now. This is probably the best moment of my life. Work is good. Nice people to have tea and lunch with. Good group of people around here to chat with. It’d suck if I died tomorrow. Of course, I do have a glass of wine in me…

                    • Good work, food, friends, commenters, wine, tea, and you even got me to use the Oxford comma. :-)

                    • Really?! That is a major battle won! Now if I could just get my QN writers to do the same!

                    • I am much more friendly towards you then they are so naturally I try to remember to use it even though I don’t care.

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