Noah 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.)
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.