Uncertainty Paralysis

[Supply Sider]

John Stossel aptly explains why economic growth has been so tepid throughout this recovery.

Uncertainty Paralysis
By John Stossel

President Obama would do us all a big favor if he'd ask himself this: "Would I start or expand a business without knowing what regulations or taxes government will impose next year?"

If he'd just stop and ask that, he'd have a sense of what's wrong with the economy. He'd understand why a country that must create 120,000 new jobs each month just to absorb newcomers created only 69,000 last month.

Past recoveries were quicker. Something is different. What could it be?

Let's remember that the economy -- which is to say, us -- is already burdened by byzantine bureaucratic impositions. Every week, the feds add another thousand pages of rules and proposals for rules. Local governments add their own. My mayor, in New York City, even proposes micromanaging the size of the drinks restaurants may sell.

Read more:

http://www.realclearpolitics.com/art...is_114386.html

[VTA]

Let's remember that the economy -- which is to say, us -- is already burdened by byzantine bureaucratic impositions. Every week, the feds add another thousand pages of rules and proposals for rules. Local governments add their own. My mayor, in New York City, even proposes micromanaging the size of the drinks restaurants may sell.

Sort of why I characterize the current environment as of some precipitous decline.
Unless the goal is to blatantly weaken the country, I can't imagine these peole have something good in mind with where their heads are at.

[trickblue]

Stossel is a national gem... he IS what Cronkite is revered as... a real journalist...

[Supply Sider]

Stossel's point about market uncertainty is also a fair criticism of Republicans. Consider the Bush tax cuts. They're temporary; consequently, every year, we have a debate over whether or not we should extend them. This injects uncertainty into the market.

Now, let's compare Bush tax policy to Reagan tax policy. Despite popular belief, Reagan did not cut taxes. He reformed the tax code in such a way that Americans as a whole paid a lower tax rate. Reagan's reforms were meant to be permanent.

[trickblue]

Now, let's compare Bush tax policy to Reagan tax policy. Despite popular belief, Reagan did not cut taxes. He reformed the tax code in such a way that Americans as a whole paid a lower tax rate. Reagan's reforms were meant to be permanent.

This is largely lost on the free world...

[erdawiro]

Bruce Bartlett on uncertainty:

In my opinion, regulatory uncertainty is a canard invented by Republicans that allows them to use current economic problems to pursue an agenda supported by the business community year in and year out. In other words, it is a simple case of political opportunism, not a serious effort to deal with high unemployment.

You can find the reasoning and the supporting evidence here.

The Treasury Dept. also has a good rebuttal to the uncertainty claim, here. The basics go something like this:

Nonetheless, two commonly repeated misconceptions are that uncertainty created by proposed regulations is holding back business investment and hiring and that the overall burden of existing regulations is so high that firms have reduced their hiring.

If regulatory uncertainty was a major impediment to hiring right now, we would expect to see indications of this in one or more of the following: business profits; trends in the workforce, capacity utilization, and business investment; differences between industries undergoing significant regulatory changes and those that are not; differences between the United States and other countries that are not undergoing the same changes; or surveys of business owners and economists.* As discussed in a detailed review of the evidence below, none of these data support the claim that regulatory uncertainty is holding back hiring.

[Supply Sider]

I'll break down the Bartlett article. His article quotes a survey, but is very selective in the data it pulls from it. Thankfully, the CATO Institute provided a more comprehensive assessment of the same survey. Here's the chart from the survey that lists how business owners rank their biggest concerns:

Chart-2.jpg

Taxes and government regulations rank second and third on the list respectively. Now, let's return to the question that Stossel asked in the OP: "Would I start or expand a business without knowing what regulations or taxes government will impose next year?"

So two of the top three concerns for businesses deal directly with market uncertainty. Based on these results, it's absurd to deny the importance uncertainty is playing in our dismal economic performance. Furthermore, let's look at the trend:

Chart-3.jpg

Taxes and government regulation are both trending upwards in terms of concern.

I should also point out that Obama's own hand-appoint FED chairman, Ben Bernanke, has cited market uncertainty as a major detriment to our economy.

[Supply Sider]

If you'll indulge me for a moment, I'd like to comment on another part of the Bartlett article:

Republicans favor tax cuts for the wealthy and corporations, but these had no stimulative effect during the George W. Bush administration and there is no reason to believe that more of them will have any today. And the Republicans’ oft-stated concern for the deficit makes tax cuts a hard sell.

Here, Bartlett intimates that, because the Bush tax cuts "had no stimulative effect", taxes and regulations clearly aren't a problem. However, this mis-characterizes Stossel's uncertainty argument. If it's true that the Bush tax cuts provided no boon to the economy (even though former President Clinton is currently calling for their extension), it actually bolsters Stossel's argument. Remember, this issue here is uncertainty: The Bush tax cuts are temporary and must be renewed annually. Consequently, businesses have no idea what their tax rate is going to be from year to year. This makes the market even more uncertain.

[erdawiro]

As far as I know, Bernanke has only mentioned uncertainty in broad terms. The notable example is when he said, "“Of course, even as the Federal Reserve continues prudent planning for the ultimate withdrawal of extraordinary monetary policy accommodation, we also recognize that the economic outlook remains unusually uncertain.” Uncertainty does not just deal with not knowing what future regulations and taxes will look like, it also deals with not knowing what future sales will look like. As the data indicates, that's where uncertainty is currently coming from. Businesses simply don't know if there will be enough future demand to justify new hirings, new purchases, or new renovations. If the concerns were over regulations and taxes we wouldn't expect to see the claim, made in one of the surveys quoted by the Treasury, that, "80 percent of respondents described the current regulatory environment as “good” for American businesses and the overall economy".

[erdawiro]

The Bush cuts weren't scheduled to sunset until 2010. That provided 9 years of certainty on the first round of cuts and 7 years of certainty on the second round. That's plenty of time.