American Elephants

Uncertainty, Uncertainty and More Uncertainty. by The Elephant's Child

“Unexpectedly” U.S. economic growth expanded in the first quarter at the sluggish annual rate of 2.5 percent,  the Commerce Department said on Friday, missing economists’ forecast of a 3.2 percent growth rate.  The fourth quarter nearly stalled at 0.4 percent. This is all before the sequester went into effect.

The recession (“the worst recession since the Great Depression”) officially ended in June, 2009. The stock market is soaring, hitting record levels, the rich are getting richer — and the poor are getting poorer. What’s happening? Why is there no recovery? Economies, the results of millions of transactions in a free market, like to recover. When an economy is thrown off track by some major error — in this case the housing debacle — once the downturn stops going down it usually recovers fairly swiftly. So what’s going wrong?

Many small businesses and companies are in good shape and have money to spend, but they are not pumping capital back into the economy. In today’s Wall Street Journal Bill McNabb, chairman and CEO of the Vanguard Group says:

Quite simply, if firms can’t see a clear road to economic recovery ahead, they’re not going to hire and they’re not going to spend. It’s what economists call a “deadweight loss”—loss caused by inefficiency.

Today, there is uncertainty about regulatory policy, uncertainty about monetary policy, uncertainty about foreign policy and, most significantly, uncertainty about U.S. fiscal policy and the national debt. Until a sensible plan is created to address the debt, America will not fulfill its economic potential.

I’m certainly not an economist, but I’ve noticed that every time there is a positive move by the administration or Congress that should encourage growth,  the administration is either issuing major new regulations, attacking an industry, raising some tax, raising the cost of energy. To be at lest partly fair, I don’t think the administration understands the consequences of many of their actions.

When the administration forces coal-fired power plants out of business, it raises the cost of electricity. Low cost electricity powers our economy. Increased prices affect everything. Approve the Keystone pipeline. Don’t raise taxes until the economy recovers, not even little taxes. Stop playing sequester games. Back off. You’re taking in more revenue than ever before.

Concern about the national debt, and about excessive spending, are heightened by the president’s refusal to consider any reduction in spending and his demand for more taxes. The President is creating the uncertainty himself, that is holding the economy back.

The economists who measure uncertainty point out that both parties blame each other, and each sees the other position as false.

  • Republicans are blaming the President and Congressional Democrats for creating regulatory uncertainty and introducing harmful regulations.
  • They further accuse the Democrats of failing to face up to the main long-term drivers of rising debt and press for the reform of social security, Medicare, Medicaid and other social insurance programs.
  • Democrats, in turn, accuse Republicans of obstructionism, political brinksmanship and an obsessive focus on tax and spending cuts.
  • They fault Republicans for a lack of meaningful detail on their healthcare reform proposals, and for failing to embrace a mix of both spending cuts and tax hikes in order to respond to US fiscal imbalances. ( click to enlarge)

index of policy uncertainty

It doesn’t have to be this way. This isn’t some mysterious economic trick. Knock off the regulation. You have enough regulation to govern every action for the next century. It’s just a compulsion to tell other people what to do, and you don’t know enough about running a business to tell anyone what to do. Just leave them alone. They do know how to run their businesses, and how to grow.

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