Column: What became of the ‘uncertainty’ meme? As Trumponomics get more unpredictable, U.S. Chamber stops complaining
Used to be that you couldn’t open a business article without tripping over a complaint about “uncertainty.” The U.S. Chamber of Commerce never shut up about it. Economists, especially conservatives, pointed to it as the cause of our economic malaise.
That was during the Obama administration, when labor regulations, consumer protections in healthcare and finance and tax rates all were ramping up.
During the Trump administration, which has brought us a tax bill that has caused confusion and chaos, tariff policies that don’t correspond to trade realities, infrastructure proposals that don’t exist in real life, and random tweet-borne attacks on businesses that tick off the president, one would think that concerns over “uncertainty” would be soaring.
Looming healthcare, labor market regulation, and tax and regulatory uncertainty make it even harder for companies to hire.
— Economist John Cochrane laments “uncertainty” in 2010
Yet one almost never hears the term anymore. The Chamber has almost entirely stopped grousing. Oh, it still cites “uncertainty” now and then, but with one exception we’ll get to in a moment, its complaints still focus on Obama-era regulations that it wants overturned.
This may say less about current economic conditions than about the fundamental dishonesty of the “uncertainty” meme during its recent heyday. The meme was never really about economic headwinds generated by lack of knowledge about government policy. It was a way of making partisan complaints about specific policies look like legitimate economic analysis.
The targeted policies fell into three specific categories: Taxes, which were supposedly too high; regulations (especially labor regulations), which were going to shift costs from workers to employers; and Obamacare, which was going to raise standards for health coverage, possibly at the expense of businesses.
None of these was especially uncertain. The Obama White House had made clear it was going to move ahead on all three fronts. The Chamber of Commerce undercut its own argument about taxes when it offered its members a form letter to send to their senators and representatives in November 2010, asserting that “a long term extension, preferably permanent, of all current tax rates would, in one bold stroke, boost investor, business, and consumer confidence by taking the uncertainty of tax policy off the table.”
Uncertainty could have cut both ways, obviously: If Congress passed a long-term, preferably permanent tax increase on businesses and top earners, that also would have taken the uncertainty of tax policy off the table. But the betting here is that the Chamber would have sent around a different form letter.
The day the Chamber’s letter went out, coincidentally, The Times published an economists’ roundtable on the U.S. economy. Two participants cited “uncertainty.”
“Looming healthcare, labor market regulation, and tax and regulatory uncertainty make it even harder for companies to hire,” conservative economist John Cochrane of the University of Chicago said. “Congress has not even started debating what taxes will be Jan. 1. How can anyone plan?”
Ayse Imrohoroglu of USC seconded his motion: “Companies have held on to their profits rather than using them to hire additional workers or add productive capacity… because of all the uncertainty they face in the marketplace,” she wrote. “Businesses don’t know what will happen to interest rates. They have trouble calculating what new workers will cost in light of potential new healthcare mandates and costs. They don’t know what will happen to tax rates, which could rise dramatically.”
Some of the talk of “uncertainty” cited an “economic uncertainty index” conceived by economists Scott R. Baker, Nick Bloom and Steven J. Davis of Northwestern, Stanford, and the University of Chicago (respectively). The index was based on the level of disagreement among economic prognosticators, the number of tax provisions scheduled to expire in the near term, and the trend of mentions of “uncertainty” in leading newspapers, including The Times.
The index tends to rise during presidential election campaigns, as perhaps it should. But what it has shown is that as an objective measure, “uncertainty” was generally lower during the Obama administration, especially in its last two years, than under Trump. Earlier in the Obama era it was higher, but that was probably a hangover from the Great Recession, which began under George W. Bush and continued into the Obama’s first term.
Whether the index is truly useful as an economic trend spotter remains questionable. A few critics noticed the self-referential aspect of the uncertainty index in 2012, when rhetoric about the advent of the Affordable Care Act and tax increases causing “uncertainty” was peaking. Among them was Mike Konczal of the Roosevelt Institute.
“Spokespeople for the conservative movement tell reporters that President Obama’s policies are causing economic uncertainty,” Konczal wrote. “Reporters write it down… Economic researchers search newspapers for stories about economic uncertainty and policy, and create a policy uncertainty index out of those talking points. The conservative movement then turns around and points to the policy uncertainty index as scientifically justifying their initial talking points about Obama and uncertainty...Taa-daa! Magic.”
Others have pointed to the sheer fatuousness of business leaders complaining about uncertainty, as though the future is ever anything but — no one knows what interest rates will be in the near, middle or far future, and tax rates are always subject to congressional tweaking, after all.
Indeed, the “uncertainty” claim has been trotted out as an excuse for business underperformance for so long that the conservative economist Joseph Schumpeter dismissed it out of hand — in 1939. Schumpeter had no use for the idea that federal regulation, taxation and deficit spending unnerved business to the point of paralysis. He pointed to the argument as one of those that “fully merit the shrugging of shoulders with which they are usually met.”
So where are we today, in 2018? On the surface, one couldn’t conceive of a more uncertain economic environment. To call Trump’s policymaking “mercurial” would be laughably charitable. He demands legislation on immigration, then blows up the immigration bills proposed in Congress by his fellow Republicans. He strikes a budget deal, then demands more cuts. His determined gutting of the Affordable Care Act threw the healthcare marketplaces into chaos just at the moment that they were beginning to stabilize, costing the economy billions of dollars.
Then there’s trade. Interestingly, this is the only policy on which the Chamber of Commerce has criticized Trump for injecting uncertainty into the business landscape, possibly because it hits so many Chamber members where they live.
The Chamber has taken on Trump over his threat to withdraw from NAFTA (the North American Free Trade Agreement) and on his tariff-driven trade war. After Trump threatened earlier this month to add as much as $400 billion in Chinese goods to the roster of those subject to tariffs, the chamber panicked: “The move is the latest in a string of potentially economically crippling trade developments, including new tariffs proposed or implemented on steel, aluminum, cars, and auto parts, as well as heightening uncertainty surrounding NAFTA,” the chamber wrote.
Indeed, that economic uncertainty index spiked to its highest level in years over the tariffs, as Menzie Chinn of the University of Wisconsin notes.
Other than that, however, business leaders have been relatively serene. Possibly they’re calculating that amid all the turmoil, the Trump White House will be letting them have their way with customers and employees without fear of regulation or prosecution. Is that really good for the economy, however?
Business may also be judging the future based on the recent past, a natural human instinct. It’s true that unemployment is down and profits are up. On the other hand, as we write early Monday, the Dow Jones industrial average is down nearly 400 points and the Nasdaq is giving up nearly 200 points of its recent gains, supposedly as an indicator of trade war fears. Maybe they’re telling us something, even if the signals are “uncertain.”
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