Uncertainty vs Uncertainty

[DRAFT] “Uncertainty” plays a major role in the debate about what ails the US economy. Conservative bloggers, columnists and economists tend to emphasize the role of uncertainty and blame the sluggish recovery on government actions which may increase uncertainty. Tax policy and health care reform are the two big ones. I definitely have doubts about some of their specific claims in regards to the degree of uncertainty present in these issues, and the degree to which current policy (and the current administration) is responsible for this uncertainty. But that is not the point of this post. What is missing from the discourse is a clear agreement about what are the important causes and drivers of uncertainty for both businesses and consumers. The idea that uncertainty can have negative economic effects is not a new or controversial idea, even for those on the left. Keynes himself talked about it (uncertainty-and-the-keynesians).

The real disagreement is about the causes and drivers. Investment and spending are driven by expectations of future income, sales for businesses and wages for consumers. I personally feel (without a lot of hard evidence to back this up) that uncertainty about whether you are going to have job 6 months from now is going to hold spending back much more than uncertainty about whether the tax rate on your income will be 22% or 27%. Likewise for businesses, I think uncertainty about the ability to move future products holds back investment and growth a lot more than the possibility of increasing health care costs.

I would really like to see this argued and discussed. Instead I see the left-leaning pundits yelling “DEMAND” while the right-leaning shout “UNCERTAINTY”, without much of an agreement about terms. It’s really both.


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