In my previous post I discussed the national revolt against the effete DC policy elite.\u00a0 Meet William A. Galston, Obama supporter and holder of the \u201cEzra Zilkha Chair in the Brookings Institution\u2019s Governance Studies Program, where he serves as a senior fellow.\u201d<\/p>\n
Writing in The Wall Street Journal<\/i><\/b>, Galston blames the crappy Obama economy on \u201cendless strife over public policy\u201d which increases uncertainty and slows economic growth.\u00a0 Galston cites research by three economists who developed an Index of Policy Uncertainty (IPU)*, which is constructed from three components: media comments on economic policy, the number of tax provisions that are about to expire, and the dispersion of economists\u2019 GDP forecasts.\u00a0 (It\u2019s a little weird that the VIX, Wall Street\u2019s \u201cfear gauge,\u201d is not included.)\u00a0 As with many such indicators, cause and effect are hard to disentangle.\u00a0 The IPU tends to be high during recessions and low during economic expansions when Washington and Wall Street are complacently drifting along on a comfortable credit bubble, toward an unseen waterfall.\u00a0 (Think 1997, 2006.)<\/p>\n
Galston notes that the IPU reached its all-time high during the 2011 debt ceiling battle, and he implies we could be headed there again. \u00a0The index actually does not support this fear; it is now only modestly above its 1985-2013 median value.**\u00a0 Galston warns that \u201cpolicy uncertainty directly affects economic activity\u201d and quotes the IPU\u2019s creators as follows:<\/p>\n
“When businesses are uncertain about taxes, healthcare costs and regulatory initiatives, they adopt a cautious stance.\u00a0 Because it is costly to make a hiring or investment mistake, many\u00a0businesses naturally wait for calmer times to expand.\u00a0 If too many businesses wait to expand, the recovery never takes off.”<\/p>\n
There\u2018s just one problem . . . <\/b><\/p>\n
. . . with this disquisition on \u201cpolicy uncertainty.\u201d\u00a0\u00a0 Right now, businesses are NOT AT ALL \u201cUNCERTAIN\u201d<\/b> about the direction of public policy.\u00a0 On the contrary they are HIGHLY CERTAIN<\/b> that while Obama is in the White House taxes will tend to rise, healthcare costs will increase, and onerous new \u201cregulatory initiatives\u201d could hit their business like a lightning bolt at any time.\u00a0 Just look at today\u2019s newspaper.\u00a0 The EPA is attacking coal-fired electricity plants, which will raise energy costs for consumers and employers (particularly heavy industry) in the Midwest\u2014good bye \u201chigh paying blue collar jobs\u201d that liberals claim to love. To placate the regulatory hyenas, J.P. Morgan Chase (a fine company that helped regulators during the crisis, taking two big bankrupt companies off their hands) is willing to pay a fine of $5 billion, or is it $7 billion? \u2013 no, it may be as high as $11 billion!\u00a0 And one of America\u2019s largest hedge fund may pay a $2 billion fine to the SEC.\u00a0 Those CERTAINLY <\/b>sound like three good reasons for companies to stay cautious.<\/p>\n
In the loopy logic of Washington policy wonks like Galston, it is not Obama\u2019s anti-capitalist policies that discourage investment and hiring, but rather Republican efforts to rein them in.\u00a0 He laments the \u201cuncertainty\u201d created by the 2011 budget clash between Obama and Tea Party Republicans but forgets that the resulting policy\u2014the sequester\u2014has been instrumental in reducing the budget deficit.\u00a0 Because it reduces the risks of a tax increase, the sequester has actually reduced policy uncertainty.<\/p>\n
Galston\u2019s tortured effort to exculpate Obamanomics by blaming its failures on its opponents nicely exemplifies the disconnect between DC and the real world beyond the Beltway.<\/p>\n
*Scott R. Baker, Nicholas Bloom, and Steven J. Davis.\u00a0 See www.policyuncertainty.com<\/a><\/p>\n **The current reading of 112.3 is in the 63rd<\/sup> percentile of the distribution from lowest to highest uncertainty since 1985; i.e., 63% <\/sup>of readings show \u201clower uncertainty\u201d than 112.3 and 37% show \u201chigher uncertainty.\u201d<\/p>\n Copyright Thomas Doerflinger 2013.\u00a0 All Rights Reserved.<\/p>\n","protected":false},"excerpt":{"rendered":" In my previous post I discussed the national revolt against the effete DC policy elite.\u00a0 Meet William A. Galston, Obama supporter and holder of the \u201cEzra Zilkha Chair in the Brookings Institution\u2019s Governance Studies Program, where he serves as a … Continue reading