Uncertainty…Not.

September 27th, 2011 at 11:10 pm

Larry Mishel, president of the Economic Policy Institute, has an extremely useful piece up collecting all the reasons—with evidence—why the conservatives’ “uncertainty” talking point is shovel-ready nonsense.

First, “uncertainty” in this context refers to the R’s argument that it’s government and central bank actions—taxes, regulation, fiscal/monetary policy, health care/fin reg reforms—that are holding back the economy, not any of that ill-begotten Keynesian stuff, like lack of customers, orders, investors.

So how might you test for something like that?

Well, what about actual investment?

“Investment in the current recovery has increased more than in it had at the same time period in the prior two recoveries and roughly the same as it did during the 1980s recovery [see figure].  In other words, this recovery is far more investment-led than the recovery under the pro-deregulation George W. Bush administration.”

Private sector jobs, you ask?

“…private sector job growth in this recovery looks much like job growth in recent recoveries, suggesting that businesses are not reacting to a new threat of potential regulations and taxes (the difference with this recovery is actually the loss of public sector jobs.”

And then, of course, there’s what the business folks, as opposed to their DC reps, actually say about what’s bugging them:

“…the regular National Federation of Independent Business (NFIB) surveys of small businesses found that the most common answer to the question, “what is the single most important problem your business faces?” was “poor sales.”  And while a number of businesses also cited regulation, the numbers were not substantially higher than under Presidents George W. Bush or Ronald Reagan and were lower than under Presidents Bill Clinton and George H.W. Bush.”

None of this is to say “uncertainty” is not a problem.  But while conservative politicians are busy jamming their perennial tax cut/dereg agenda into the current context, the thing that businesses are truly uncertain about is when they’re going to start seeing some customers again.

 

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5 comments in reply to "Uncertainty…Not."

  1. Russ Abbott says:

    I’m sure you already know this, but the Republicans don’t care whether their arguments make any sense. All they care about is that they say something (anything!) that blames government for their problems. It doesn’t have to be correct. All it has to be is something that the average voter can understand.

    Krugman calls these zombie ideas. It doesn’t matter how often you knock them down. They keep coming back. They do that because it’s not their logic that drives them. It’s their repeatability.


  2. JJ says:

    Yes, this is the answer I have been waiting for! I suspected the uncertainty argument was nonsense, but that feeling originated from “consider the source.” I also felt that liberal economists were waving the argument away rather than punching it in the mouth. The EPI article definitely floors it. Of course, as Russ Abbott rightly commented, it’s a zombie idea now, it will keep walking. At least, I’m convinced now.


  3. Tyler says:

    If demand is the problem, I don’t see how raising taxes is the answer. It seems to me that raising taxes reduces demand.

    If people want to feel better about Warren Buffett’s low taxes, just have the Bush tax cuts expire for billionaires and no one else. This will make the tax code more progressive and do little damage to the economy (I hope).


    • JJ says:

      Hi Tyler,

      Good point, but I don’t know that many people are arguing that raising taxes is THE answer to solving the downturn. I think the argument goes something like this: demand is the problem, and there are many ways to solve it. One (but not the only) way is to loosen money that is currently being saved at the upper end of the income bracket. Government has many—not as many as it used to because we are at the zero lower bound on interest rates—ways to accomplish this. One of them is to tax the rich and let the government spend it on programs that will create jobs. Now, this is the point where all the usual cries of “unfair” and “inefficient” come roaring from the Right. I won’t touch the first one, but I can comment on the second one. Right now, that money is not being invested usefully in the economy. I’d rather have it spent “inefficiently” than not at all. As to the drop in demand due to raised taxes, I think it’s effect, especially if it falls on the upper brackets, would be smaller than what the government can stimulate, but I’m not an economist so I can only echo what I’ve heard about that.

      There is an alternate story to the usual supply and demand ones we have been hearing, and that’s credit freezing. You can read about it in a recent Joe Nocera op-ed in the Times: http://www.nytimes.com/2011/09/20/opinion/nocera-no-extra-credit.html. Nocera points to a presentation by Paul Krasiel. The powerpoint slides are good, but without the voice track, I can’t tell whether Krasiel has gone beyond correlation. I’d like to hear from other economists on it.


  4. Lawrence Berg says:

    Let me join the chorus correctly pointing out the R’s are under no compunction at all to make sense. When you have no goal of accuracy, you can say anything. Note Senator Rand Paul’s opposition to gas line safety regulation everyone else agrees is a good thing. His opposition makes no sense, but sense is not his goal.


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