In my previous post I discussed the national revolt against the effete DC policy elite. Meet William A. Galston, Obama supporter and holder of the “Ezra Zilkha Chair in the Brookings Institution’s Governance Studies Program, where he serves as a senior fellow.”
Writing in The Wall Street Journal, Galston blames the crappy Obama economy on “endless strife over public policy” which increases uncertainty and slows economic growth. 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’ GDP forecasts. (It’s a little weird that the VIX, Wall Street’s “fear gauge,” is not included.) As with many such indicators, cause and effect are hard to disentangle. 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. (Think 1997, 2006.)
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. The index actually does not support this fear; it is now only modestly above its 1985-2013 median value.** Galston warns that “policy uncertainty directly affects economic activity” and quotes the IPU’s creators as follows:
“When businesses are uncertain about taxes, healthcare costs and regulatory initiatives, they adopt a cautious stance. Because it is costly to make a hiring or investment mistake, many businesses naturally wait for calmer times to expand. If too many businesses wait to expand, the recovery never takes off.”
There‘s just one problem . . .
. . . with this disquisition on “policy uncertainty.” Right now, businesses are NOT AT ALL “UNCERTAIN” about the direction of public policy. On the contrary they are HIGHLY CERTAIN that while Obama is in the White House taxes will tend to rise, healthcare costs will increase, and onerous new “regulatory initiatives” could hit their business like a lightning bolt at any time. Just look at today’s newspaper. The EPA is attacking coal-fired electricity plants, which will raise energy costs for consumers and employers (particularly heavy industry) in the Midwest—good bye “high paying blue collar jobs” 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? – no, it may be as high as $11 billion! And one of America’s largest hedge fund may pay a $2 billion fine to the SEC. Those CERTAINLY sound like three good reasons for companies to stay cautious.
In the loopy logic of Washington policy wonks like Galston, it is not Obama’s anti-capitalist policies that discourage investment and hiring, but rather Republican efforts to rein them in. He laments the “uncertainty” created by the 2011 budget clash between Obama and Tea Party Republicans but forgets that the resulting policy—the sequester—has been instrumental in reducing the budget deficit. Because it reduces the risks of a tax increase, the sequester has actually reduced policy uncertainty.
Galston’s 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.
*Scott R. Baker, Nicholas Bloom, and Steven J. Davis. See www.policyuncertainty.com
**The current reading of 112.3 is in the 63rd percentile of the distribution from lowest to highest uncertainty since 1985; i.e., 63% of readings show “lower uncertainty” than 112.3 and 37% show “higher uncertainty.”
Copyright Thomas Doerflinger 2013. All Rights Reserved.
