There is a theory, or model, in economics called “the uncertainty principle.” Such a cycle comes about when companies and small businesses are not convinced that it is a good time to invest and grow a business. Now I am not an economist. I read some economics and I know just enough to be aware but not overly anxious. I do know what I feel sure that you know quite well. The last 26 months have been difficult for millions of people. This recession has hit me personally in several ways creating income loss and a fairly significant lifestyle change with it. This is not all bad as this change has taught me new faith and has proven to be very good if the truth is known.
This uncertainty principle says that so long as people are unsure about the future they will put off investment and hiring. This means that the unemployment rate is connected to the confidence investors and leaders have about the economic future. (Most, except for the naysayers and some apocalyptical sorts, believe the long term will improve. It always has and almost certainly will again.) But the uncertainty principle has been at work now for at least 18 months. Changing political leaders does not necessarily alter this immediately, as was true in 1932 and the years that followed, as well as from 2008 to the present. (The same was true in the Reagan years of 1980-88.)
Nicholas Bloom, associate professor of economics at Stanford and former adviser to Britain’s treasury, says, “The optimal response to uncertainty if you’re a firm is to do nothing, but if everyone does nothing, the economy tanks.” This thinking causes Bloom to believe that the stock market will rebound in a big way and then other market factors will follow as companies expand and hire and grow again. The good news is that “the uncertainty principle” says output and employment will bounce back. Even Ben Bernanke notes that “the resolution of uncertainty” can lead to “an investment boom.”
The question is when will this boom begin? The head of research at Barclays Capital in New York, Larry Kantor, says, “It is going to be difficult to sustain a bull market, because there’s a lack of full confidence in policymakers to get it right.” This is not a response from the Republican election campaign committee but rather a simple observable fact based upon polling and broad-based response to the president and congress. Bernanke, who is not seeking votes, told the Senate Banking Committee on July 21, “the economic outlook remains unusually uncertain.” Some are now talking about a second recession, or what is called “a double dip recession.”
For the first time since Obama took office the White House and business are beginning to clash openly. Verizon’s CEO, Ivan Seidenberg, says business leaders must make sure the administration’s regulatory cures aren’t “worse than the disease.” What they want is for the White House and Congress to help pry open foreign markets and stop trying to raise corporate taxes.
It may sound like great wisdom to raise taxes on “the wealthy” (as Obama promised and appears to be going to do if the tax cuts expire without new impetus in January 2011) but when big business takes a hit we all take a hit. The tax cut debate is heavily nuanced for sure. Even Reagan raise some tax rates after he made a huge across the board cut that eventually helped to create new confidence in a time of double-digit inflation.
Obama defends his stance by saying governmental regulations and control were needed to control “unscrupulous and underhanded businesses who are unencumbered by any restrictions on activities that might harm the environment, or take advantage of middle-class families, or threaten to bring down the entire financial system.” Many on the opposite side believe government should virtually leave the market alone, allowing as free a market as possible. I am personally persuaded that the truth is in the middle but few seem able to pragmatically find the middle when their political extremes are continually barking about more regulations and no new taxes.
On July 21 the president signed a new financial reform bill. At the signing ceremony he proclaimed the new law would “make sure that everyone follows the same set of rules, so that firms compete on price and quality, not tricks and traps.” I wish it was really that simple. This new bill “will require 520 new rules, 81 studies, and 93 congressional reports” according to the U.S. Chamber of Commerce.
Worry about taxes, trade and more regulations add to the growing rift between the Obama administration and business. The argument of business is pretty simple. If the president wants to build certainty about the future, and thus encourage investment and jobs, he needs to back off all the talk about regulation and provide more certainty to business about the future. Why? The uncertainty principle is at work.
Finally, something needs to happen to prompt both sides in this fierce debate to tamp down their aggressive words and deep hostility. While there is more to this than simple the tone of a serious debate most will agree that little can happen in an environment where deep opposition remains over the health-care battle and the White House’s stance on taxing the overseas earnings of American business.
It may be that the elections this fall will bring about the kind of political standoff that we had in the Clinton era after 1994. This might not be the worst thing that could happen. Only time will tell. In all of this don’t forget that economics is more than theories and politics. It involves fears and forecasts. And it involves consumers and companies as well as proposals and purchases. Decisions and investments are made based upon how people feel about the future. Right now they are not hopeful. At some tipping point this will change but no one knows where or how. Regardless of the times, Christians should live by faith. Sometimes, and now seems to be such a time for many I know, this means adjusting your life and spending practices practically. This is actually one of several personal benefits of economic uncertainty. The other is the display of real compassion and support for our brothers and sisters who are out of work and facing very deep personal troubles. Check your personal life and adjust what needs to be adjusted and then stop worrying about tomorrow. Go back to Matthew 6:19-33 and spend time meditating in the Word rather than watching 24/7 news and reading about the dire circumstances of the present moment in time. When you face your last day on earth a whole lot of what troubles you right now will not matter. Get a bigger and more eternal perspective about all of this and you will do better than you ever will by feeding your political fears.