Tuesday, August 30, 2011

Uncertainty Continues

Jacob T Levy writes:
I've never understood this claim at all. Uncertainty about political outcomes is endemic to politics. There's never a fixed point of tax policy or regulation policy, and anyone whose business model depends on there being no changes in the tax or regulatory environment ever doesn't actually have a business model. The next relevant election is never more than two years away; there's *always* uncertainty.

As happy as I am to have sticks with which to beat high taxes or overregulation, I just can't see that it's the case that there's any asymmetry with respect to uncertainty. If I'm investing under a low-tax low-regulation president, I'm uncertain whether those conditions will still hold two years out-- not to mention being uncertain whether the normal meat grinder of politics will result in my rivals getting a tax subsidy or protectionism cutting off my supply chain or, or, or. Your ostensibly low-tax president might or might not decide that he's going to buy re-election with an unfunded prescription drug entitlement; who knows? It might or might not pass; who knows?

High taxes and lots of regulation might be (in my view generally are) bad. But having a president who wants to increase both doesn't increase *uncertainty* any more than having a president who wants to decrease both. It's having politics at all that throws us into that uncertain world.

You've set it up as sort of a dichotomy, either there is the possibility of regulatory change or there is none. But it's more of a spectrum. I could get hit by a meteor at any time, but I don't lose sleep over it because the possibility is so remote. That there is uncertainty surrounding it is not really a factor.

I'd argue that the Obama Administration is farther toward the greater uncertainty side of the spectrum than previous administrations. A prime example was the insistence of moving forward with a controversial, and I'd argue unpopular at the time and still unpopular, health care reform bill. That really did spook many of the corporate types I know.

Perhaps they were spooked because of their political inclinations, but I don't think that's all of it. I think there is real uncertainty when people say we need to pass bills to find out what is in them.

1 comment:

Jacob T. Levy said...

Now you're just talking-points-mongering. No major spending or regulation legislation in the last generation has been well-understood in its details prior to passage by legislators, to say nothing of the people in the private sector affected by it. Medicare Part D certainly wasn't. The fact that one supporter of the ACA committed the Kinsley gaffe of saying this out loud doesn't mean that the ACA is actually any different.

You get increases in uncertainty from retrospective changes in the rules-- as was true for the treatment of creditors in the GM bailout, but as was also true for TARP. But "in the future legislators will do some damn thing or another that affects the further future" is just the nature of the game.

How about this: Current law has the Bush tax cuts all expiring in < 2 years. That's nice and clear. Along comes a Republican presidential candidate promising to keep them in place and a bunch of Republican Congressmen proposing to screw around with the debt ceiling unless the expiration is repealed. Where do you place responsibility for the accompanying increase in uncertainty about what tax rates will be three years out?

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