Wednesday, August 31, 2011

Uncertainty Part Three

JTL responds:
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in place and a bunch of Republican Congressmen proposing to screw around with the debt ceiling unless the expiration is repealed.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?

Alright, FLG ain't no Republican talking points shill, so he must assume that his previous posts miscommunicated his meaning. So, he'll back up a bit and start again.

FLG asserts that while uncertainty always exists, not just in politics, but in life on this planet; however, the level of uncertainty varies. Or, to put a finer point on it, whether the actual level of uncertainty varies is almost irrelevant because the perception of the level of uncertainty varies. FLG would argue that as the perception of uncertainty increases, this has adverse effects on long-term planning, including but not limited to investment decisions.

This distinction between uncertainty and the perception of uncertainty, FLG thinks, allows from common ground between FLG and Jacob here. Perceptions are influenced by biases, etc. If we assume that corporate honchos are more wary of regulation than deregulation and more taxation than less taxation, then their perceptions of the level of uncertainty will be adversely affected, even if the overall uncertainty level remains constant.

Is it fair? Not really. Does it matter? FLG'd argue, yes. These corporate types make long-term investment decisions. Maybe their worldview is unfairly or unreasonably biased against regulation and taxation, but that doesn't change that their level of perceived uncertainty looking forward adversely affects investment decisions. Obviously, Democratic administrations will face an uphill battle, but since we are dealing with perceptions, the messaging surrounding the health care bill is certainly something that didn't help. That's the point FLG was trying to make when bringing up Pelosi, not to score talking points.

One last, important point: it's not just conservatives that point to regulatory uncertainty as something that inhibits investment. When it comes to alternative energy and other environmental issues, it's the left that is arguing regulatory uncertainty is inhibiting investment.


The Ancient said...

Un Coup de Dés Jamais N'Abolira Le Hasard

Everyone I know who has the capacity to hire people says exactly the same thing: "Why should I do it when I don't know what that person is going to cost me in a year or two?"

The only reason people get hired (in the private sector) is because someone else sees that hire as an opportunity to increase (or maintain) profits. When the cost of that hire becomes incalculable due to assorted contingencies (expensive new programs, aggressive regulations on several fronts), businesses will tend to sit on their hands, waiting for clarity.

Almost everything Obama has done -- and, I suspect, much that he aspires to do -- will only delay that moment of clarity. Partly it's ideology, partly it's his desire to be a "transformational leader," and partly it's that neither he nor any one around him has any sense of how businesses operate. (When Democrats talk to "businessmen," they talk to Wall Street, where the old investment banks have all been taken over by traders. But traders aren't businessmen in any useful sense of the word.)

Hilarius Bookbinder said...

So... there's the ACA, and there's Medicare Part D, taxes that sunset and increased governmental spending, TARP and various bailouts. Republicans nearly allowed the government to default, and the solution will require some unknown combination of tax increases and spending cuts. And, as you point out, the left, like the right, has problems with regulatory uncertainty. Does this not leave us with approximately Jacob's position? Uncertainty seems to be baked into all kinds of politics, as it were, and there's no shortage of things that could potentially be uncertain in the future.

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