It’s ironic: The GOP is the party that most frequently talks about the importance of reducing “uncertainty” in the economy, so as to get businesses to invest more, and yet it’s the party behind the most disruptive economic episodes we’ve seen since the financial crisis.
Nothing could possibly cause more uncertainty than threatening not to raise the debt ceiling, and indeed the 2011 episode coincided with economic weakness, and a dive in consumer confidence. So the negative effect is real, even if the threat ultimately doesn’t materialise.
So what’s this really all about?
There are two things you need to know.
The first is that “uncertainty” has had nothing to do with our overall weakness. The primary drivers of the poor recovery are poor end demand, household deleveraging, and austerity. We’ve seen unprecedented cut backs (especially at the state and local level) during times of economic weakness, exacerbating a bad situation.
The other thing you need to know is that “uncertainty” is just a pretext for passing policies that business leaders like.
The greatest elucidation of this came from Cisco CEO John Chambers last year, when he praised the government of the UK, which at the time was badly lagging the US in terms of its recovery (it still is, though lately it’s been improving).
Chambers praised the Cameron government for being “pro-growth” and establishing “predictability” (which is the same thing as certainty), and then when he was talking about specifics, he specifically cited the UK’s stance on repatriating foreign cash.
Now this is a huge deal in the US for tech giants. Companies like Cisco, Apple, Microsoft and a host of others have huge cash piles from money made overseas that they haven’t repatriated to the US because they would be taxed again on that money. They’ve agitated for years to get these rules changed.
Now there may be benefit to changing the rules (though it’s not simple) but nobody would consider foreign cash to be even a 10th order problem for the economy right now. It’s probably something that can be improved, but it’s not why job creation has been so mediocre. Fixing it would make John Chambers and his shareholders very happy, but it wouldn’t mean a real change in the US economic trajectory.
And so this whole notion of the importance of certainty always ends up turning into the need to fix this or that for businesses (taxes, healthcare, regulations). None of this is to say these issues don’t need address, but they’re not anywhere near the core of our problems since the crisis.
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