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Uncertainty and Confidence

What role does uncertainty and lack of confidence play in the current economic situation? I was listening to Russell Robert’s podcast with John Cochrane of the University of Chicago on financial crisis and one point he raised is that people are lacking confidence and are uncertain about what taxes will look like in the future.

John Cochrane: Well I think one of the reasons people are scared cause you don’t know what huge program is coming down the line.

Russell Roberts: I agree with that.

JC: I mean what is the tax system going to look like a year from now? You’d be a fool to invest, uhhm, we’ve seen all sorts of companies, the car companies need you and me to lend them money and buy their stock, but what is going to happen there. Uhhhm, in one of the government bail out loans the government said, “Oh by the way we are going to wipe away the rights of all the senior creditors.” Huh, well that could happen could happen any moment.

The recent spate of try this, no that, we’ll we just need to spend more. No, we will spend better. No later. Nope, we need lots of contraceptives. No, not that, cut taxes. No raise taxes. Tax the rich. TARP 2.0. $800 billion. No, $900 billion. With no idea of how this is going to paid for, never mind the other fiscal imbalances the country is already facing. And all the while the supposed savior is telling us that we are the brink of calamity. Gee, could confidence and uncertainty be issues?

Lets suppose that the fiscal stimulus multiplier is greater than 1 if you find the right programs to spend that money on. Then it is also the case that the money has to spent on those programs and you have to spend it during the actual economic contraction. Not 6 months later. And color me skeptical, but I don’t think $335 million for contraceptives is going to have a good multiplier, but I could be wrong. Sounds more like pork barrel spending than anything else.

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About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research.

Comments

  1. Steve Plunk says:

    As business owner I know this is very true. We have all postponed investment based upon uncertainty. A recession coupled with a new liberal president gives us plenty to worry about. The tax code is already too difficult to properly plan investments, you can’t “uninvest” if things go bad, and what about unstable energy prices?. There are no incentives to invest only disincentives.

    How about an investment tax credit? How about promising no tax increases for a few years? How about relaxing some regulatory burdens? How about a realistic energy policy instead of the green nonsense? The first few weeks of this administration has pointed us in the exact opposite direction.

    If consumer confidence is bad imagine how bad business confidence is.

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  2. Brett says:

    The contraception is a good long-term thing, though. More contraceptives potentially means fewer poor children sucking down Medicaid funds and committing crimes.

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  3. Matt says:

    NO Brett family planning is WRONG AND EVIL!!! Only heathen libruls rely on medical technology to ensure the healthiness of their babies since they can’t rely on GOD to deliver on to them!!!

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  4. Steve, at this point I assume the fear mongering will work and some $800B+ bill is going to pass, be signed and become law. Reason and rational argument is not going to stop this train from running off the rails.

    What I’m wondering now is what official Washington decides to do later this year or early next year when things haven’t gotten better. The over/under on the the Son of Stimulus bill starts at $2T. Why so large? Well, we already see the compaints on trying to trim any fat off this bill, but the real clincher is that Harry and Nancy can read polls too. They will come to see that they have to grab whatever they can before the next two years are up.

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  5. Steve Verdon says:

    The contraception is a good long-term thing, though.

    So would putting the money into the Medicare trust fund. Sure its a drop of in the bucket, but we have a huge issue with Medicare, I don’t think we have a huge issue with contraceptives.

    NO Brett family planning is WRONG AND EVIL!!! Only heathen libruls rely on medical technology to ensure the healthiness of their babies since they can’t rely on GOD to deliver on to them!!!

    Matt, are you seriously suggesting I’m a member of the religious right? Let me run down some issues with you, so you can get a clue:

    Abortion: Fine
    Gay Marriage: Fine
    Legalizing Drugs: Fine
    Contraceptive/Family Planning: Fine
    Evolution/Creation: Evolution
    Prayer in School: No
    Seperation of Church and State: Yes

    So stop posting like an utter moron lest people conclude you really are a moron.

    Charles,

    Wait till they start running out of money for Medicare.

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  6. Matt says:

    Seriously though I gotta give props to the right wingers. No one is anywhere near as good at distorting minor things as they are. Right wingers can’t govern for shit but they sure can create a shit storm by turning family planning funding (which is a tiny amount in the bill) into OMGZ TEH $300 MILLION CONDOMS!!!. Although that’s old news now that we’re spending OMGZ TEH MILLIONZ ON BEES!!! One distraction to the next.

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  7. Drew says:

    Nice try, Matt. But you have a problem:

    If indeed we are facing financial calamity, then dollar one for condoms is unwarranted. So, by diminishing the level of expenditure, you identify yourself, and your position, to be that of a common whore.

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  8. Matt says:

    So stop posting like an utter moron lest people conclude you really are a moron.

    Pot Kettle Black

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  9. Matt says:

    Seriously drew you don’t even know my position on the stimulus itself. The only thing you should know by now is I find your generalizations and assumptions ridiculous. Yes some of the funds would of ended up buying condoms but the majority of it wouldn’t of. It was just a convenient target for the republicans to distort enough to seem like waste. Now they are aiming at supposed beekeeper millions which is a general agriculture insurance thing that most of them voted for in the years past as is..

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  10. Steve Verdon says:

    Matt,

    It isn’t that it is spending on contraceptives, it is…oh nevermind.

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  11. Until Matt decides to stop seeing people who disagree with him through ludicrous caricatures, “nevermind” is probably the best response.

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  12. spencer says:

    I love this.

    An individuals decision to invest roughly depends 99.999999% on their view of what is going to happen in the private economy.

    Yet, you keep claiming that it is due to government actions.

    Never look at the facts do you?

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  13. spencer says:

    Of course they may be uncertain because their business is losing money hand over fist and all their employees are scared of being unemployed.

    But of course in the Russ Roberts world such considerations do not exist. The private market is always perfect and anything bad is always the governments fault.

    How can you take this stuff seriously?

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  14. Steve Verdon says:

    spencer,

    Try to post your comments to the correct post. Either that or don’t post while drunk.

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