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Krugman and the Keynesians argue that this recession is all about plain-vanilla aggregate demand problems. Those who might be put on the right reject that out of hand, and say it is just due to business uncertainty in the presence of political overreach. Here is a link to see where this is all coming from.

My two cents: we simply cannot say what the heck is going on. I am tired of people parading around like we know the first thing about macro and business cycles.

For example, why do so few folks try to make the case that “lagging sales” are in fact a reflection of consumer and new entrepreneur uncertainty?In other words, uncertainty is perfectly consistent with data that support an “AD” story, just as ‘weak sales’ is perfectly consistent with data that support an uncertainty story.

Perhaps one reason we don’t see reported uncertainty being as high as some claim is that we cannot ask yet to be entrepreneurs about their businesses. And it may very well be the case that political and regulatory uncertainty is the reason they are not starting a business. Indeed, I would never start a for-profit business in the current environment. Do I count or matter in that data?

Or how about me as a consumer, right now I want to buy some longer term goods (perhaps a golf club membership or repaving my driveway) but uncertainty is preventing it although I have the cash (for example, if I have my HSA health plan regulated out of existence, I could very well be paying much higher premiums in addition to how much health savings we like to make).

2 Responses to “My Two Cents on Business Uncertainty and the Great Debate on the Recession”

  1. Harry says:

    Uncertainty has become the word du jour, and is difficult every fall since I can remember to predict how much damage the political class will do.

    When Nancy and Harry embarked on their crusade in 2006 to destroy the economy for political gain, and as they succeded, I was more worried of the certainty that returns on investment would be severely damaged. As they say, things could get worse, and they did.

    It makes no sense to me that certainty is a value in itself –for example, the certainty of socialized medicine, a huge share of private capital to the government, and maybe a VAT and a big carbon tax to pay for it all.

    Well, the VAT and Cap-and-Trade might not be on the front burner for now, but soon down the road we face Carter- or maybe Weimar-style inflation. That kind of certainty I can do without.

    You are right to ask how we can know, let alone quantify this. Given that difficulty, then is not the burden on the big-government guys to prove their bizarro theories?

  2. Harry says:

    When I was in the productivity business and even now, I found and find it amusing to read statistics on productivity, when nearly no one had the slightest idea of what their capacity was, and how standards had eroded over time. These data were fed into a big mainframe computer at the BLS. Today we have much better computers, but not much more understanding of what is output, what is input, and the ratio of the one to the other. Let’s just say that one should not believe the analysis of the financial press, who read each other’s stories.

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