Uncertainty — The Ultimate Enemy, Not a ‘Scam’ »
Ask any real-world business person tasked with the responsibility of delivering profits to shareholders, and/or meeting a payroll, what the biggest obstacle is to growing their businesses and hiring more workers, and the overwhelming response will be “uncertainty.” But don’t just take my word for it. Rather, let’s see what some of the leading business groups have to say about this issue.
In a recent Foxbusiness.com article titled, “Why is Uncertainty So Unbelievable to Paul Krugman?” reporter Elizabeth MacDonald culled several quotes from a number of business surveys and commerce-oriented organizations that actually go straight to the source and asked executives about the challenges they face.
According to the U.S. Chamber of Commerce, a recent survey conducted by Harris Interactive of 1,391 small-business executives found that, “Uncertainty is at its highest level since last year.” That same survey also found that 83% of small businesses leaders indicated they are not hiring due to uncertainty. Thomas J. Donohue, president and chief executive of the U.S. Chamber of Commerce, offered the following quote that I think sums up the survey’s findings, “Continued uncertainty is the greatest threat to small businesses and our country’s economic recovery.”
So, if business leaders throughout the country say that uncertainty is basically their biggest enemy right now, then leave it to an academic to tell them they are misguided.
This is essentially what Paul Krugman, a New York Times columnist, Princeton Economics professor and Nobel Prize winner, wrote in a recent blog post aptly titled “The ‘Uncertainty’ Scam.” Now, as he typically does, Krugman politicizes this issue by making it all about President Obama, and how it’s basically not the president’s fault that business executives are feeling angst about the future.
To support his case, Krugman cites a policy paper written by Stanford University’s Nicholas Bloom, Scott Baker and Steven Davis that attempts to find a connection between uncertainty and job growth. Krugman also cites an analysis by Jan Hatzius of Goldman Sachs that claims uncertainty is essentially a reflection of a weak economyHere Krugman notes a spike in uncertainty found in the Hatzius analysis in mid-2011, right when the confrontation about the debt ceiling took place. Now, here is where Krugman’s faulty logic kicks into gear.
In his blog post, Krugman writes, “So think about it: even if you accept the Bloom et al paper as gospel (which you shouldn’t), what it’s really saying is that the U.S. economy is being held back by Republican extremism, by the GOP’s unprecedented willingness to hold the full faith and credit of America hostage for political gain. It is not, repeat not, about Obama looking at rich people funny.”
Ah, leave it to an academic to see politics where business people see real-world obstacles.
The issue here, Professor Krugman, is not whether business people blame President Obama or the Congress, or both, for the uncertainty affecting their decision making. The issue is that politicians in Washington, and their ability to create chaos for business people with their incessant meddling in the economy, is what is causing the economy to stall out, and businesses to refrain from hiring.
For investors, the uncertainty about the election, the looming “fiscal cliff” and the effect of new regulations brought on by Obamacare are the things we all are trying to adjust to when committing our dollars to various companies and sectors. Until we get clarity on these things, the markets are liable to be bogged down in uncertainty, too.
Now if only the politicians, and Professor Krugman, can realize this, the business community and investors around the globe would be able to let out one giant sigh of certainty-based relief.
Follow Jim on Twitter: @Woodsish.