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Uncertainty Begets Uncertainty


Using last week’s weak employment data as a launching point, George Will lays out the case against big government: 

Today investors and employers are certain that uncertainties are multiplying.

They are uncertain about when interest rates will rise, and by how much. They do not know how badly the economy will be burdened by the expiration, approximately 200 days from now, of the Bush tax cuts for high earners -- a.k.a. investors and employers. They know the costs of Obamacare will be higher than was advertised, but not how much higher. They do not know the potential costs of cap-and-trade and other energy policies. They do not know whether "card check" -- abolition of the right of secret-ballot elections in unionization decisions -- will pass, or how much the economy will be injured by making unions more muscular. They do not know how the functioning of the financial sector will be altered and impeded by the many new regulatory rules and agencies created by the financial reform legislation. The economy has become dependent on government stimulation of demand, and no one knows what will happen as the stimulus spending wanes.

Uncertainty is a consequence of hyperkinetic government, which is a consequence of the governmental confidence that is a consequence of progressivism. The premise of progressivism is that all will be well if enough power is concentrated in Washington, and enough Washington power is concentrated in the executive branch, and enough really clever experts are concentrated in the executive branch.

It’s a stock bit of rhetoric to complain about short-sighted thinking. Lefties complain about CEOs who look to boost quarterly results instead of long-term growth. Everyone is frustrated by politicians pandering and buying votes at re-election time, only to push the problems into the future.

But when so many things are uncertain, as Will lists, there is really no long term to consider. Any of the uncertainties can wipe out a business should the legislation go the wrong way. In politics, when the power pendulum gets heavier, it swings with more velocity. Electeds try to push it further and faster when it is going their way in a futile effort to push it so far that it cannot swing back. But it will return, although not always on a straight path.

Long-term planning is essentially an attempt to predict the future. The world is filled with variables at many scales, from weather patterns that affect crop yields, through volcanoes and earthquakes, to accidents, acts of war/terrorism and the moods of men and the fads of their cultures.

Despite the risk—or because of it—entrepreneurs put their lives and fortunes on the line. There are reasonable arguments that government can be an agent of greater stability, and thus predictability, that supports the production of enduring wealth. When government meddles to the depth and breadth it has been over the past 18 months, those arguments lose their foundations.

In the scientific method, an experiment that changes more than one variable at a time cannot clearly attribute the result to any specific change. There is a parallel in business, although not as strict (there are no fixed variables outside the lab). Businesses are like scientists repeating a proven process, maybe with a tweak or to that they hope will improve the reaction. When government insists on shaking the test tubes of commerce, the reaction can build explosive economic bubbles. Or the experiment may fizzle. The only sure thing is that uncertainty goes up.