Wednesday, June 13, 2012

“The uncertainty is caused by the ongoing debate. Were there no ongoing debate, there would be no uncertainty.”

I think there's a lot of very low quality discussion of regime uncertainty out there. The dumbest stuff you hear is accusations that Keynesians don't understand it, don't think about it, or don't worry about it. But there's also the common confusion that treats policy itself as the problem rather than policy uncertainty.

Brad DeLong shares a story that underscores the difference. Quoting Greg Sargent:

"Mitt Romney has debuted a new talking point on the campaign trail, arguing Obama is out of touch with the negative impact Obamacare is having on small businesses. This is designed to reinforce the larger case that Obama is detached from Americans’ economic difficulties. Romney’s claim is based on a local interview Obama gave in Iowa, in which the president was told by a reporter that a local company had closed and was moving jobs to Wisconsin because of Obamacare...

...It turns out that the company didn’t close because of Obamacare."

The spokesman for the company clarifies:

"The issue is not the administration’s propsed reforms,” he continued. “The issue is that there is no certainty as to what reform is going to look like. Is it going to be repealed or modified? Is it going to be decided in June by the Supreme Court, or the election? Or decided through a series of lawsuits?” “The uncertainty is caused by the ongoing debate,” Schurman said. “Were there no ongoing debate, there would be no uncertainty."

Now, part of this is just a fact of life. We're going to have ongoing debate in a democracy. That's largely the point. That causes some uncertainty and some jobless, but you can't ignore "the unseen" here. You have to also consider how much stronger the economy is because we have a (mostly) responsive democracy.

But the point is it's nonsense to identify Obamacare itself with regime uncertainty. It shows you don't really understand what the concept means. There is reasonable and there is unreasonable regime uncertainty. It oughta have a constitutional test, and we should hear back on that soon. That causes regime uncertainty, but it's probably worth it. We oughta think carefully about implementation. That's going to cause several years of regime uncertainty. But what's your alternative? Committing us to a master plan without learning from experience and consultation? That's not a good idea. So the regime uncertainty associate with thoughtful implementation is probably worth it.

Everything on top of that is regime uncertainty that probably isn't useful. This reform has not just been crammed down our throat. We've been discussing versions of it for decades and it was a centerpiece of a presidential campaign. My understanding is that there doesn't seem like any plausible way it could be repealed. It has all the legitimacy of any other major reform. That means that the uncertianty generated by talk of "repealing Obamacare" is basically hot air and it has more to do with getting politicians elected than with making actual policy decisions.

You might disagree with me on the details, but be careful how you talk about regime uncertainty. If you think that Ron Paul is less a source of it than Obama you probably don't understand the concept. And if you think Don Boudreaux is more attuned to it than Paul Krugman, you probably don't understand the concept.

And then there's still the empirical question of what share of our current problems are even attributable to regime uncertainty.


  1. This David Beckworth post provides evidence that uncertainty is not the big issue, lack of demand is:

  2. I think you're forgetting about a source of uncertainty: lack of understanding of the legislation. I don't remember how large the ACA is. I just remember is was a gigantic piece of legislation that did a LOT of things. I think it's fair to say that close to nobody (especially not small business owners) knows what it says. We'll all more or less find out as it is being implemented. That is a form of uncertainty that is caused by passing this kind of highly complex legislation.


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