Sunday, July 22, 2012

Keynesians and Uncertainty IV

More from Brad DeLong that I think nails the genuine difference on uncertainty much better than Chidem did.

That's it for me today. More in the future, with potentially more actual analysis rather than sharing of past writing. Feel free to send me other examples. Expectations about the future are perhaps the most important determinant of macroeconomic behavior, after taking into account all the "real factors" that allow you to produce in the first place. And the defining feature of our expectations about the future is, of course, the uncertainty of those expectations.

The "Uncertainty" Argument, Brad DeLong, September 30, 2011 (emphasis mine)

"Thinking again about what Robert Barro said during our debate on Saturday September 24, his argument seemed to me at least to have the following structure:

  • The enormous widening of interest rate spreads tells us that a major factor holding business back from entrepreneurship and expansion right now is uncertainty.
  • The uncertainty that matters is uncertainty about future government policy.
  • Resolve the uncertainty about what taxes and regulatory systems are going to be in th future, and the economy will recover very quickly.
I pointed out that the big increases in uncertainty about taxes and regulation in the 2000s came in two waves:

  • One wave between 2001 and 2003 when the Bush administration, via its tax cuts and Medicare D, destabilized the financing of the American social insurance system.
  • A second wave in 2009, when the Republican Party went into opposition on health care reform and rejected its own ideas--the Heritage Foundation-originated Romneycare plan that became the ACA.
Both of these took large and important areas of government policy and shifted them from being settled consensus to being completely up for grabs.

Yet business was distressed not by the increase in uncertainty about taxes that came in 2001-3 or about regulation that came in late 2009 but instead by the uncertainty about financing and demand that took place in late 2008."


  1. Sort of OT:

    I read, "Keynesians and Uncertainty TV". ;)

    Imagine, if you will:

    Behind Door Number 1: The Confidence Fairy
    Behind Door Number 2: Fed Chairman Chuck Norris
    Behind Door Number 3: Nouriel Roubini

  2. Ubiquitous generic uncertainty will always be present due to uncertainty about what the Keynesian State going to do next. The specific uncertainty always present will result from the inability of everyone to conduct intelligent economic calculation due to the money dilution schemes schemes of the Keynesian State.

    No one's body, property or plans are safe when the Keynesian State is in session. "Solving" problems that do not exist and causing the ones that do: The Keynesian State.

  3. Depending on where you're going with this you may want to read this paper by Brian Weatherson, if you haven't already: Keynes, Uncertainty and Interest Rates

  4. Kevin Donoghue: That paper by Brian Weatherson has been criticised by Dr. Michael Emmett Brady in the following paper, which was accepted for publication in Italy's History of Economic Ideas. The criticism of Weatherson's paper is that Keynes had already developed an interval-valued approach to probability.


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