Uncertainty and Confidence
Steve Verdon | Thursday, February 5, 2009
What role does uncertainty and lack of confidence play in the current economic situation? I was listening to Russell Robert’s podcast with John Cochrane of the University of Chicago on financial crisis and one point he raised is that people are lacking confidence and are uncertain about what taxes will look like in the future.
John Cochrane: Well I think one of the reasons people are scared cause you don’t know what huge program is coming down the line.
Russell Roberts: I agree with that.
JC: I mean what is the tax system going to look like a year from now? You’d be a fool to invest, uhhm, we’ve seen all sorts of companies, the car companies need you and me to lend them money and buy their stock, but what is going to happen there. Uhhhm, in one of the government bail out loans the government said, “Oh by the way we are going to wipe away the rights of all the senior creditors.” Huh, well that could happen could happen any moment.
The recent spate of try this, no that, we’ll we just need to spend more. No, we will spend better. No later. Nope, we need lots of contraceptives. No, not that, cut taxes. No raise taxes. Tax the rich. TARP 2.0. $800 billion. No, $900 billion. With no idea of how this is going to be paid for, never mind the other fiscal imbalances the country is already facing. And all the while the supposed savior is telling us that we are the brink of calamity. Gee, could confidence and uncertainty be issues?
Lets suppose that the fiscal stimulus multiplier is greater than 1 if you find the right programs to spend that money on. Then it is also the case that the money has to spent on those programs and you have to spend it during the actual economic contraction. Not 6 months later. And color me skeptical, but I don’t think $335 million for contraceptives is going to have a good multiplier, but I could be wrong. Sounds more like pork barrel spending than anything else.
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