The Unpredictability of The Effects of Regulatory, Monetary, and Economic Policy

Uncertainty Is the Enemy of Recovery

At Vanguard, we estimate that policy uncertainty has created a $261 billion drag on the U.S. economy.
By: Bill Mcnabb

Topic: The GDP was below what was anticipated for the year and many top analysts fail to see how this is possible in light of a thriving stock market. Companies are continuing are making money but are not dishing it back out into investments or hiring new employees. The author identifies the lack of optimism or faith in the system is because of a number of issues that reflects some inconsistency between policies and the unpredictable nature of the private sector. Supposedly the government will not achieve the desired GDP or see major improvements in the unemployment until a clear path is cut for corporations to follow in terms of handling the national debt and fiscal policy. Three economists, Stanford University's Nicholas Bloom and Scott Baker and the University of Chicago's Steven Davis, have done invaluable work measuring the level of policy uncertainty over the past few decades. "Their research (available at policyuncertainty.com) shows that, on average, U.S. economic policy uncertainty has been 50% higher in the past two years than it has been since 1985." The analysts the author of this article used at the corporation that he is the CEO from determined that changes in the U.S. economy were directly linked to Uncertainity in the Economy as major changes in employment and corporate investing occured following the debt-ceiling debacle in 2011 and the recent congressional sequester. When all of the finances are calculated, it is clear that if these major events that created pessimism in investors had not occured, the GDP would have grown 3% per year since 2011. This is what the author calls "uncertainity tax" because it takes a toll of nearly $800 a person by creating an economic drag. In addition, the U.S. labor market would have added roughly 45,000 more jobs per month over the past two years. That adds up to more than one million jobs that we could have had by now, but don't. The debt-ceiling debate placed a $112 billion drag on the economy and the sequestration is predicted to place an $85 billion drag. Vanguard, the investing firm that the author is the CEO of, says that there is too much fiscal responsibility and that affects both corporations and individuals "They ask: How does this affect my retirement fund? What about my college savings account? How does this affect my taxes? Would I be better off putting my savings under the mattress?" So what the question we all must ask ourselves is; are these cumulative social policies are worth arguing over, considering what their constant debate has already done to the private sector, or if we our willing to accept the imperfections in fiscal policy and move forward with a clear cut, and imperfect, plan?

Opinion: The number one priority for policymakers right now should be to develop a credible and argreeable plan of attack to create jobs and and make investors more certain in the economic welfare.
The key is to provide clarity to businesses, financial markets and everyday savers and investors. When these investors see a set plan that is proven to show any form of economic improvement, not necessarily the one that produces the largest GDP, lawmakers should seriously consider its implications because from what I've read in the article is that the economy would be in much better shape, and there is would be a lot more jobs if lawmakers had settled on policies a long time ago, rather than procastinate, and consequently, exacerbated the issue. I understand that every lobbyist, every delegate, every branch, every beauracrat has their own agenda, but they need to consider how uncertainity has effected the overall fiscal environment just in the last two years. The nice thing about the economy is that it has the ability to bounce back, all that is required is a clear-cut strategy set forth by our policymakers that gives investors and corporations the confidence to put more of their profits into the system.

Conclusion: Uncertainity is something that can easily be fixed. When you look at the facts of the issue, particularly how the U.S. economy has faired in the last 2 years with so much fiscal debate, it is clear that the indecision has done more harm than good. Policymakers don't want to set an agenda because they understand that investors are unpredictable when the economy is down. However, when the stock is up and the GDP is down, it is much easier to identify the uncertainity factor. Policymakers should move forward with an agenda while the stock market is doing well because after a clear and credible policy set is established, Investment firms will base their strategies and expansive portfolios around the new and clearly estabished policy, acting more as guidelines for them to operate. It is not wise to wait around trying to create the perfect policy set and resolution to the deficity while the economy becomes worse and worse.

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