- The Washington Times - Thursday, January 28, 2010


The December report showing an 85,000-job loss caught many off-guard. Why? In general, uncertainty is the market’s greatest fear. It responds accordingly. In particular, we are in the most uncertain period - in more crucial areas - than at any time in most Americans’ memory. Businesses simply are responding accordingly.

The revised November report of a 4,000-job gain had offered a glimmer of hope that the recession’s employment implosion had subsided. Many awaited the Department of Labor’s December report for more positive evidence. It didn’t come. Instead, the report brought another loss - this time 85,000 jobs, which took the recession’s loss total to 7.2 million since December 2007. Had the U.S. work force not shrunk by 661,000 due to an exodus of discouraged workers, the unemployment rate would have reached 10.4 percent instead of staying at 10 percent.

Perhaps the biggest surprise in these figures is why there was any surprise. Looking at today’s extremely tenuous business fundamentals, what is there to inspire employer confidence to hire more people?

The overall economic picture is hardly salubrious. Before its third-quarter growth, the U.S. economy had shrunk for four consecutive quarters and five of the previous six. Consumer spending, the nation’s economic engine, fared no better. The Federal Reserve reported that consumer credit shrank by a record $17.5 billion in November. Consumers, too, are cautious.

These gloomy statistics played out despite the fact that a large economic stimulus bill was in effect and the Federal Reserve was administering effectively zero percent interest rates to the economy. How long both of these situations can continue is questionable.

The government’s fiscal front was no more promising than the nation’s economic one. Washington recorded a record $1.4 trillion deficit last year and is projected to reach roughly the same level again this year. Fueling these deficits is the fact that the federal government is spending almost a quarter (24.7 percent) of everything America produces.

Such a fiscal performance raises more questions. What will be the effect of such high levels of spending and deficits? A double dose of uncertainty, for sure.

Washington’s spending is consuming the largest portion of the economy in America’s post-World War II history. That consumption means resources diverted from more productive uses in the private sector. If these deficits are tackled as Washington is wont, it will mean increased taxes on the private sector to boot - taking resources before the private sector is able to invest them. And if taxes do not increase, the government’s borrowing will compete with the private sector’s ability to do so.

The political world is no more certain. Washington is facing a number of enormous policy issues, all of which could have an enormous impact on the private sector. There are health care, climate change and financial regulatory reform right off the bat. Additionally, at year’s end, the 2001 tax cuts will expire without legislation extending them.

The November 2009 elections’ outcomes - only reinforced by the Massachusetts Senate special election - had an anti-incumbency overtone. Anti-incumbency obviously affects the majority disproportionately. That means government policy volatility, which again equates to more private-sector uncertainty. Policy decisions could change markedly in the aftermath of next November’s midterm elections.

With economic, fiscal and political uncertainty at extraordinarily high levels and with potentially enormous impacts, it is no wonder businesses are awaiting greater clarity before making decisions.

It is axiomatic that the market hates uncertainty, in a manner akin to the way nature abhors a vacuum. While nature fills its vacuums, business addresses its uncertainty with inactivity.

The reason is simple. The only thing business can control in the near term is its costs. The last thing business wants to do in the current climate is to add the certainty of higher costs - and the reduced flexibility they entail - to the uncertainty of its earnings.

It is hard to recall a greater period of uncertainty for U.S. business. Business is reacting the way it always reacts to uncertainty: adversely. And it is rational in doing so. In such circumstances, it is not business’s attitude that is surprising, but the reaction of those who would expect otherwise.

J.T. Young served in the Treasury Department, the Office of Management and Budget and as a congressional staff member. He is a registered lobbyist.

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