wall street

It’s Not What We Don’t Know.

It’s what we do.

The phrase economic uncertainty implies concern about the future in this sense: we don’t know what’s coming, and that scares us into holding onto our cash. Uncertainty is offered up as essentially a psychological market disorder, a disease of the capitalist mind that prevents the market from operating “properly.”

Certainly, business confidence is a very important thing, as is customer confidence, but I am not convinced that it is uncertainty that is driving loss of confidence.

Historical Context

To get to the point quickly, there are those who view the Obama Administration as creating a great deal of economic uncertainty that is causing businesses to sit on a great deal of cash that they are refusing to use to expand; nor are these businesses investing this money in bonds or stocks or other assets.

Granted, others have different reasons: perfidy, inherent greed, evil, stupidity, spite, strategic assaults on the President’s political future, etc. These do not satisfy as reasons. They are, instead, emotional accusations.

Some argue that this is a recurrence of a phenomenon that took place in the late 1930’s: a failure of private investment to reawaken to the point of driving the economy out of recession. It’s suffice to say that arguments similar today were advanced to explain this failure, not least of which by FDR himself. Business morphed into a dictatorial unitary entity which sought control at the expense of all free people.

But, that’s politics.

In studying this period, the truth finally dawned on me. All this talk about uncertainty about the future was completely misplaced.

Economic Certainty About Bad Things

If business lacked confidence, it wasn’t because of what FDR could do. That would be speculation.

It’s what he had already done that, from the perspective of businessmen, was bad enough as it stood. FDR had brought in many “soak the rich” policies, bringing in total revenue in 1937 that exceeded that of the economically fat but low-tax year of 1927. FDR had attempted to pack the Supreme Court with his own supporters by expanding the court and then nominating extra justices; this was foiled by Congress, but Supreme Court resistance to his programs suddenly ended completely, lest a revival of the scheme be tempted. So, programs that spent the vast monetary resources being confiscated from private business – Social Security, for one example – made use of the money that, according to FDR and his supporters, was being unjustly hoarded by irresponsible businessmen.

It is of little interest to me whether these concerns should be justified. What’s important is that there is absolutely no reason why speculation would have been the primary factor in depressed confidence. If businessmen had a problem, it wasn’t with nightmares of how far FDR might go; at least, not mainly. It was that from their perspective, the sitting administration was bad for business. Because it already had been bad for business, a verified fact (from their perspective), these businessmen were not uncertain about the future; they were certain that it would be bad as long as current policies continued.

Fast Forward To The Present

The concerns and frustrations of American businessmen with the Obama administration are quite numerous. While there certainly are present concerns that sap confidence, mainly because it is not at all certain that Congress will ensure even some of the numerous tax breaks expiring at the end of 2010 are renewed for the next year (something that will affect individual businessmen, small business, consumers, and the economy at large), it is once again difficult for me to see what could happen as the primary factor in a loss of confidence.

Put simply, human beings are very good at figuring out how something that has already happened, or is already happening, will hurt them. Humans are very thorough about this survival mechanism, even while they are very good at denying, or at least downplaying, potential harm.

Disclaimer: I’m not endorsing these views, I’m just recognizing that what people believe from their point of view affects their mindset.

Since the beginning of the Obama administration, the admin has passed a variety of large spending packages that intervene heavily in the banking and automobile industries, with a lot of involvement continuing in the mortgage industry. Of course, there is health care reform, which businesses view from their point of view as adding to costs and red tape. There are other areas of complaints, but it’s not really my agenda to get into them here.

My point is simply this: if people are dismayed, it is not because of what they speculate will be done in the remainder of Obama’s first term; it is because they are extrapolating from their views of what he has already done.

Again, psychology is overrated, and the word implies that this is just emotion and hot air and opinion with no basis whatsoever in reality. Rather, people are forming judgments based overwhelmingly on their perceptions of the present and the recent past.

Therefore, in their own minds, this reduced confidence is not the result of uncertainty; it is the result of being sure things are not good, at least for them.


The real point is, it’s a lot less about how you feel than what you think you know. People may accept that they do not know the future with certainty, but they are easily convinced that they know how something in the here and now will help or hurt them – and make decisions based on these beliefs.

Uncertainty, no. An issue of confidence? Absolutely. And so it should be.