• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • The Uncertainty Factor

    Liberals are trying to take a big victory lap today over the stimulus. They proudly proclaim that the stimulus created more than two million jobs. They base these findings on models that simply multiply government spending by a multiplier to produce the net growth to jobs and GDP. Digging a hole in the ground is good for the economy as long as the government is paying for it in these models.

    Yes, the labor market has stabilized. Job losses are not as big, but job creation is slow and sluggish. Liberals can blame themselves, since businesses will delay hiring as long as possible due to the heavy-handed policies being tossed around in Washington. Businesses will be subjected to more regulation and higher costs as the government expands its reach into the private sector. And it’s not just policy wonks at think tanks that are worried about this. Key policymakers are concerned about the chill that Washington has thrown over the labor market.

    Businesses are unable to calculate the price of labor, because businesses do not know which proposals will pass. Health care could still pass, which would bump up labor costs for many businesses. So right now, it is impossible for a business to calculate how much a worker will cost in a few months. Businesses will not hire until they know that an additional worker will be profitable.

    Narayana R. Kocherlakota, president of the Federal Reserve Bank of Minneapolis, worried about this point in a recent speech:

    I see two areas of concern. First, there is a great deal of uncertainty related to major policy initiatives under consideration in Washington. Congress is considering proposals for enormous changes in health care and in the structure of financial regulation. These proposals have generated a great deal of uncertainty, for the capricious winds of politics seem to change them on a near-daily basis. As bankers, you know that too much uncertainty in a business plan makes for a risky loan. The same is true for the economy as a whole. I see this kind of political uncertainty as problematic for the prospects of rapid recovery.

    Cross-posted at The Corner.

    Posted in Economics [slideshow_deploy]

    Comments are closed.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×