Uncertainty. Perhaps the most repeated word in corporate boardrooms and policy shops these days. For the lion-hearted it spells opportunity, daring to go where others fear to tread, in search of outsize rewards. For the faint-hearted, it means cold sweats and cancelled investment and hiring plans. For policymakers it spells impotence.
If insufficient demand is slowing the economy, congress can loosen fiscal policy in the reasonable expectation that larger deficits will put more money in consumers’ pockets, which they will then spend. If CEOs are holding back on investments, the monetary-policy gurus at the Fed can lower interest rates to make borrowing cheaper and improve the rate of return on investments, and not incidentally cheer up owners of assets by pushing the prices of shares, houses and other assets higher. With reasonable certainty, reaction can be expected to follow action.
Uncertainty snaps the link between action and anticipatable result. It is the kryptonite that deprives policymakers of their powers. John Maynard Keynes argued that uncertainty exists when all possible outcomes of a decision or policy cannot be known. In such cases, there is no sound foundation for the tools with which economists measure risk, which is measurable only when all possible outcomes are clear. Since all possible outcomes of Donald Trump’s twitter finger cannot even be guessed at, much less known, policymakers and executives are setting sail on a sea of doubt, to borrow from former President and, later, Chief Justice William Howard Taft.
Fed chairman Jay Powell confesses the Fed must now set monetary policy in response to “trade policy uncertainty,” which it can neither predict nor affect. Uncertain because President Trump, who rightly aims to force Xi Jinping to end or at least rein in China’s predatory trade practices, lurches from tactic to tactic.
The uncertainty over trade policy creates uncertainties throughout the economy. Hasbro’s shares were hammered when tariffs on its made-in-China toys hit demand. Management has no way of reducing the uncertainty created by President Trump’s threat to add 10% to tariffs on Chinese goods come December 15. No way to guess whether Trump will play the Grinch or don his Santa suit and stay his hand. Neither leaky officials nor highly paid lobbyists can reduce that uncertainty.
Then there are the nation’s railroads, several of which depend for a significant portion of their revenue on hauling agricultural goods to ports for export. Trump’s claim that China has agreed to purchase up to $50bn of soy beans and other products proved to be premature and exaggerated. That was a major disappointment not only to farmers, but to several American railroads and ports. “I would rather that the federal government be predictably good than sporadically great,” Mike Steenhoek, executive director of the Soy Transportation Coalition, told American Shipper. The trade magazine calls “trade uncertainty … a dominant theme in the rail demand outlook.”
The uncertainty surrounding trade policy is multiplied several-fold by the uncertainty of the President’s tenure. In 1974 an angry Barry Goldwater said of Richard Nixon, “There are only so many lies you can take, and now there has been one too many. Nixon should get his ass out of the White House — today!” Three days later he did. Mitt Romney, another Republican who repaired to the senate after an unsuccessful bid for the White House, is neither as admired by his colleagues as was Goldwater, nor as rough-hewn. He put his opposition to Trump this way, “The Present’s brazen and unprecedented appeal to China and Ukraine to investigate Joe Biden is wrong and appalling.” To which Trump’s reasoned response was to call Romney a “pompous ass”. Romney matters, but whether he is a canary in the coal mine or a prophet without honor in his own party is uncertain.
The President’s poor poll numbers suggest that only the Democratic Party can assure his re-election — by going ahead with the nomination of a candidate so far to the left that moderate voters will shun him or her. Or, as some in the party are suggesting, rescuing their old standard-bearer, Hillary Clinton, from enforced retirement. She is ubiquitous on TV talk shows, and coyly insists she will run only if Joe Biden drops out, which shouldn’t do much to encourage her fans to provide the former vice president with the cash he so badly needs. Like Dick Nixon claimed to be in 1968 when he successfully rebounded from a series of defeats to win the White House, Mrs. Clinton is tanned, rested and ready, in her case for a return battle with Trump and his army of deplorables.
The possibility of the removal of Trump from office before the election, once deemed unthinkable, now is merely considered somewhere between highly unlikely (most observers) and unlikely. Trump’s senate supporters abandoned him in droves when he precipitously abandoned the Kurds in Syria, then in disgust at his decision (since reversed) to host the G7 meeting at one of his under-utilized hotels, again when he allegedly made military aid to Ukraine and a White House visit for its new president, Volodymyr Zelensky, contingent on an agreement to investigate Joe Biden, and still again when he cried “Lynching.” That’s four strikes.
Presidents are expected to demand a quid pro quo for America in return for agreeing to something that a bargaining partner requests. But not a quo that is to be interference by a foreign power in an American election by providing dirt on a President’s political opponent. Even Trump’s über supporter, senator Lindsey Graham, says he will not support the President “at all costs …. If you could show me that Trump was engaging in a quid pro quo … that would be very disturbing.” Graham would be the most-watched and emulated “juror” at a senate trial of the President.
The departure of Donald Trump from the White House, either by defeat at the polls or conviction by the Senate of the charges contained in the House’s articles of impeachment, would mean a softening of America’s position in the trade war — unless it means a hardening by a trade-union backed Democrat, or an elevated Mike Pence. More uncertainty.
Finally, many executives see in the United Auto Workers’ strike against General Motors a new uncertainty — an end of decades of relative labor peace. The lush package won by the workers might — an $11,000 signing bonus, end of the $12,000-per-worker limit on profit-sharing, several wage increases in excess of the inflation, added job security — be a signal to others in the already-troubled manufacturing sector that militancy pays. Or it might be a one-off in a now-profitable industry saved a decade ago by wage concessions and a government bail-out. No way to know.
Uncertainty has non-trivial consequences for the economy. The National Bureau of Economic Research that in 2008 uncertainty potentially accounted for about one-third of the drop in GDP during the Great Recession. IHS Markit’s Macroeconomic Advisers calculates that the removal of uncertainty over trade policy would add 0.5% to GDP. This skeptic about such estimates reports them only because it would be unfair to keep them from readers seeking a certain estimate of the impact of uncertainty. As they say at Fox News, I report, you decide.
Fortunately, consumers remain cheerfully certain that their financial futures are bright, and are keeping their wallets and credit cards at the ready as they cruise the internet and brick-and-mortar stores. So long as consumers remain unafflicted by uncertainty, their certainty should offset investor and corporate executives’ uncertainty, and keep the economy from tipping into recession. Of that I am, well, uncertain.