Antiderivative
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- Apr 17, 2011
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- #1
For what it's worth, I think the major impediment to economic growth at present is uncertainty on the part of the key economic actors, namely businessmen and consumers. Businessmen are hesitant to hire and invest and consumers to spend, in both cases because of uncertainty about their economic prospects.
I use uncertainty in the sense in which the economists Frank Knight and John Maynard Keynes distinguished between risk and uncertainty. Risk was a probability that could be estimated, uncertainty a risk that could not be estimated. The distinction is unpopular among economists because a nonquantifiable risk greatly complicates statistical analysis of economic phenomena, but it seems to me a real and important distinction when one is dealing with the business cycle. And there is a growing literature in economics on ambiguity aversion, by which is meant aversion to uncertainty in the Knight-Keynes sense.
*snip*
At present the U.S. economy is afflicted with at least five major sources of uncertainty.
1. One is the economy of the eurozone. If Greece defaults on its public debt, which remains a possibility in the near future (a year or two years from now), this may have a domino effect
2. Second is uncertainty about whether and on what terms Congress will raise the U.S. public-debt ceiling. Default is unlikely, but no one knows what deal the Republicans and Democrats will strike to avert default.
3. Third is uncertainty about federal regulation of the financial and health sectors. The ambitious health-care and financial-regulation reform statutes enacted by Congress in 2009 are very long and complicated, but at the same time incompletecompletion of these regulatory edifices was delegated to regulatory agencies that have not come close to finishing their work.
4. Fourth is a widespread suspicion in the business community that President Obama is in the pocket of the labor unions, is viscerally hostile to business, and is entirely focused on winning reelection. The suspicion is (in my opinion) greatly exaggerated, but is real.
5. Fifth, there is a sense that politicians the world over, notably including the United States, are preoccupied with the very near term and are simply postponing the day of reckoning with the worlds economic problems that grew out of the financial crisis of September 2008 and the ensuing global economic crisis, which is still with us
Why the economic recovery is lagging