Claims of “Uncertainty” nothing more than Orwellian ploy by Republicans

Posted on March 19, 2011

1


These days, “uncertainty” is a word that repeatedly pops up in Capitol Hill debates over any legislation that could possibly affect business in the private sector.  Of course, Republicans (and some Blue Dog Democrats) have somehow found ways to trace just about every one of their policy stances, regardless of the issue at hand, back to their efforts to provide “certainty” for American business owners and investors.

In most cases, the supposed financial “certainty” that Republicans look to instill with their policy initiatives is minimal compared to the uncertainty they cause in other respects.  In fact, in most cases, the Republicans’ explanations of how certain bills will cause “uncertainty” in the markets oppose traditional economic assumptions and basic logic.  Can Republicans get away with this Orwellian message simply because the word “certainty” evokes similar images in American minds as the word “conservative”?  Polls show that they do not get away with it, as Obama still holds more clout with the public on the economy than the Republicans. This explains why the GOP, which now embarks on a crusade to repeal the Dodd-Frank reform bill, is keeping its intentions hush-hush.

But even if Republicans are not winning the battle of public opinion on the economy with their “uncertainty” message, they are winning in other more important ways.  They have used this message to extract concessions in legislation, pull American political discourse to the right, and deliver their corporate bedfellows just about everything they want.  In light of this, it is only proper to go through each of these Republican claims regarding market “uncertainty” and judge whether they are true or false…

CLAIM #1

REGARDING:  Financial Reform

ASSERTION:  Certain provisions of the Dodd-Frank bill threaten to create too much “uncertainty” among derivative traders and therefore threaten to damage the market.

From the Wall Street Journal:

House Republicans will also seek to exempt companies that use derivatives to hedge commercial risk from new requirements that they route their transactions through clearinghouses. Those companies have been lobbying for the change, arguing that the Dodd-Frank law leaves uncertainty about whether they would have to clear their derivatives trades.

RESPONSE:  Wait a minute, forcing companies to route derivative transactions through clearinghouses would create uncertainty?  That doesn’t sound right.  That’s because according to the conclusions of the Financial Crisis Inquiry Commission, that is the exact opposite of the case:

…the existence of millions of derivatives contracts of all types between systemically important financial institutions—unseen and unknown in this unregulated market—added to uncertainty and escalated panic, helping to precipitate government assistance to those institutions.

In other words, because credit default swaps were not traded on exchanges and were left completely unregulated, it became virtually impossible to measure the obligations of key financial institutions (AIG, Lehman Brothers, Goldmann Sachs) when the dominos began to fall.  But look at the bold words above: these are two different types of uncertainty.  With a regulated exchange in place, investment banks, on the one hand, would be “uncertain” that the potentially perilous derivatives they wish to trade would survive the analysis of a non-partisan government exchange official with some teeth as opposed to that of a corrupt puppet rating agency that gets a nice fat check for every AAA rating it doles out.  The existence of an exchange might also make the banks “uncertain” as to whether they could push the bill to the taxpayer when they bring the financial system to the brink of collapse again or if they might actually be held somewhat responsible this time around.  With all of this “uncertainty” for banks, no wonder the Republicans were so afraid of an exchange.  The uncertainty the FCIC referred to, however, is the type that the entire financial system is subject to and therefore can actually negatively impact the market. Which uncertainty do you think we ought to curb?

CLAIM #2

REGARDING:  Spending Cuts

STATEMENT:  If we don’t cut funding for PBS, the National Endowment for the Arts, and foreign aid, our budget deficit will create “uncertainty” that will cause a double-dip recession.

RESPONSE:  The means by which a federal deficit leads to unemployment and stagnation in the bond market: excessive government borrowing leads to higher interest rates, which in turn makes credit more expensive for businesses.  Currently, however, interest rates are low, and cutting several tens of billions of dollars (a relatively minimal piece of the budget) this year will not make investing or hiring any less costly for businesses.  At the same time, however, there is reason for concern about our growing national debt affecting the economy negatively in the long-term.  It is essential to begin working today on reforming entitlement and defense spending over the next few decades, but cutting 60 billion or so out of the budget this year will do absolutely nothing to boost economic recovery.  Instead of making this case, Obama has conceded that at least some budget items must be slashed this fiscal year, which proves that misinformation, when repeated ad nauseum, can somehow become universally accepted truth.

CLAIM #3

REGARDING:  Tax Cuts

ASSERTION:  Allowing the Bush tax cuts to expire on those making more than $250,000 annually will cause “uncertainty” for employers and stall the recovery.

RESPONSE:  According to Christina Romer, raising the top income tax rate from 35% to 39.6% would not create uncertainty to the point of affecting business owners’ decisions to hire/fire employees.  If anything, the $680 billion in tax cuts for the wealthiest 1% will contribute much more to exacerbate the long-term deficit problems I spoke of when addressing CLAIM #2.  Ironically, most nonpartisan economists agree that the part of this legislation that is most stimulative to the economy is the extension of unemployment benefits.  The main problem with the economy is the fact that American consumers are simply not buying goods because they are still digging their way out of the credit ditches they drove themselves into last decade.  You can bet that every dollar of that unemployment money is being spent, although I am certain the same cannot be said for the would-be tax dollars saved by the top 1%.

CLAIM #4

REGARDING:  Environmental Regulations

ASSERTION:  Present legislation and talk of future bills that will raise environmental protection standards create “uncertainty,” impede business operations, and hurt the economy as a whole.

RESPONSE:  The potential environmental hazards and crises that may be brought on by climate change in the future will likely hurt business (and humans in general) more than a few carbon emission standards today.  Furthermore, questions regarding our supply of oil in the Middle East create dreadful uncertainty every day, so the faster we achieve dependence on renewable and home-grown energy sources the more certain we can be of what the future will look like.

Advertisements