Monday, September 20, 2010

Of Fear, Fuzz, and 'Uncertainty'

By Bob Hockett

I wonder whether, like Neil (see last Friday's great post) and like me, you who are reading this post have noticed the frequency with which a new word appears to be finding its way into the public statements of Republicans and their wealthy clients these days.  The word is 'uncertainty.'

Wednesday morning last week I heard the representative of a trade group, who is lobbying for the repeal of certain regulatory paperwork requirements to which some businesses are subject, employ the 'u' word in justifying the sought repeal.  Businesses, he said, were faced with 'uncertainty' insofar as they had to fill out such forms, which is unfortunate indeed during slump times when firms are still hesitant about new investment outlays and hiring, and when banks are in any case hoarding.

The weekend immediately preceding that Wednesday, I heard House Minority Leader Boehner employ the same word in attempting to justify new lower tax rates for millionaires and billionaires.  Allowing the astonishingly large 2001 Bush tax cuts for millionaires and billionaires to lapse early next year as the 2001 legislation itself mandated, he claimed, would induce 'uncertainty' among business executives, which would be unfortunate indeed during slump times when firms are still hesitant about new investment outlays and hiring, and when banks are in any case hoarding.

Prior to that weekend, I heard many additional uses of the 'u' word from other Republicans and their clients, in each case to justify some benefit -- either in pecuniary or in regulation-evasive form -- for millionaires, billionaires, or 'small businesses.'  Neil this past Friday catalogued some from this past summer.  Hmm, I wonder, what -- apart from the government to the wealthy, per these Republicans' wishes -- gives?

To be perfectly candid, my first, albeit naive and fleeting reaction upon hearing the word 'uncertainty' employed with such abandon by Republicans was something on the order of, 'wow, this is welcome news!'  For, as many of us who have sought to diagnose either or both the nation's recent financial woes and its continuing economic slump have been arguing, our financial markets and our macroeconomy are very Keynesian things: 'Keynes Chapter 12,' or 'Knightian' uncertainty as distinguished from actuarial risk is by far their most salient characteristic in times of boom and in times of bust.  And many mistakes made by Republicans and 'moderate' Democrats alike where the regulation of financial markets and the framing of fiscal and monetary policy are concerned, for their part, are attributable precisely to these people's not having hewed to, or in most cases so much as noticed, the distinction.  (For more on its significance, see my post here in September of last year, on Keynes, Richard Posner, and James Dean.)

The false belief that rational expectations on the part of economic actors -- which might indeed be formed and acted upon by most -- are always accompanied by a capacity to assign determinate probabilities to all future contigencies, for example, seems to have led most Republicans and many Democrats to think silly things.  (See the aforementioned post.)  They appear to have supposed, for example, that bubbles and busts in financial markets are incompatible with individual rationality and informational efficiency in those markets.  And they have sometimes suggested that sundry monetary and even fiscal policy changes are doomed to ineffectuality simply by dint of affected parties' capacity precisely to anticipate, calculate, and 'discount' -- that is, in this case, to sidestep or otherwise neutralize -- with precision all effects of those changes in advance.  A favorite trope, that one, of those who brouht you the so-called 'rational expectations revolution' in macroeconomic 'thought' late in the 20th century.  Such suggestions have proved erroneous precisely by dint of their resting upon the conflation of uncertainty with actuarial risk.

Against this backdrop, then, it naturally seemed good news, at least at first, that Republicans were now embracing the category of Knightian uncertainty -- particularly as their party had conspicuously embraced the thinking of the aforementioned 'rational expectations' types in the 1970s and especially '80s.  So 'if only,' one thought, 'Alan Greenspan and his acolytes had discovered the "u" word ten or more years ago!  But better late than never.' 

And yet now comes a puzzle:  Uncertainty, or even risk for that matter, seems to have no application what ever to the Bush millionaire/billionair tax cuts, as Neil nicely brought out last week.  Nor does it seem to have much if any bearing on regulatory paperwork.  After all, what could be more certain, or even more measurable, than the changes long set -- set for ten years! -- to take place in the taxes owed by millionaires and billionaires come 2011?  And what could be less uncertain than what is required, in the way of paperwork, by legally prescribed boilerplate forms?  In view of the manifest determinacy and long-anticipated occurrence of these now finally imminent occurrences, the affixing of the predicate 'uncertain' to them by Republicans right now seems initially curious indeed.  Is it just a case of poor word-choice?

I think, sad to say, that there might be a better explanation.  The first clue emerges when we recall certain rhetorical and related political strategies characteristic of the Bush campaign in 2000.  Further, supporting clues emerge when we turn then to political strategies employed by both the Bush administration and the Republican Congressional caucus, from about 2002 through 2008.  Here is the tentative story, which I admit to be merely conjectural for now:

To begin with, first recall a puzzling exchange that occurred during the first Bush-Gore presidential debate in the autumn of 2000.  In discussing candidate Bush's then-proposed massive tax cut plan and Social Security privatization scheme, Gore cited the recklessness of both proposals, and provided precise CBO estimates of the likely fiscal and budgetary impact of the tax cut plan in particular.  Bush for his part had no rebuttal at all.  He offered no reason to doubt the budget projections, and offered no contrary figures of his own.  Instead he said, simply, 'fuzzy math,' while wearing one of the more fuzzy expressions I've ever seen on a human face.  (He proved capable of continuing to wear it for many years thereafter.)

In thinking about Bush's surprisingly weak response (even for  Bush) at the time, it occurred to me that what Bush was doing was probably no more than acting upon a very well Rove-calculated strategy.  The aim, I hypothesized, was effectively to 'implant,' by suggestion, a perception of fuzziness or indeterminacy in the minds of debate viewers, whom Rove probably had (not implausibly) guessed were innumerate and readily manipulable where attitudes toward budget projections were concerned.  'Get Bush conclusorily to ascribe fuzziness and look puzzled himself,' I surmised Rove to have probably calculated, 'and you will effectively exploit viewers' mirror neurons and get them to experience something like fuzziness and indeterminacy, and thus to discount Gore's knock-down argument.'  How I then yearned for a 'Senator, you're no Jack Kennedy' moment -- in this case, some such rejoinder from Gore as 'the arithmetic's clear, Mr. Governor, any fuzz here is strictly in your confused head.'

My provisional interpretation of the bizarre 'fuzzy math' trope later found what struck me as corroboration in the subsequent strategy of global warming skeptics and their deep pocketed petroleum-extracting sponsors, to finance and promote sundry self-styled 'studies' purporting to show that the case for climate change is still undecided and up for grabs.  Make it look as if there's still real 'debate,' on this question, as Neil has noted these people to reason, and you will induce in them doubt and uncertainty about what to believe, hence induce them to fall back on stasis.  For one tends, where there's doubt, simply to keep doing what's been done -- a Burkean variation on the tendency that Keynes noted on all of our parts to assume, absent affirmative reason to the contrary, that tomorrow will be more or less much like today.

So here is my conjecture about Republicans' recent discovery of the 'u' word: I'll bet the Republicans are now acting, pursuant to deliberate strategy, to instill the uncertainty they pretend attaches to expiring millionaire/billionaire tax cuts and to all forms of externality-preventive regulation.  They're aiming to do so, in part, just as Rove did  in programming Bush to say 'fuzzy math' and look, well, fuzzy-faced in that first debate.  That is, again, by 'communicating' (in the 'communicable disease' sense) or inducing that sense of uncertainty by suggestion, in effect commandeering our mirror neurons -- the things that lead us to smile when we see smiling, to tear up when we see weeping, and to fear when we see others fearing -- to manipulate our very perceptions and mood. 

Republicans also appear to be aiming to do this -- to foment slump-sustaining uncertainty -- by another, by now more familiar and complementary means.  That is by randomly obstructing most pending recovery-facilitative legislation, while occasionally letting some through.  For erratic governance of course does constitute a ground for uncertainty.  The party of 'no' is in this sense holding our economic recovery hostage. 

Why would Republicans do this?  I can see two related possible reasons:  First, as Mike and I have discussed together in recent days, by so doing the Republicans can (falsely) attribute the uncertainty that many now Keyesianly -- and rightly -- blame for our ongoing hording and slump, to what are quite unrelated factors that the Republicans are bent upon changing for reasons having nothing to do with the health of the economy.  Tax cuts for millionaires and billionaires, for example, only fuel speculative bubbles, not real investment or economic growth.  For millionaires and billionaires manifest very low marginal propensities to consume.  But Republicans nevertheless have other reasons to channel money to these -- their bankrollers -- notwithstanding their harm to the broader economy.

Second, by actually causing, instilling or fomenting continuing uncertainty, hence continued economic slump, Republicans can enhance their own electoral prospects.  That is the case precisely by dint of the public's oft-encountered Pavlovian tendency (itself actively encouraged by Republicans but also by others when out of power) to blame whoever is currently in the White House for the economy's current performance.

If I am right about this, then Republicans effectively just are the disease for which they puport to be offering a 'cure,' as Karl Krauss might have put it.  They are the cause of continuing slump-protracting uncertainty, hence the cause of continuing slump.  And that is a shame -- not to mention a dangerous game.  It is even more dangerous, in view of the present state our economy, than was Bush's bizarre claim in 2005 that the Social Security trust fund required privatization because it contained 'only IOUs.'  As if Federal Reserve notes -- yep, dollar bills -- didn't themselves rest on trust for their value, and as if U.S. Treasury bills had not long been the gold standard, virtually equivalent to cash, where safe investment vehicles are concerned.

Is my conjecture correct, then?  Are the Republicans in fact aiming to cause the very uncertainty -- and with it the very dangers -- that they ridiculously attribute to long-anticipated phase-outs to destructive and budget-busting millionaire/billionaire tax cuts from 2001, and to familiar boilerplate regulatory requirements?  Well, one reason to think so is the obvious implausibility just mentioned -- that of the link they attempt to draw between continuing uncertainty on the one hand, and the tax cut phase-out and regulatory boilerplate on the other.  Another reason to think so is the Republicans' regular resort to fear -- 'terrorism uncertainty,' let's call it -- as a political strategy from 2001 through 2008.  Against that recent historical backdrop, the Republicans' late discovery of Knightian uncertainty looks simply to be a retooling of the by now shop-worn terrorist fear strategy for use in the economic domain, capitalizing on the recent rediscovery of the wisdom of Keynes in so doing to boot.  Surely it isn't implausible to hypothesize some such strategy as this on the part of the Republican party.  If you are finally learning that 'it's the economy, stupid,' after all, but at the same time are still inclined to appeal to anger, fear, and others of our baser attributes rather than to hope, charity, and solidarity, then inducing Knightian uncertainty is for you.  It is your Terror Paranoia 2.0.

However plausible my conjecture, though, the real clincher -- what would make clearest of all that the Republicans are up to what I'm supposing -- would be our finding another nice memo from Frank Luntz.  Mr. Luntz, recall, is the current crown prince of negative Pavlovian political strategy among the Republicans, whom we've found occasion to notice before here at DoL.  Just as Luntz counseled Republicans simply to repeat, over and over and over again, the word 'takeover' in connection with health insurance reform, and then the word 'bailout' in connection with finance-regulatory reform, he might well have counseled, in a similar memorandum, that Republicans now begin to incant the 'u' word over and over and over again in connection with millionaire/billionaire tax cuts, as well as with all forms of externality-preventing regulation.  Let us, then, look for this memo.  It's virtually certain to be out there!

And while we are searching, as an antidote to this latest round of Republican anger-, fear-, and 'uncertainty'-mongering, let us recall the level headed wisdom of this great Republican of the not so distant past, who acted to calm the nation at another time of politically prompted paranoia:  .  And let us remember the wisdom of this great Democrat as well, who presided the last time we lived through economic times like those we're now seeing.  When he said that all we have to fear is fear itself, he wasn't just playing on words.  He meant it.  Contrast that with today's Republicans, who seem to fear, most of all, that you won't be afraid come November.