Uncertainty can slow economic growth.

Economic Uncertainty

by Elaine Schwartz    •    Nov 7, 2012    •    657 Views

Uncertainty might impede economic growth.

The research of several economists indicates that policy uncertainty foreshadows and might even cause slower economic activity. To prove their hypothesis, they created an Index of Economic Policy Uncertainty with 3 data components: 1) The frequency that uncertainty and economic appears in news articles. 2) The number of expiring tax provisions. 3) The volume of economic forecasting disagreement. Very simply, they think that when employers are unsure of future regulation, taxes and interest rates, they postpone hiring and investment decisions rather than risk having to reverse them in the future.

This takes us to election results. Will the political gridlock that creates economic uncertainty continue?

Sources and Resources: The economists, Scott R. Baker (Stanford), Nicholas Bloom (Stanford), and Steven Davis (U. of Chicago) have a website that presents their indices and links to their research (the source of the graph that follows) and further discussion of their ideas. For a briefer summary, I suggest this Vox article and a Stanford summary of their work. Do take a look. It certainly relates to election results.

Policy Uncertainty Might Impede Economic Growth

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