More Certain About Uncertainty

May 7, 2013
Posted by Jay Livingston

It’s nice to have your hunches confirmed by real data.

Two years ago, the Republicans were blaming the slow recovery on “uncertainty.”  The job creators (businesses), so their theory went, were not creating jobs because they were uncertain about regulations and taxes that might be in store.  I was skeptical. I’ve never been in business, but I suspected that the real problem in job creation was that business weren’t doing business.  It was the demand – or lack of demand – stupid.

One of my posts (this one) actually got some attention from economists. 

That post was based data from a survey of small businesses. It’s not the highest-quality evidence – business owners could be wrong about the causes of recession and even about what was affecting their businesses – but at least it was more than the single anecdote that law professor/columnist/novelist Stephen L. Carter based his views on.

Now, real evidence is available, allowing us to compare economic recovery in the different states, those laboratories of democracy and economic policy.  If the uncertaintists are right, states where businesses ranked regulation and taxes as their biggest problem should show the slowest recovery.  But in fact there was no correlation.   Owen Zidar at the New York Times Economix blog (here) summarizes the evidence from a few studies.*
Using state-level data from National Federation of Independent Businesses, however, [researchers] found almost no relationship between job growth and the share of small businesses that cite regulation and taxes as their top concern.  (Rather, they found a strong correlation between weak job growth and complaints of a lack of demand.)
So we are now more certain about the irrelevance of uncertainty.
Zidar also reports on other state-level research that adds to our certaint about  other aspects of the economic policy debate:
  • Fiscal stiumlus boosts employment.
  • Increased taxes on the wealthy have a “negligible to small impact on job creation.”
  • Cuts in government spending (e.g., sequestration) constitute a fiscal anti-stimulus and inhibit job creation

* Zidar posted his article two months ago. I found out about it today thanks to a link on Brad DeLong’s blog.


Simply Aaron said...

I had always thought that there was one big data point staring us in the face the whole time, the end of the Bush presidency... After all the tax cutting, regulation smashing and forward marching with manifest destiny like "certainty", the country still ended up down in the numbers.

But pundits and politicians aren't much for data points anyways. They may as well be reading tea leaves. They only see what they want to see in the bottoms of the cup so that they may claim that the other guy is some sort of malignancy on the country. It's what keeps people faithful to one party (line of thinking) or another.

PCM said...

Alas, I too think the politics are more ideological that evidence-based. If you goal is to reduce taxes for the rich, some "study" saying it isn't good for the economy is kind of besides the point.