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A Lesson in Economic Hindsight
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 A Lesson in Economic Hindsight

In a recent Wall Street Journal editorial (January 4, 2010), three prominent University of Chicago economists assume the role of Monday-morning-quarterback, presenting the case for a more prudent approach toward economic recovery.

The trio claims that rather than fundamentally transforming our economy through healthcare reform, energy conservation, education and taxation, our policymakers should have focused on general economic recovery first.  The $800 billion stimulus package, they argue, should have focused foremost on creating jobs rather than energy conservation as an example. 

They cite the anemic measure of recovery, attributing it to the business uncertainty created by efforts to transform the economy.  Past recessions were followed by rapid growth – but, not this time.  Today, banks are uncertain about the direction of reform, so they are unwilling to free-up money to lend; businesses and investors are uncertain about new regulations, so they don’t invest.  Everyone is worried about future inflation.  The result is a long, slow recovery from economic recession.

It’s a simple principle of cause and effect:  “Uncertainty Kills Investment.”  Today, capital expenditures and near-term plans for new capital investments are at 35-year lows.  While the weak economy is clearly a main factor slowing investment, the uncertainty of economic policies is the second most frequently cited reason.

I think the Chicago economists have a good point about lost opportunities.  It’s now time to stop dithering in Washington and move on.  But, if reform is in the wind, please move with cautious deliberation and with the best information about how economic transformation could play out – today and into the future. 

  
Gary Yaquinto, AIC President