Uncertainty about Uncertainty

First of all, let me issue a warning to the regular readers of this blog - and I mean both of you.  This one is by no means technical, but it may be dry and it involves objective data.  If you’re not interested in cracking the code as to why the economy is stuck in this rut, or if you dine regularly on the tripe that reality butchers like moveon.org sling, you'll probably want to stop reading right now.

Before I get to the main point, may I share a story? 

I use the exclamation “Pass the popcorn!” commonly on here, and in that I’m more or less publicly confessing my growing cynicism about our national political system.  But it’s not just politics that makes me cynical.  The current state of much of the field of macroeconomics has the same effect on me.  For those of you who’ve forgotten, macroeconomics is distinguished from microeconomics in that the former studies the whole country's economic climate (and especially how the federal government acts to manage the economy's growth rate), whereas the latter refers to ways in which individual firms or industries make decisions in their respective operating environments.

Now, it’s true that some part of my cynicism about macroeconomics is traceable to one of my intellectual forebears, Friedrich Hayek, who questioned whether a government of the free had any proper and effective role in macroeconomic management.  But mainly I am cynical when reading macroeconomists because they often operate as advocates for desired outcomes, not as analysts.  I used to think – oh so naively – that macroeconomics was a science: ask a potentially important question, gather data, study it seriously, and propose an answer.  I’m coming to believe that macroeconomics is only a means of accomplishing what you feel to be important.  Oh, there are honest macroeconomists out there (John Taylor and Greg Mankiw  are pretty good, and I even respect the way Larry Summers thinks), but many of them are just really smart advocates who marshal data in support of what feels right to them.

  

I first started to figure out the advocacy thing about a year ago.  I got into a discussion with a prominent Keynesian economist at a west coast university on his blog (you might know his name, he shows up on NPR once in a while). I questioned him honestly and respectfully about his view that the lack of economic growth was purely a function of demand and that, implicitly, the only effective solution was more direct government debt-financed “stimulus.”  I'd been hearing anecdotes from business owners that they were reluctant to invest given the anti-business tone emanating from Democrats in Washington.  My concern was that this tone, plus the question of whether the president would really choose to raise taxes on small business owners, would create an environment of uncertainty, and thus inhibit capital investment. 

A word of advice: don't ever mention anecdotes to academics.

After I extracted his and his sycophants’ e-arrows from my virtual tuckus, I followed the professor's link to a National Federation of Independent Business survey, which would, I was told, demonstrate that small business owners weren’t nearly as concerned about regulations & taxes as they are poor sales, which the professor took to mean demand.  I thanked him for his response, then followed his link.

Sure enough, the data in the NFIB Small Business Economic Trends survey showed that more small business owners cited “Poor Sales” as the single most important problem facing their companies than either “Taxes” or “Government Requirements and Red Tape.” 

But then I looked at the data a little more closely (we analysts have that nasty habit, especially those of us who have to put our clients’ money behind our conclusions).  It turns out that the professor had pointed me toward a September 2010 survey, which showed the following breakdown: Taxes: 23%; Government Requirements & Red Tape: 16%; and Poor Sales: 30%.  By August of 2011, that data was as fresh as a raw pork chop which had been left in the trunk of your hot car for a week.  

I then went to the July 2011 survey, which showed the following: Taxes: 20%; Government Requirements & Red Tape: 16%; and Poor Sales: 23%. 

Realizing what had happened, I hopped back on the blog and pointed out that his link took me to the September 2010 survey, and that the July 2011 survey showed a significant improvement in the percentage of business owners listing “Poor Sales” as their single most important problem.

The professor’s response?  He pulled my post.  No, I’m not joking.  It was there, then it wasn’t.  I thought I was helping his analysis but in reality, I’d compromised his advocacy and that was a threat.  He simply didn't want to be confronted with the truth.

Pass the popcorn!  (See what I mean?)

  

Fast forward to today.  The debate rages on: should the government un-encumber business, or should we borrow more money to stimulate demand?  If you find an anecdote supporting one side, you can quickly scare one up in favor of other.   My inclination, especially after a recent conversation with my friends Scott and Dustin, is to try to find hard data from original sources in order to form conclusions.  These are big questions which aren’t easily answered, but if we go back to the NFIB survey, we might glimpse part of the answer.  

Here's a link to the most recent NFIB survey.  The data below are taken from this survey and the previous five July surveys to get a sense of the trend.  There are other options as well, such as "Competition from Large Businesses" and "Quality of Labor", but each of the seven remaining categories are listed as the number one problem by fewer than 8% of respondents.

	7/12	7/11	7/10	7/09	7/08	7/07
Taxes	21%	20%	22%	19%	17%	19%
Govt. Requirements & Red Tape	21%	16%	15%	11%	8%	10%
Poor Sales	20%	23%	29%	34%	16%	11%

This suggests to me that while taxes have occupied roughly the same level of concern since before start of the recession, there have been big changes in both Government Requirements & Red Tape and Poor Sales.  Specifically, Government Red Tape is the most important problem for over twice as many business owners now as it was before the recession.  And while Poor Sales is still significantly elevated from 2007, it has declined steadily as a threat to business since the trough of the recession.

What impact do these perceptions have on business investment?  

 

I think it’s uncontroversial to say that business owners' opinions about 1) whether this is a good time to expand and 2) whether general business conditions are better or worse, in large part reflect their sense of threat from (at least) Government Requirements & Red Tape. 

This is one survey offering a few data points to consider.  We need much more honest analytical work on this topic.  And, there's no guarantee that business owners who say it's a bad time to expand won't then expand anyway - though that would be pretty weird.  But, the answer to the question of whether business uncertainty regarding the regulatory environment is impacting their investment decisions should be a little less uncertain than it is. 

The Emancipation Inauguration

Do you remember the 2002 Academy Award Ceremony?  It marked the first time an African-American had won the Best Performance by a Female Actor in a Leading Role (formerly “Best Actress”).  And though Sidney Poitier had previously won Best Performance by a Male Actor in a Leading Role (a.k.a, “Best Actor”), the Academy had gone 38 years without awarding one to a black man.  Denzel Washington had won a Best-supporting Actor award for his stunning performance in Glory, but never a Best Actor.  I never saw Monster’s Ball, the movie for which Halle Berry won her Oscar in 2002, but I’ll always remember how she received tearfully the honor on behalf of “all women of color.”   I’m still a little bitter that D.W. didn’t win for his role as Coach Herman Boone in Remember the Titans, but I digress.

The buzz leading up to the 2002 Oscars was all about whether we would at long last exorcise the demon of Hollywood racism by awarding Berry and, in a lesser way Washington, with Best Actress / Actor Oscars.  As it turned out, they both won, and Berry’s acceptance reflections captured the weight of the moment.  

But I can’t shake the pre-award buzz, and I wonder still to this day whether the outcome was in part predicated on an external criterion: a broad yearning for racial emancipation.  It's a noble yearning that has found fulfillment in many segments of our culture.  Hank Aaron, Martin Luther King, Jr., Colin Powell, Oprah Winfrey, Tiger Woods, Barack Obama – a wholly insufficient list of truly inspiring stories of African Americans who broke through previously impenetrable racial barriers.  You’d have to have a heart of stone to not be inspired by what they accomplished.

Sort of.

What I mean—and yes, I’m aware that I’d better explain myself quickly—is that some of the people mentioned above accomplished much as they broke through their respective barriers.  Oprah Winfrey didn’t become a billionaire by chance: she built an enduring brand over decades, shrewdly parleying hard-earned capital from that brand in to multiple successful business investments, the current OWN travails notwithstanding.  Hank Aaron really did hit 755 home runs, and he did it despite threats on his life and without chemical aid.  MLK’s accomplishments would only be tarnished by my brief comments, so I’ll just leave that one alone.

President Obama has been, quite frankly, a totally different story.  January 20, 2009 was historic, to be sure, and it drew more attendees than any prior inauguration in history.  Many viewed it as a type of national political emancipation.  It was also a global phenomenon: Liberia, Sierra Leone, St. Vincent & the Grenadines, to name a few, even issued postage stamps commemorating his ascendancy.  But it unquestionably also marked the first time the U.S. had chosen a president with so little leadership skill and experience.

Do you remember all the arguments in 2000 that George W. Bush’s eight years as governor of Texas proved nothing, because it was a relatively weak office?  How about President Clinton's comment on Sen. Obama's rise:  "This whole thing is the biggest fairy tale I've ever seen." 

President Obama's Nobel Peace Prize was similarly historic: had any previous prizes been awarded with such a heavy reliance on a recipient's hoped for diplomatic success? Agree or disagree with the nominating committee’s choices, they nearly always choose people who’ve accomplished much, whose prior labors—often times completed years before—have advanced the cause of peace demonstrably.     

So, here's the burning question, one I'd like to repress but can't: was the object of our hope actually what Barack Obama represented to us, and not his preparation for the job or his capability to execute it?

It’s hardly a secret that I don't favor the president’s job performance and political philosophy.  But—and I want to make this point crystal clear—I’m also very disciplined to not condemn him as a person.  I refer to him as President Obama, not Barry, nor by including his middle name, nor even casually as "Obama."  I yearn for his removal from office, but I teach my kids to respect him and I don't share my disapproval of his job performance with them.  He’s my president, too, and I thank God to live in a country where we get to choose our leaders.

Still, his first term has been an disaster by any measure.  Millions of Americans are out of work and he has the gall to say that his economic policies have worked.  He routinely sacrifices private sector success stories on the altar of statism (e.g., "you didn't build that").  He applies counter-cyclical stimulus to structural unemployment.  He understands the U.S. auto industry bailout to have been a success, but is unaware that the success is purely because creditors were stiffed.  He is oblivious to the awkward partnership between American defense spending and Western entitlement expansion.  He showed a moment of brilliance when he appointed Erskine Bowles and Alan Simpson to find a bi-partisan solution to the federal deficit problem, but then threw them under the bus when they presented their very reasonable solution.  Out of pure ignorance (I'm choosing to believe it's ignorance), he’s distorted and responded incapably to the financial events of the last 4 years.   His NLRB is a pro-labor guerrilla organization.  He dogmatically clings to demonstrably anachronistic Keynesian multipliers when it's convenient, but now is, pardoxically, advocating higher taxes (JM Keynes is rolling over right now).  He holds little regard for religious liberty (August 1 HHS mandate).  His Justice Department is incompetent and out of control.   He hates and can't work the political machine that is Congress (endearing, actually, but also politically neutering).  His State Department hasn't endured any major failures, but only because Secretary Clinton runs that show practically independently.  He's getting no help from his Veep, who's being kept as far away from the microphones as possible--actually that one's pretty smart, considering.   

"Forward"?  Where, into Gehenna? 

But what about Osama Bin Laden?  Fair enough.  I seem to remember that the Navy SEALs played some  role in that job, too, but we can give the president that one. 

Even including OBL's capture, as president Mr. Obama is in over his head--way over his head. Should we really be surprised? The gentleman was a state legislator (a part-time job unless you're in CA, PA, NY, or MI), a community organizer, a part-time law-school lecturer, and he almost completed half a term as a U.S. Senator before beginning his run for president.  A very politically well-informed liberal friend of mine responded to the question,“Why would Barack Obama make a good leader?” by saying “Well, when he was managing editor of the Harvard Law Review, he brought two factions together.”

The Harvard Law Review.  Hmmm. 

I want to be crystal clear again: I don’t condemn him as a man.  He’s a valuable human, gifted and loved by God: in public speaking and perhaps in diplomacy, were that his primary occupation.  He'd probably be a very good ambassador.  I’m sure he’s a captivating law school intsructor.  I have no reason to think that he wasn’t well-suited to be a community organizer.  He's smart as anything.  He'll probably make a boatload on the public speaking circuit.  He's a terribly affable guy--who wouldn't want to share a beer with him in the rose garden?  I also admire him personally: he got himself through Columbia and Harvard Law School and gives every indication of being a good husband and father.  

This November, though, he's not asking you whether he's likable and is a good father, if he's a capable law school instructor, whether he'd excel as a diplomat, or to affirm his exceptional public speaking skill.  He's asking you for the opportunity to remain CEO of the executive branch of our federal government.  And there's the rub: he’s just not presidential material, a point he continues to demonstrate daily, 3 ½ years into his presidency.  He doesn’t lead, he accuses.  He doesn’t accept responsibility, he blames.  He doesn’t think through the implications of his economic policies, he weaves sound bites and builds straw men to defend the indefensible.  Frankly, I really doubt that he actually wants to be president.
 
Above all, I want to be clear about this point: Barack Obama has failed as president because of disposition, the contours of his giftedness, his misunderstanding of choice and markets, and his lack of experience—NOT because he is African-American.  Think of it this way, what If I were president?  I'd do a horrible job!  Would you fault me for not being gifted and sufficiently experienced to be president?  Should I fault you for the same deficiencies? 

In all of this, though, I don’t blame President Obama.  He may never have had anybody tell him (at least no one close to him) that he’s not a leader, that his experience is insufficient preparation for the task of governing.  He’s been worshipped as messiah and has responded with humble acceptance. I believe that he really does mean well.

Who do I blame?  I blame the American electorate.  We fell for the entirely vacuous “Hope and Change” motto--we don't want truth and substance, we want clever, we want smooth, we want someone who sounds like us, and we want to feel inspired.  We were war-weary and reacted, reaching for what we saw as the polar opposite of President Bush.  We love that the president talks about siding with the little guy.  And we yearn to show the world that racism in America is dying.  Boy, how we yearn for that one, and good for us for desiring that (again, all hats off to MLK).     

But here’s the thing: racism won’t die for political leaders until we can joke about our black president’s short-comings and gaffes like we can about our white presidents' quirks (here's an audio clip of John Lovitz and Dana Carvey chatting about this phenomenon).  It won't die until we can criticize job performance without the ensuing trigger-fingered hate speech allegations.  It won’t die in America until we hold minority political leaders to the same standards of excellence as whites.  It's been done in other fields: Gabby Douglas, Richard Parsons, and Thomas Sowell each have demonstrated that attainment of objective standards of excellence is possible in their respective fields—why not in politics, too?

Whether you agree or disagree with affirmative action policies for disadvantaged groups, can we not all agree that certain roles are so important that they must be earned and not bestowed? 

If you really yearn for the death of racism in America, you’ll fire Mr. Obama in November.  Deep breath: again, I'm not talking about firing him because he's African-American, and none of it's personal; he just failed.  And may I interject this: please, as a culture, let's quit imagining failure as a type of shame-filled Purgatory.  It merely means a lack of success and it's OK when someone fails at something.  Making President Obama out to be a success in contrast to his proven failure is, quite frankly, racist itself and complete fantasy.  President Bush—never known for his eloquence—referred to the “soft bigotry of low expectations.”  Truly, if you want to respect President Obama, you’ll treat him as you would any white guy who blew it.  

Unless of course if you truly can say in your mind as well as your heart that he's succeeded, then by all means vote for the man.

This next inauguration holds the promise of a type of emancipation. Are we really serious about eliminating soft bigotry as well as blatant racism?  Or does that challenge hit a little too close to home?

You Don't Want the Truth

I'm so naive.

In this, the Misinformation Age, I keep thinking that if only everyone would dig a little deeper, we could find some common ground.  Then we would spend less time throwing mud and more time discussing truth (or objective, verifiable reality, if your bad postmodern self doesn't like that other word).   

Then I heard this piece from NPR's Ari Shapiro.  It's 4:39 long, so feel free to indulge your curiosity. Warning: if this link doesn't work, you may need to search the Morning Edition page on July 25.

As it turns out, many of us don't give a rat's tuckus about the truth.  We're actually pretty content to be lied to.

I almost choked on my doughnut when I heard this section near the end:

SHAPIRO: This effort to dig down to the true meaning of a candidate's comments rests on a few assumptions. Most basically it assumes that truth matters. It assumes that people want to know what a candidate actually said and meant. It assumes that distortions are bad. In fact, behavioral psychologist Dan Ariely of Duke says those assumptions may be false. He's author of "The Honest Truth About Dishonesty: Why We Lie to Everybody, Especially Ourselves."

DAN ARIELY: And we recently did a study on this. We just asked a few hundred people online to what extent they think that their candidates could be dishonest if it promoted their political agenda.

SHAPIRO: He found that people were totally comfortable with politicians of their own party being dishonest to get elected.

ARIELY: And by the way, for Democrats, this was a slightly more endorsed position than for the Republicans. So the Democrats are more willing for their politicians to lie to a higher degree than the Republicans.

Does NPR know that they produced a piece with this information in it?

I couldn't help but think that elections have become lying contests.  Truth doesn't matter.  What really matters in an election is how smoothly the candidate lies.  Dogma rooted in deception.    

Pass the popcorn!