If the shenanigans in Congress at year end have taught us anything it’s that Washington just can’t help but do stupid things. While the tax situation for many Americans may now have been solved, the problem of spending cuts hasn’t.
That’s bad in itself, not getting an important job done, but it’s also actually harmful to the U.S. economy. Not solving it has increased what economists call policy uncertainty. Broadly speaking that’s ambiguity around what the government is going to do with laws etc. When uncertainty is high, businesses, the real drivers of job growth in the economy, tend to invest in fewer factories and hire fewer people.
Despite Congress having managed to avoid the fiscal cliff, uncertainty in the U.S. is still elevated. How do we know?
The smart people at Stanford and Chicago measure it in the U.S. economic policy uncertainty index. That index is now around three times the level it averaged during 2006. In a recent paper, the same authors that track uncertainty say "Increases are driven mainly by tax, spending and healthcare policy uncertainty."
The consequence: lower economic growth and millions of potential jobs lost. Now if our government can just get its act together, provide some clarity and then get out of the way of the private sector then maybe our economy can get roaring again, just like it used to.