Uncertainty is not the problem - a view on Cliff Asness

One of the more thought provoking editorials in the WSJ was written by Cliff Asness of hedge fund fame. He argued that uncertainty is not the problem with current poor economic growth but the poor policies that have actually been implemented.

Commentators have argued that the unknown has driven businesses and consumers to hold more cash and that if uncertainty was relieved there would be stronger growth. Asness states that poor growth is not associated with uncertainty but the set of policies that have actually been implemented in the last two years. The poor growth is further associated with the fact that certain policies will be implemented if the choice is given to the administration.

We can resolve current uncertainty very easily. Let's assume we tax the "rich" at a significantly higher rate, we increase financial regulation, we increase health care costs on business, we increase costs on energy usage, we increase regulation for labor to just name a few. These are all worthy policy that would be chosen by the administration if given the chance. Would the resolution of the uncertainty lead to stronger growth?

The conclusion of Asness is that this route clearly would make us worse off. The uncertainty on whether these policies will be implemented have not hurt the economy. In fact, the possibility that other alternatives will be chosen may be helping the economy.

Uncertainty cannot be a catch-all for bad results. Bad policy outcomes are associated with bad policies