Cognitive Dissonance

Something that continues to surprise me is how strongly President Obama’s most ardent followers disagree with him. For example, the president has repeatedly expressed his view that the reason for persistent unemployment is structural rather than due to a shortfall in demand. I’ve posted on this before—you can look it up yourself.

Here’s another example. The president has embraced what his supporters have been mocking as “the uncertainty fairy”:

“In conversations I’ve had with CEOs, what they tell me is, ‘We are ready to invest and we’re ready to hire, but we want a little bit of certainty out there,’ ” the president said during an interview with Bloomberg Television. “I think businesses are going to be ready to hire. We’re seeing pretty strong consumer confidence, despite weaknesses in Europe and even in Asia.”

I honestly don’t know what role uncertainty plays in our present economic doldrums. It may be a lot, it may be a little. I don’t think it’s nothing.

However, here’s my question. Will President Obama’s proposals for the avoiding the “fiscal cliff”, if adopted exactly as he’s proposed, produce more or less uncertainty? I think the answer is more because while it acknowledges a fiscal problem it doesn’t really address the full scope of the problem. That suggests there’s more to come, another shoe yet to fall.

52 comments… add one
  • For example, the president has repeatedly expressed his view that the reason for persistent unemployment is structural rather than due to a shortfall in demand.

    And yet, every single supporter insists that it is due to weak aggregate demand and become an indignant tower or rage when it is suggested otherwise.

    Of course, stimulus probably wont help with structural unemployment….

  • However, here’s my question. Will President Obama’s proposals for the avoiding the “fiscal cliff”, if adopted exactly as he’s proposed, produce more or less uncertainty? I think the answer is more because while it acknowledges a fiscal problem it doesn’t really address the full scope of the problem. That suggests there’s more to come, another shoe yet to fall.

    There is more to it than that. The President’s proposal is totally not serious. It does not move us towards resolution, even bad resolution. And even bad resolution would at least reduce the uncertainty somewhat (or push it further down the road). And same goes for the Republicans in Congress, but the thing is nobody looks to Congress for leadership. They look to the President. And businessmen and CEOs are people who negotiate pretty much every day. They can see what is going on. So now they sit and wait and maybe even start preparing for the worse…which is more likely to mean not expanding, not hiring, not growing. It might even mean the opposite in some cases. Add on things like Obamacare and is it any wonder businessmen might be playing the “wait and see” game? Is there going to be some 11th hour legislation that will mitigate things?

    I think the answer is more because while it acknowledges a fiscal problem it doesn’t really address the full scope of the problem. That suggests there’s more to come, another shoe yet to fall.

    And as I noted the most likely outcome is to kick the can further down the road. That pushes the uncertainty further down the road. It might help somewhat now, but it will likely have some negative effect on economic activity going forward. Sure things are good now…for the next year or two, but what about after that?

    Contrary to popular belief, business and people in general are forward looking. Their beliefs about the future might be wrong and that can lead to problems individually and if such errors are common enough even collectively. But some things are pretty obvious, and it is pretty obvious we have a serious fiscal problem and kicking the can down the road only exacerbates the problem in the end.

  • PD Shaw

    I listened to a webinar on Obamacare this morning put on my insurance broker for their small business clients across the state. The presentation was by a lawyer, which probably identifies the first problem. But I imagine most businesses left with more new questions than had old questions answered since the lawyer was aware of more ambiguities and unresolved issues than us.

    I found some of the discussion improbable. It was suggested that the administration has indicated that it will waive some of the laws on maximum deductibles if necessary to comply with other legal requirements. How can the executive waive the law? And if it can, how much of the law is simply within the executive prerogative, changing with the political fortunes?

    Anyway, what are the incentives for small businesses to expand beyond 50 employees over the next several years or decade? And is that the business size we should worry about, as opposed to the public corporations that Obama talks with?

  • jan

    What our economy needs is an infusion of serious-minded, apolitical reform, including updating how our entitlement programs function, as to their outmoded age metrics and general policy applications. Our population is larger, more diverse in their needs, with growing bubbles of older people coupled with greater longevity and a decreasing birth rate to support such lopsidedness. How can we be so stupid, so cemented in party ideology, investing more time politically one-upping each other, rather than cooperative negotiations involving viable solutions addressing these unescapable changing dynamics?

    I simply look at these current exchanges between the WH and Congress and am extremely discouraged by the lack of insight and concerns shown for the people they are supposed to represent. Furthermore, I find that having a newly reelected POTUS seeking secret meetings with the MSM, who is supposed to have an unbiased overview of any party’s government’s leadership, does not bode well for the future dissemination of unbiased or honest media information to the people.

  • michael reynolds

    Steve:

    If the business/investor community is worried why is the stock market strong? Isn’t that in effect the collective wisdom on the matter of corporate profits going forward? Is there some better indicator of the true sense of the business/investor types? Because right now Wall Street must know the President is likely to prevail, and yet they seem remarkably calm.

  • steve

    “And yet, every single supporter insists that it is due to weak aggregate demand”

    Even among those who think demand is important, I think it is generally acknowledged that long term unemployment becomes structural. There are pretty good studies showing that a lot of those people never go back to work.

    “How can we be so stupid, so cemented in party ideology, investing more time politically one-upping each other, rather than cooperative negotiations involving viable solutions addressing these unescapable changing dynamics?”

    Agreed. I would further suggest that solutions be data driven.

    Steve

  • If the business/investor community is worried why is the stock market strong?

    The stock market is not the economy. You can’t look at one and get an gauge of the other. Or try it this way, the stock market in 1929 and early 1930 rebounded fairly well (going from a low of 200 to 300)…was everything just peachy keen then? Did it suggest that Taft knew what he was doing and that he would prevail?

    I’d post more, but I have to go clean my room.

    steve,

    Even among those who think demand is important, I think it is generally acknowledged that long term unemployment becomes structural.

    Don’t you post at OTB? Try reading the fever swamp there that is the comment section.

    There are pretty good studies showing that a lot of those people never go back to work.

    Unfortunately there is considerable truth to this. It also highlights an area where Obama is an abject failure. Granted, one could make the argument that it was something beyond his control, but he chose to take up that cause and to date has failed.

    PD,

    How can we be so stupid, so cemented in party ideology, investing more time politically one-upping each other, rather than cooperative negotiations involving viable solutions addressing these unescapable changing dynamics?

    Talk to Michael I have nothing for you.

  • jan

    Here’s an interesting article highlighting opining what needs to be done to remediate The real fiscal cliff.

    If a Damascene bolt of lightning galvanizes the incumbent president and he, even after all the false starts, makes a comprehensive compromise proposal for entitlement reform — including a radical overhaul of Obamacare, stretching out entitlements to correspond to actuarial expectations and means-testing the payments, keeping income taxes down but closing down some of the free rides and raising sales and transaction taxes on non-essential spending, and tax-incentivizing work that adds value and does not just indulge society’s self-important disdain for work in primary and secondary industry — he will be acclaimed as the transformative president he seeks to be and his party will reap the benefit for years to come.

    If he holds to his indicated course, though, America will hit the wall and the Republicans will be asked to implement the program Obama should enact now. The United States is in a shocking condition. Both parties are responsible; both will be required to assist in a drastic course correction, and only the party in the White House can lead. It will happen, because it must, and the U.S., unlike much of post-war Europe, does not have a collective death wish; though careful scrutiny is sometimes necessary to be confident of that.

  • Sorry, misread, that last part should have been addressed to jan.

  • jan,

    That quote is a pretty good summation of the current situation. We could make reasonable/rational policy changes that would help, maybe even quite a bit. But it simply wont happen. Too many people object and so it wont be done. All politicians are, at their core, conservatives (note the cast on the ‘c’ there). Being transformative is just not in their blood generally speaking. And Obama is, for the most part, typical of our political class–i.e. he is average.

  • michael reynolds

    Steve V:

    You’re sidestepping the point here. If “uncertainty” is a problem then obviously that would express itself in the actions of investors. No? You respond by pointing out a case when the stock market got it wrong. But that’s beside the point. My question went specifically to uncertainty, not to the eventual state of the economy.

    Clearly if the issue is uncertainty one looks to the actual money bets being placed. Right now the betting is that profits will be reasonably strong. Which directly undercuts the idea that investors are terrified of uncertainty. Unless you choose to believe that investors are A) Terrified by virtue of uncertainty and B) Simultaneously betting that said future will be profitable.

  • michael reynolds

    Here’s some lack of uncertainty:

    http://bigstory.ap.org/article/starbucks-open-another-1500-cafes-us

    NEW YORK (AP) — Another Starbucks may soon pop up around the corner, with the world’s biggest coffee company planning to add at least 1,500 cafes in the U.S. over the next five years.

    Starbucks said Wednesday that it plans to boost the number of locations in its biggest market by about 13 percent by 2017. In the broader Americas region, the company plans to add a total of 3,000 new cafes by that time.

    These guys seem to think the future involves a lot of five dollar cups of coffee.

  • You’re sidestepping the point here. If “uncertainty” is a problem then obviously that would express itself in the actions of investors. No? You respond by pointing out a case when the stock market got it wrong. But that’s beside the point. My question went specifically to uncertainty, not to the eventual state of the economy.

    WTFAYTA? Seriously, read that again and see if you don’t eviscerate whatever point you are trying to make.

  • These guys seem to think the future involves a lot of five dollar cups of coffee.

    So Obama’s success is going to rest on people working as baristas, got it.*

    *Just recycling the old complaint from back in the 1980s early 1990s that all the jobs created then were burger flipping jobs.

  • TastyBits

    @michael reynolds

    I am mostly in agreement with @Steve Verdon. I would also add that the stock market is a mechanism to separate people from their money.

    I suspect you are addressing the predictions of a stock market collapse from re-electing President Obama, taxes, Obamacare, etc. The drop after the election was due to the “investors” determining if they can keep the game going. They can, and they will. Dirtbag Geithner will protect the scumbags.

    As to uncertainty, there is now certainty. Businesses may not like the certainty, but they can plan based upon that certainty. I disagree with much of the Democrats goals, but the predicted demise of the US is a long way off.

  • Andy

    Michael,

    The market could drop like a stone tomorrow. I don’t think it’s a great predictor of future economic certainty or the strength of the economy. There are a lot of speculators looking for short-term gains. Historically, the stock market has not been able to predict, for example, recessions.

  • steve

    “So Obama’s success is going to rest on people working as baristas, got it.*”

    And here I thought that was the GOP grand plan. I think you are also not entirely accurately describing the stock market. One can say that it represents, to some extent, the confidence that the investor class has in future profits. IOW, the job creators think profits will grow. That may or may not correlate with GDP. Those who claim to know how to create jobs and make the economy work, dont seem to be especially good at telling why we are growing and when it will begin or stop. (The above does not really apply to the retail investor who is just along for the ride and is now shut out of much of the info needed to make informed decisions.)

    Steve

  • The problem is two fold.

    1. Investing in the stock market is not the same as a business expanding its operations.

    2. Yes, the people in the stock market can place wrong bets…even a large percentage of them. That is how we get asset price bubbles.

    So it is not inconsistent for the stock market to be going up while many firms might be opting for a more conservative strategy for the next 6-12 months.

    Finally, I haven’t been watching the market, but interestingly it is down from its previous (local) peak of around 13,600 to around 13,080. About a 5% drop…and why did it drop? The election.

    Michael, STFU.

  • jan

    Sometimes I look at the stock market as the Russian Roulette of investing. I can’t say that I understand the ups and downs generated by this investment venue. However, people want to place their money somewhere, anywhere that at least has some monocle of stability, and currently (for the short-term, anyway) that seems to be the US stock market.

    However, I would not seize upon the idea that because our stock market is not crashing that this represents no fiscal worries or lack of confidence in the business community. On the contrary, it only means business, for now, is betting more on stock investment than hiding assets under their mattress.

    As for Starbucks expanding…I saw that article too. It’s kind of crazy as people spend money in such superficial ways, like high-priced coffee they can easily, and for less money, brew at home. That’s what I do. Expensive concert tickets for hot singers (like Taylor Swift) are also selling out months in advance. Is this a sign of economic growth? Or, is it just another indication of how people pleasure spend without thinking until they have no more money. Then they go to the government, which they voted in, and ask for help — much like Michigan is doing at the moment. “We voted for you, so now give us some cash.”

    BTW, investors are buying gold like it’s candy. Coin shows are swamped with buyers. Dealers are inundated with requests for gold coins. I’ve always been told that when times look bad people migrate to gold as a reliable asset, more so than the stock market, as it is tangible, easily stored and under the government’s radar. And, as Andy stated, “The market could drop like a stone tomorrow. “ It’s a fickle and changeable way of trying to get rich, with no real long-term indicators as to what will happen the next day. Just look at what happened in 1929.

    Michael maybe you too can leap out the window with an expensive cup of Starbucks in your hand. What a statement that would make!

  • Was thinking about this some more. Thought another example of why looking at the stock market is not a great idea.

    Back during 2004, 2005, and 2006 there was a very wide spread belief that housing prices can’t go down everywhere. Right? There was tremendous confidence on how these new financial instruments were designed to reduce risk to a negligible level. And it looked very much to be true, housing prices were going up…pretty much everywhere (hint, hint, hint). The stock market was looking great. Big financial firms were making money hand over fist and people were pocketing ginormous bonus checks.

    But what happened? As I hinted above housing prices went up, pretty much everywhere. Can you guess what my next sentence is going to be? If housing prices can go up pretty much everywhere doesn’t it stand to reason that housing prices can also go…..down everywhere too? Jinkies…nobody thought of that? Apparently not.

    The point is that “investors” can, as a group, “make a bad bet”. They can ignore warning signals when making those “bad bets”. Of course they’ll turn around and say things like, “But nobody thought it could end so badly!” Or, “It is the fault of the guy who came up with the Gaussian cupola!!!” Never mind that just a few minutes of looking at what was going on outside the window (housing prices going up everywhere) should imply that housing prices could go down everywhere. History is riddled with such examples, both big and small.

    And another point to consider: how often have we seen where a firm announces various cuts and analysts then say that investing in that stock is a wise idea? And the price? It goes up.

    So, you don’t look at the stock market (alone) to try and gauge how the economy is doing.

    As for Starbucks. BFD. I’m sure with a few minutes of googling, I can find examples of firms cutting back and changing announcements of previous expansions. So what. Or as I tell the managers here where they point to a single observation and say, “That looks like the trend is changing,” yeah so, with a single data point I can explain anything. And looking back over the past trend we’ve seen similar examples, the data at t+1 is higher than at t, but at t+2 and t+3 the downward (upward) trend resumes. Finding a single example of a company that is planning on expanding is good news, does it mean it that every firm or even most will be expanding? Maybe, but your are on very, very dubious footing with that claim.

    By the way, the index of policy uncertainty. Some historical spikes:

    October 2001,
    August 2008,
    August 2011,
    And I’m sure we’ll see one for this month.

    Given the October 2001 spike it isn’t all just based on economic policy either.

  • I think you are also not entirely accurately describing the stock market. One can say that it represents, to some extent, the confidence that the investor class has in future profits. IOW, the job creators think profits will grow. That may or may not correlate with GDP.

    Higher profits, all else being the same, means higher GDP as profits are part of GDP. Now, things are not all the same so in reality profits could go up while GDP goes down.

    But there is another point, a firm that has higher profits and sits on those earnings could see its stock price go up, but you wont see many new jobs as a result. So your last sentence should read as,

    “IOW, the job creators think profits will grow. That may or may not correlate with GDP or job growth.”

    Again, this is still consistent with the hypothesis that increased uncertainty will have a negative effect on business expansion and job growth.

  • As for Starbucks expanding…I saw that article too. It’s kind of crazy as people spend money in such superficial ways, like high-priced coffee they can easily, and for less money, brew at home.

    Or do even better. I get a very nice espresso bean from Trader Joe’s, get some heavy whipping cream. Boil the water, pour it over the grounds in the french coffee press. Heat some heavy whipping cream*, use my handy hand-held aerator (basically a batter powered wire whip) and there you go, a very fine cafe latte for a fraction of the price. At this time, I’ve recouped my “investment” in the coffee grinder, aerator, and french coffee press. And for the price of 2 cups of Starbucks coffee I can get…I don’t know a dozen or more.

    *Yeah heavy whipping cream has “lots of fat”, but fat is one of the things that make things taste good, it isn’t that much fat, you need fat in your diet (but don’t over do it), and it isn’t fat that makes you fat, its carbohydrates (which I don’t consume in the morning and during the afternoon–and only high glycemic carps in the evening–pizza yum). Still if the heavy whipping cream bothers you, go with your preferred type of milk.

  • I do like the Natchez Coffee Co., an independent coffee house. For $2.75 I can spend the morning talking to designers and contractors, veterans, historians, English Ph.D.s, and orthopedic surgeons — and Sally, the Great Pyrenees.

  • I really, really want to sleep with Sally. Like sleeping with a protective bear.

  • My brother Bill tells me she would burn me up. That a dog’s average body is 105 degrees.

  • Not to mention artists and musicians and archaeologists.

  • Sunoco is still not paying out. I talked to BIL. He thinks it’s strange, too. Exxon and Goldston paid as soon as the legal paperwork was done.

    I Googled them up, and they had lost $770 mil in the refinery bus in PA as of Sept 2011. But reassured everyone that the retail gas stations were in good shape — 4,900 of them.

  • I called again this morning with the details, and left both my email addresses in addition to my phone number.

    What is going on?

  • The legal paperwork was done Oct. 9.

  • Of course, the BIL hasn’t made any phone calls. He hasn’t gotten to that stack yet. There’s only one lawyer I ever loved.

  • I can go to Houston. It ain’t that far.

    But I’ll damned sure take the Tahoe.

  • I mean business.

  • The NASCAR shtick don’t cut it with me.

  • I wear Armani and cowgirl boots, and diamonds, when I want to.

  • A proper Dallas girl.

  • We never much liked Houston anyway.

  • Some people might call that a warning.

  • McSwine, I’m leavin’ the pearls at home.

  • Oops. McSwain. Sorry, son.

  • About that Ruger, again?

  • Rocky McSwain.

    “Rocky, boy, this is a showdown.”

  • I keep telling people to not piss me off.

  • I will hurt you.

  • That’s why I hate hierarchical management.

  • “Technocracy”, or management by “elites.”

  • “Elitism” is fundamentally boring.

  • I’ve known ’em.

  • Tiresome lot.

  • My husband would say that “We can rise and descend to any occasion.”

  • Rocky, boy, let’s not be crass here.

  • Albert T. Viar

    About that poised other shoe…Presidential Pretender Obama has ordered another million U.N. Troops to be available to him to quell civilian unrest.
    History shows a weapon is always used once it is available. Obama needs a massive civilian unrest to justify bringing U.N. Troops down upon us. Perhaps he is considering stopping Social Security checks and maybe stopping Military Pension checks and maybe even Medicare. There is a look at potential shoe drops hidden in the wings. Don’t forget the Civilian Relocation Camps and Civilian Work camps under government supervision outlined by Kennedy and Clinton executive orders.

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