(1) Keynesians do not ignore uncertainty, and the heterodox Keynesians, above all, have developed Keynes’s ideas on uncertainty to a very great extent (e.g., G. L. S. Shackle and Paul Davidson).This is the reality of business confidence – Austrian fairy tales of “evil” government notwithstanding.
(2) The implied Austrian belief that having the government “do nothing” would decrease uncertainty, and restore business confidence, is both ridiculous and risible. A “do nothing” policy in 2008 would have collapsed the financial system, caused millions to lose their savings, induced a depression, and shocked business expectations to an extent far greater than any “regime uncertainty” caused by the Obama administration.
(3) Whatever uncertainty is caused by the factors Kurdas lists (Obamacare, regulatory explosion, giant budget deficits, anti-business rhetoric and threats of increasing taxes) – and no doubt to some business people these things are a matter of concern – would be overcome by sufficient aggregate demand and a surge in demand for the products of business.
Paul Davidson has recently addressed this very issue:“Recently I went to a well-known restaurant in Evanston, Illinois. ... But the night I was there, it was less than half full. I asked the manager if he would he hire more waiters and chefs if his taxes were reduced and/or government removed the existing regulations controlling the way his restaurant could operate. His answer was that even if his taxes were reduced and regulations eliminated, he would only hire more staff if more customers came in for dinner. On the other hand, if there were twice as many customers for dinners than there were on this night (and there were many more customers before the recession began in 2007) he would gladly double the number of workers he employed even if his taxes were not reduced or regulations changed.
That’s how things work in the Real World. This simple case illustrates clearly that entrepreneurs will have confidence to expand and hire more workers only if they find the market demand for their products and services strong and growing.”
Paul Davidson, “Restoring Trust in the American Economy: The Real World v. The Confidence Fairy,” Alternet.org, July 11, 2012.
Sunday, July 22, 2012
Austrians Mangle Business Uncertainty
I recommend this post at the ThinkMarkets blog for the Austrian view of uncertainty: