FacebookTwitterGoogle+RedditEmail

Uncertainty is the Root of the Current Market Craziness

For months after his inauguration, US president Donald Trump bragged that he was single-handedly producing an economic boom, citing a rising stock market as evidence.

Recently, however, he’s stopped that line of self-promotion. The market has seemingly gone nuts. Sudden one-day drops pare back weeks of gains, followed by a cautious recovery of the lost ground. There’s a strong correlation between those swings and Trump’s mouth, whether he’s making formal policy announcements or just tweetstorming his latest obsession.

To understand the problem, let’s look to the seemingly unrelated fields of economics and physics.

In a 1997 paper on the Great Depression, Austrian School economist Robert Higgs articulates his theory of “regime uncertainty.” Simply put (if I get this wrong, blame me, not Higgs), investors dislike unpredictability.

Investors put their money into enterprises under certain tax and regulatory conditions. When those conditions  start suddenly changing or looking like they may change, the investors worry.  And when they worry, they get more cautious about where their money is and what it’s being used for. They sell off, move their money into what they hope are less volatile assets, and the stock market takes a hit.

German physicist Werner Heisenberg studied uncertainty too, and likewise named a principle for it. Again simply put (and again, blame me, not Heisenberg, if I get this wrong), there are limits to what we can know about multiple aspects of things. Specifically, we cannot precisely determine both the position and the momentum of a particle at a particular moment. The more certain we are about one, the less certain we are about the other.

Donald Trump resembles one of Heisenberg’s particles. Sometimes we know where he’s at on an issue for the moment, but we needn’t bother trying to predict how fast he’s going to move or in what direction. He may double down, or he may turn 180 degrees.

One minute he’s demanding that regulations be slashed. The next minute, he’s nixing multi-billion-dollar aircraft deals over foreign policy. First it’s tax reform and tax cuts. Then suddenly it’s imposing new taxes — tariffs — on steel and aluminum.

This is not to say that any particular idea or policy he comes up with is bad, although some of them obviously are. What matters to investors is predictability.

If there’s one predictable characteristic of Trump, it’s that he is, and will remain, unpredictable. That unpredictability  can only produce negative economic consequences.

More articles by:

Thomas L. Knapp is director and senior news analyst at the William Lloyd Garrison Center for Libertarian Advocacy Journalism (thegarrisoncenter.org). He lives and works in north central Florida.

Weekend Edition
June 15, 2018
Friday - Sunday
Dan Kovalik
The US & Nicaragua: a Case Study in Historical Amnesia & Blindness
Jeremy Kuzmarov
Yellow Journalism and the New Cold War
Charles Pierson
The Day the US Became an Empire
Jonathan Cook
How the Corporate Media Enslave Us to a World of Illusions
Ajamu Baraka
North Korea Issue is Not De-nuclearization But De-Colonization
Andrew Levine
Midterms Coming: Antinomy Ahead
Louisa Willcox
New Information on 2017 Yellowstone Grizzly Bear Deaths Should Nix Trophy Hunting in Core Habitat
Jeffrey St. Clair
Roaming Charges: Singapore Fling
Ron Jacobs
What’s So Bad About Peace, Man?
Robert Hunziker
State of the Climate – It’s Alarming!
L. Michael Hager
Acts and Omissions: The NYT’s Flawed Coverage of the Gaza Protest
Dave Lindorff
However Tenuous and Whatever His Motives, Trump’s Summit Agreement with Kim is Praiseworthy
Robert Fantina
Palestine, the United Nations and the Right of Return
Brian Cloughley
Sabre-Rattling With Russia
Chris Wright
To Be or Not to Be? That’s the Question
David Rosen
Why Do Establishment Feminists Hate Sex Workers?
Victor Grossman
A Key Congress in Leipzig
John Eskow
“It’s All Kinderspiel!” Trump, MSNBC, and the 24/7 Horseshit Roundelay
Paul Buhle
The Russians are Coming!
Joyce Nelson
The NED’s Useful Idiots
Lindsay Koshgarian
Trump’s Giving Diplomacy a Chance. His Critics Should, Too
Louis Proyect
American Nativism: From the Chinese Exclusion Act to Trump
Stan Malinowitz
On the Elections in Colombia
Camilo Mejia
Open Letter to Amnesty International on Nicaragua From a Former Amnesty International Prisoner of Conscience
David Krieger
An Assessment of the Trump-Kim Singapore Summit
Jonah Raskin
Cannabis in California: a Report From Sacramento
Josh Hoxie
Just How Rich Are the Ultra Rich?
CJ Hopkins
Awaiting the Putin-Nazi Apocalypse
Mona Younis
We’re the Wealthiest Country on Earth, But Over 40 Percent of Us Live in or Near Poverty
Dean Baker
Not Everything Trump Says on Trade is Wrong
James Munson
Trading Places: the Other 1% and the .001% Who Won’t Save Them
Rivera Sun
Stop Crony Capitalism: Protect the Net!
Franklin Lamb
Hezbollah Claims a 20-Seat Parliamentary Majority
William Loren Katz
Oliver Law, the Lincoln Brigade’s Black Commander
Ralph Nader
The Constitution and the Lawmen are Coming for Trump—He Laughs!
Tom Clifford
Mexico ’70 Sets the Goal for World Cup 
David Swanson
What Else Canadians Should Be Sorry For — Besides Burning the White House
Andy Piascik
Jane LaTour: 50+ Years in the Labor Movement (And Still Going)
Jill Richardson
Pruitt’s Abuse of Our Environment is Far More Dangerous Than His Abuse of Taxpayer Money
Ebony Slaughter-Johnson
Pardons Aren’t Policy
Daniel Warner
To Russia With Love? In Praise of Trump the Includer
Raouf Halaby
Talking Heads A’Talking Nonsense
Julian Vigo
On the Smearing of Jordan Peterson: On Dialogue and Listening
Larry Everest
A Week of Rachel Maddow…or How I Learned to Stop Worrying and Love Ronald Reagan
David Yearsley
Hereditary: Where Things are Not What They Sound Like
FacebookTwitterGoogle+RedditEmail