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.

January 15, 2019
Patrick Cockburn
Refugees Are in the English Channel Because of Western Interventions in the Middle East
Howard Lisnoff
The Faux Political System by the Numbers
Lawrence Davidson
Amos Oz and the Real Israel
John W. Whitehead
Beware the Emergency State
John Laforge
Loudmouths against Nuclear Lawlessness
Myles Hoenig
Labor in the Age of Trump
Jeff Cohen
Mainstream Media Bias on 2020 Democratic Race Already in High Gear
Dean Baker
Will Paying for Kidneys Reduce the Transplant Wait List?
George Ochenski
Trump’s Wall and the Montana Senate’s Theater of the Absurd
Binoy Kampmark
Dances of Disinformation: the Partisan Politics of the Integrity Initiative
Glenn Sacks
On the Picket Lines: Los Angeles Teachers Go On Strike for First Time in 30 Years
Jonah Raskin
Love in a Cold War Climate
Andrew Stewart
The Green New Deal Must be Centered on African American and Indigenous Workers to Differentiate Itself From the Democratic Party
January 14, 2019
Kenn Orphan
The Tears of Justin Trudeau
Julia Stein
California Needs a 10-Year Green New Deal
Dean Baker
Declining Birth Rates: Is the US in Danger of Running Out of People?
Robert Fisk
The US Media has Lost One of Its Sanest Voices on Military Matters
Vijay Prashad
5.5 Million Women Build Their Wall
Nicky Reid
Lessons From Rojava
Ted Rall
Here is the Progressive Agenda
Robert Koehler
A Green Future is One Without War
Gary Leupp
The Chickens Come Home to Roost….in Northern Syria
Glenn Sacks
LA Teachers’ Strike: “The Country Is Watching”
Sam Gordon
Who Are Northern Ireland’s Democratic Unionists?
Weekend Edition
January 11, 2019
Friday - Sunday
Richard Moser
Neoliberalism: Free Market Fundamentalism or Corporate Power?
Paul Street
Bordering on Fascism: Scholars Reflect on Dangerous Times
Joseph Majerle III – Matthew Stevenson
Who or What Brought Down Dag Hammarskjöld?
Jeffrey St. Clair - Joshua Frank
How Tre Arrow Became America’s Most Wanted Environmental “Terrorist”
Andrew Levine
Dealbreakers: The Democrats, Trump and His Wall
Jeffrey St. Clair
Roaming Charges: Que Syria, Syria
Dave Lindorff
A Potentially Tectonic Event Shakes up the Mumia Abu-Jamal Case
Nick Pemberton
There Are More Important Things Than The Truth
Brian Cloughley
How Trump’s Insults and Lies are Harming America
David Rosen
Sexual Predators in the Era of Trump
Tamara Pearson
Everything the Western Mainstream Media Outlets Get Wrong When Covering Poor Countries
Richard E. Rubenstein
Trump vs. the Anti-Trumps: It’s the System That Needs Changing Not Just the Personnel
Christopher Ketcham
A Walk in the Woods, Away from the Screens
Basav Sen
Democrats Failed Their First Big Test on Climate
Lauren Smith
Nicaragua – The Irony of the NICA Act Being Signed into Law by Trump
Joseph Natoli
Will Trumpism Outlive Trump?
Olivia Alperstein
The EPA Rule Change That Could Kill Thousands
Medea Benjamin – Alice Slater
The New Congress Needs to Create a Green Planet at Peace
Caoimhghin Ó Croidheáin
Cuba: Trump Turns the Vise
Ramzy Baroud
When Bolsonaro and Netanyahu Are ‘Brothers’: Why Brazil Should Shun the Israeli Model
Mitchell Zimmerman
Government by Extortion
FacebookTwitterGoogle+RedditEmail