Mining News

The Costs of Uncertainty

Posted by Alana Wilson on 5/3/2013 10:18:39 AM

By Dr. Kenneth P. Green, Senior Director, Energy and Natural Resources

The Wall Street Journal ran an interesting column[1] recently on the costs that policy uncertainty has had on the U.S. economy:

  • Three economists, Stanford University's Nicholas Bloom and Scott Baker and the University of Chicago's Steven Davis, have done invaluable work measuring the level of policy uncertainty over the past few decades. Their research (available at shows that, on average, U.S. economic policy uncertainty has been 50% higher in the past two years than it has been since 1985.
  • Based on that research, our economists at Vanguard isolated changes in the U.S. economy that we determined were specifically due to increases in policy uncertainty, such as the debt-ceiling debacle in August 2011, the congressional supercommittee failure in November 2011, and the fiscal-cliff crisis at the end of 2012. This gave us a picture of what the economy might look like if the shocks from policy uncertainty had not occurred.
  • We estimate that since 2011 the rise in overall policy uncertainty has created a $261 billion cumulative drag on the economy (the equivalent of more than $800 per person in the country). Without this uncertainty tax, real U.S. GDP could have grown an average 3% per year since 2011, instead of the recorded 2% average in fiscal years 2011-12. In addition, the U.S. labor market would have added roughly 45,000 more jobs per month over the past two years. That adds up to more than one million jobs that we could have had by now, but don't.

This is an usurprising finding to us here at the Fraser Institute, which annually surveys executives in the mining[2] and petroleum[3] sectors regarding what policy factors might favor, or disfavor investment in mining or hydrocarbon exploration and production. Year after year, uncertainty regarding policies such as tax policy and environmental policy are described as deterrents to investment by senior executives.

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