Policy Uncertainty Is Bad For The Economy

Economic policy uncertainty has surged since Donald Trump’s election. This can be bad, not just for the stock market, but also for business investments and for consumer spending, if the past is any indication. At this point, it is unclear whether tariffs will happen, whether the federal government will stay open after March 14, whether the federal government can deliver basic services such as processing Social Security applications, after the Trump administration has laid off large shares of workers and whether slowing immigration and increasing deportations will translate into higher inflation. This level of uncertainty associated with economic policies alone will likely result in bad economic outcomes for good economic reasons.

Researchers from Stanford, Chicago and Northwestern University have compiled Economic Policy Uncertainty indexes for a number of countries, including the United States, going back decades. This index for the U.S. combines information from newspaper articles that relate to economic policy uncertainty, details on tax provisions that expire within the next decade and differences in forecasts about prices and government spending.