Why is it that thousands of Brown graduates are struggling to find jobs suited to their skills? It could be simply due to job-killing legislation, but perhaps there is more to the story. Lost in the debates over fiscal policy, monetary policy, health care policy and other legislation is an often ignored, yet strikingly important, feature of these discussions: uncertainty. There’s no doubt that deliberation over spending cuts versus tax increases, continued Federal Reserve bond-buying or tapering and public health care expansion versus free market solutions are essential for equitable and efficacious outcomes. Nevertheless, the way the U.S. government operates may be just as important as the policy it enacts.
Policy uncertainty seems to be the norm at present, whether the narrowly averted fiscal cliff earlier this year or the recent delay in the Affordable Care Act’s employer mandate. Even now, speculation and debate surround the Federal Reserve’s future role in the slowly recovering U.S. economy. The inherent uncertainty over legislation may, in fact, be exacerbating the very problems these policies aim to address.
For example, take the effects of uncertainty on the economy. Washington aims to upend a sluggish recovery where labor force participation rates and median househould income are declining. Yet because of the government’s inability to provide definite solutions to our financial woes, investors are unsure what the near future holds in terms of interest rates, yields, taxes and regulation. An uncertain future makes investors less willing to commit capital, made evident by the near-record cash reserves still sitting on the balance sheets of U.S. companies. If firms aren’t willing to put their cash to work or fully employ resources, hiring will continue to drag along and organic growth opportunities will remain constricted.
Moreover, the negative effects of uncertainty affect millions of personal lives. Americans spend a total of 7.6 billion hours annually complying with the nearly 70,000 page U.S. tax code. More than eight in every 10 Americans end up paying for a person or software to handle their taxes. In fact, the Internal Revenue Service’s own commissioner even outsources to a preparer to handle his filings. Here, uncertainty takes form in unintended information asymmetry — most people just don’t have the time to fully synthesize all the government’s different deductions and reporting standards. The result is a highly unproductive use of both time and money that adds little social value.
Similarly, the Affordable Care Act is an immensely complex piece of legislation not fully understood by many. With price controls, risk regulations, health care exchanges, alterations to Medicare benefits and more, the current state of the bill has, undoubtedly, varied from its initial state. President Obama had implied that those who were satisfied with their insurance policy could keep it. This was clearly not the case at IBM, which shifted 110,000 employees off its corporate program towards health care exchanges using subsidies earlier this month. Some of IBM’s workers remained confused, thinking this was a ploy by the company to save on its health care costs. In reality, this had been a foreseen result of the tax increases and penalties of the bill, provisions not clearly or effectively presented to many Americans.
We, as students, are harmed by this uncertainty. Nearly half of all college graduates are either unemployed or work in a position that doesn’t require a college degree. Some of this is a product of the schools students attend and the degrees they earn, and some of it is due to skilled immigration and international competition. Still, part of this stems from uncertainty amongst businesses.
When hiring a full-time employee into a skilled position, firms ask themselves what the marginal cost of adding that person will be compared to the benefit. While the benefit side may be a little more clear, much of the cost side is unknown. Businesses must forecast health care expenses and payroll taxes, two areas which have seen numerous changes as of late. Pair this with uncertainty over corporate tax rates and firms who aren’t willing to utilize current assets, and college graduates are left to face an increasingly hard challenge in finding jobs that suit their skills.
I believe the focus of both public opinion and our politicians is overly centered on the “what” side of legislation as opposed to the “when.” There is frequently a delay between the occurrence of an economic problem and politicians’ recognition of the problem. Compound this with ever-present posturing and partisanship from both parties, and Americans are left with the raw end of the deal. Republicans and Democrats need to remove themselves from their ideological perches. Numbers procured from nonpartisan sources, like the Congressional Budget Office, are what should drive changes in policy, not partisan dribble.
Because of our politicians’ inability to reach solutions in a reasonable amount of time, Americans are left unsure where to put their money, how their health insurance policies will be structured or how to properly pay taxes to avoid penalties. Students are left not knowing what their futures hold, a particular concern for those saddled with hundreds of thousands of dollars of debt. Ultimately, despite the different political parties these ideas stem from, spending and tax increases are a combination of contractionary and expansionary fiscal policy, as are spending and tax decreases.
Markets will eventually have to adjust to a post-Fed world where interest rates, yields and borrowing rates aren’t so closely controlled. The Affordable Care Act is mostly here to stay — for better or worse. These are facts our leaders in Washington need to recognize. When they do, Americans will go back to work, markets will become less volatile and the U.S. economy will break free of its anemic growth rate. Once certainty returns, Brown graduates will be able to find the jobs they deserve.
Jay Upadhyay ’15 believes a more transparent and efficient government is something people from all political parties can come to appreciate. He can be reached at jay_upadhyay@brown.edu.
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