Business confidence? How about middle-class confidence? — January 10, 2014

Business confidence? How about middle-class confidence?

I’ve thought for a while that the focus on business confidence — specially, businessmen’s purported inability to make forecasts about the future, because policies ostensibly keep changing out from under them — came at the expense of *everyone else’s* confidence. Here’s an example by the banker Bob Rubin from today, via Paul Krugman:

> The US recovery remains slow by historical standards even if recent signs of improvement are borne out. One reason is that our unsound fiscal trajectory undermines business confidence, and thus job creation, by creating uncertainty about future policy and exacerbating concerns about the will of Congress to govern. Business leaders frequently cite our fiscal outlook as a deterrent to hiring and investment.

To be very specific about it: suppose you believe that you’ll lose your job tomorrow. That’s going to change your behavior today, isn’t it? It’s going to cause you to save a lot of money in the bank(assuming you have money to save), rather than spend it. In a world without universal health insurance, fear of job loss might, for instance, make you head to the hospital and the dentist’s office for all the checkups you’ve been avoiding.

I’ve not put together the economic model, but I could easily see a story under which the effects of consumer uncertainty dwarf the effects of business uncertainty. Businesses, owing to their economies of scale, can prepare for policy uncertainty more easily than I can prepare for unemployment. Really large businesses can engage in hedging schemes, wherein they’re protected from rises and falls in interest rates, for instance. I cannot so easily prepare for the loss of my job. And in an environment of high involuntary unemployment, employers have an advantage over me: they have more people waiting in line for every job opening. So my uncertainty over the future, and my ability to hedge against downturns, would seem to get worse during recessions.

But now imagine that there’s a strong social-safety net, such that, whatever else happens, you’re going to be able to get medical care even if you’re unemployed. Imagine that unemployment insurance is so strong that you breathe a little more easily and sleep a little more soundly at night. (For that matter, imagine that everyone gets a guaranteed minimum income.)

Imagine a safety net so strong that you could consider starting a new business without fear that you would impoverish your family.

Imagine that your kids’ school offered them free lunch, regardless of their income level (thereby removing the stigma of poor kids receiving free lunch), 365 days a year; that would remove the uncertainty over whether they’d be fed; in turn this would, it’s fairly easy to imagine, reduce your fear and increase your freedom of action.

Imagine that, no matter which neighborhood you lived in, you could live free of fear that your kids would be hit by stray bullets, and you could send them to whichever school was best for them (in Boston, you could live in Roxbury and send your kids to school in Brookline). You could choose to live anywhere in this world without fear. That would remove some more uncertainty from your life.

My strong suspicion is that Bob Rubin doesn’t care about these things, because he doesn’t have to. Bob Rubin’s class cares about interest rates far more than it cares about involuntary mass unemployment. Bob Rubin’s class lives in neighborhoods without fear. Bob Rubin’s class has the spare money to start new businesses without fear of their failing. The only sort of uncertainty that Bob Rubin’s class cares about is the uncertainty in interest rates.

Let’s aim for a society where the bulk of middle-class people both a) understand the real sources of uncertainty and b) don’t come to identify our needs with those of the bankers. Their needs are not ours. Their fears are not ours.