Endless Uncertainty

The night before the D-Day invasion, a nervous Franklin Roosevelt asked his wife Eleanor how she felt about not knowing what would happen next.

“To be nearly sixty years old and still rebel at uncertainty is ridiculous isn’t it?” she said.

It is. But my God, we do. And in strange ways.

As we sit here today – the highest inflation in 40 years, rising interest rates, plenty of tech stocks down 50%+, a war in Ukraine, supply chains broken, a lingering pandemic, China on lockdown, on and on – it feels like economic uncertainty is rising, maybe the highest it’s been in years.

That’s the common word, at least. A few headlines from the last week:

Bitcoin and Ethereum Prices Slide Amid Economic Uncertainty

Uncertainty cast a cloud over Davos

Wayfair freezes hiring citing economic uncertainty

Bank profits fall amid uncertainty

Mortgage apps decline 11% amid economic uncertainty

I get the feeling. A lot of things are not only bad but worse than expected, which is when problems become panics.

But the idea that uncertainty is higher now than it was, say, one or two or five years ago is a strange one. It implies that the future was more predictable in the past, before the pandemic struck and inflation spiked and the war broke out. But it wasn’t, of course. The risks were always there. People were just blind to them.

The future is always endlessly unpredictable. What changes isn’t the level of uncertainty, but the level of people’s complacency.

There is a thing called the Policy Uncertainty Index that attempts to quantify economic uncertainty. It tracks things like mentions of economic uncertainty in newspapers, changes to the tax code, and the variance of opinions among economic forecasters.

By its metric, uncertainty bottomed – and hence certainty about the future peaked – at two distinct times over the last 20 years: In the year before September 11th, and in the year before the 2008 financial crisis.

Which, of course, is absurd.

In hindsight those were perhaps the most uncertain periods in modern history, when everything we thought we knew about how the world worked was about to be upended. We just didn’t know it at the time.

Here’s how President Clinton explained the mood in his January, 2000 State of the Union Speech. When reading this keep in mind what we know in hindsight: This was just before the stock market crashed, the economy was thrown into recession, and America was attacked for the first time since Pearl Harbor:

Never before has our Nation enjoyed, at once, so much prosperity and social progress with so little internal crisis and so few external threats. Never before have we had such a blessed opportunity.

We begin the new century with over 20 million new jobs; the fastest economic growth in more than 30 years; the lowest unemployment rates in 30 years; the lowest poverty rates in 20 years; the lowest African-American and Hispanic unemployment rates on record; the first back-to-back surpluses in 42 years; and next month, America will achieve the longest period of economic growth in our entire history. We have built a new economy.

My fellow Americans, the state of our Union is the strongest it has ever been.

Pointing this out isn’t a criticism, because everything he says here is accurate. But the good and accurate news of the era gave the impression that the future was predictable and uncertainty was low, when reality was the future was extremely unpredictable but complacency was high. September 11th didn’t make the future more uncertain – it was always uncertain, the attack just woke people up to a risk that was always a possibility but we hadn’t imagined.

I think the opposite occurs when everyone thinks uncertainty is high.

There’s a theory in psychology called depressive realism which says depressed people have a more accurate view of the world because they’re more realistic about how risky and fragile life is. It’s the opposite of “blissfully unaware.”

As people look at the economy, that’s probably what’s happening right now.

Uncertainty hasn’t gone up this year; complacency has come down. People are more aware that the future could go any way, that what’s prosperous today can evaporate tomorrow, and that predictions that seemed assured a few months ago can look crazy today.

That’s always been the case. But now we’re keenly aware of it.

To live through the last two years and still rebel at uncertainty is ridiculous, isn’t it?

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