Perspective: I'm Not So Sure About Uncertainty

November 28, 2011 07:37 PM

The vast majority of economists and even ordinary citizens think our economy is not doing well. On the questions of why not and what to do about it, though, the consensus breaks down, to put it mildly.

This debate is worth following. The proposed fixes are manifold and wildly different and could have significant impact even for our booming sector.

There are two broad views of the problem. One camp believes that tax and regulatory uncertainty have made business leaders fearful of investing and hiring, leading to a sputtering GDP and high unemployment. This position is difficult to substantiate, but it has the attractive feature of fitting with the "government is the problem" mantra. That aspect alone has made it an agenda item for many who would lead.

Their solutions are to slash government spending, lower taxes and stop regulating just about everything, from financial markets to drinking water. The theory is that once CEOs are positive that taxes and regulations won’t be increasing, they will invest in new plants, hire new workers and spawn new enterprises.

The second camp thinks we are sputtering because—to paraphrase the noted economist Yogi Berra—"If people don’t want to shop, nobody’s gonna stop them." In other words, investment and hiring aren’t happening because managers don’t see much demand for goods and services, or any indication that will change soon.

This school of thought is called "aggregate demand deficiency." Demand is slowing not only because so many people are out of work but because those who do have a job have seen their wages stagnate. There is data in abundance to back up this explanation, which is one reason I find it far more compelling than the "uncertainty" argument. But the most powerful refutation of that argument is here on the farm.

Farmers are adamant that we are facing apocalyptic uncertainty. Our fixed payments are clearly in trouble, ethanol tariffs and tax breaks are likely to disappear, and the mandate seems more fragile than ever. There is even crazy talk of losing the safety net of crop insurance that is paid for mostly by taxpayers.

Farm media outlets are filled with it-can’t-last jeremiads as pundits realize that predicting a collapse can make you a big winner, and all will be forgotten if you are wrong. So we hear that interest rates can only go up and that the Fed is nervous about a land bubble.

Folks, we’ve got uncertainty in bushels, more than I have ever seen (what are you putting down for guesses in your 2012 budget?). Yet, farmers are investing and spending like the proverbial inebriated seamen. We’re paying five figures for farmland and moaning about machinery prices while placing an order.

Why aren’t we cowering in fear? I think that demand—not love—conquers all, even uncertainty. We have customers who really, really want our products and are demonstrating this by bidding up the prices for grain and other commodities.

Nothing Is Certain. There is also an historical credibility issue with the uncertainty view. At what point during past booms were taxes and regulations "certain"? Congress is forever diddling with both, and we have experienced strong growth with more rigid financial rules and much higher taxes. I made money not by depending on certainty but by anticipating changes correctly through planning or good luck.

As avid government haters grapple with unemployment—laying off masses of state workers in the middle of a recession doesn’t seem to have helped, oddly—the question is how easing burdens for business leaders who are flush with cash and already paying the lowest tax load in a half-century will get us anywhere.

If this view commands the day, farmers will need a business strategy that accommodates stagnant or falling domestic demand and immense dependence on other economies that will attack the demand side of the equation.

John Phipps is a farmer from Chrisman, Ill. He is the TV host of "U.S. Farm Report." Contact him at For local station listings, log on to



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