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Tuesday, October 04, 2011

What Do We Mean When We Use The Word Uncertainty?

It's not uncertainty, it's fear:

Fear (of another recession), not uncertainty, by Antonio Fatas: What is keeping growth in advanced economies from recovering at a speed similar from previous recessions? ... There is one potential explanation that I find is being overemphasized: "it is all about uncertainty". And some make it more explicit and talk about regulatory uncertainty, uncertainty about taxes, about a sovereign default in Europe, etc.
No doubt that uncertainty plays a role in explaining macroeconomic fluctuations and I am a big fan of Nick Bloom's work, an economist at Stanford who has provided strong evidence that uncertainty increased during some of the most recent recessionary episodes.
But what do we mean when we use the word uncertainty to describe the current environment? I believe we are mixing two things: one is that the future is more difficult to predict (and this truly matches the notion of uncertainty) but the second one is that future scenarios are simply worse than what we thought before. This is not uncertainty, this is just bad news.
Here is an example:... businesses face uncertain demand but the real problem is that in the scenarios they are considering, most look bad and they have recently gotten worse...
My preference would be to use the word fear rather that the word uncertainty to describe what we are seeing these days. ... On average the future does not look great and this is the real problem.

    Posted by on Tuesday, October 4, 2011 at 01:08 AM in Economics | Permalink  Comments (20)


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