How Government-Fueled Economic Uncertainty Costs Jobs

The government needs to listen to job creators and lower the risk for people to start businesses and increase job creation.

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A neon "Open" sign hangs in a store window.

Ronald Lazof is managing director of Prism Advisers, LLC and a Job Creators Alliance member.

The true cost of uncertainty in job losses (or those not created or saved) is astronomical. Job creators are faced with risk and the unknown everyday of their working lives. Not only must they learn to deal with the stress, but many, in fact, welcome the risk, because it is also a measure of the potential for gain and profit.

There has, however, been a noticeable shift over the past decade. What's changed? Today's economic environment is far more uncertain. Two examples of this increased uncertainty: First, the majority of the changes in the tax code since 1986 were either permanent or at least, long-lasting (the tax cuts of 2001 and 2003, for example). Second, up until the federal government's intervention in the Chrysler bankruptcy it was a "certainty" that bondholders held a preferred position to unsecured creditors. That is no longer the case. While there are plenty of other examples, these two encapsulate how decisions and policies made in Washington, D.C. can have a big impact across the private sector, changing the very rules of business.

It's been said that risk can be thought of in three categories: That which we know, that which we know that we do not know, and that which we do not know that we do not know.

[See a collection of political cartoons on the economy.]

An example of the first might be that we know that in opening any business we may have misjudged the market (timing, price, or both) for our goods or services. An example of the second might be that when we borrow money for our business, interest rates may vary over time in amount and rate that is known to be unpredictable. And lastly, an example of not knowing what we don't know might be the possibility that our business could very well be legislated or regulated out of business tomorrow—irrespective of the free market.

Entrepreneurs regularly assess and take risks that are known because they recognize that without risk there is no possibility of return. The only true area of certainty is in the past; no one would accept a bet on what the market closed at yesterday. Additionally, entrepreneurs routinely accept the risks of the known unknown, such as interest rate fluctuations, and hope to be agile and prepared enough to adjust as necessary to changing conditions.

However, it is within the third category of risk: the unknown unknown, that society, humanity and government can have the greatest positive effect on job creation. The flip side is that the wrong move in this space will be a sure job-killer and the major deterrent to entrepreneurial zeal. Government, by providing a stable environment over a long-term planning period, can instill the confidence in those who are already inclined to entrepreneurial risk to take the leap. Conversely, by destabilizing society, law, and expectations, government can discourage risk-taking, entrepreneurial activity, and, by extension, economic growth and job creation.

[See a slide show of Mort Zuckerman's 5 Ways to Create More Jobs.]

For those considering striking out on their own—perhaps you'll find this a useful thought experiment. Answer the following questions and see if you would be inclined to "bet the farm" to start a new business (it's worth noting that the vast majority of new jobs are created by small businesses within the first five years of their founding): 

  1. Do you think your new business can effectively compete for capital when interest rates are kept artificially so low that they can only go higher, and the government borrows more and more of the market's total liquidity?
  2. Would you stake your life savings, your credit, and your reputation on a new venture when real inflation exceeds your earnings on savings and your ability to save for your family's uncertain future, or would you stay with a job and a secure paycheck?
  3. How can you make a rational decision to invest in yourself, your new business or anything else, when taxes on capital formation, successful businesses, and people are certain to increase in amounts that are uncertain, unknown, and unknowable?
  4. [See the 10 best cities to find a job.]

    The only certainty in such an environment of sustained uncertainty is that fewer entrepreneurs are creating fewer businesses and jobs. The first two of the three categories of risk cannot be avoided. But to the degree that government could help inject a modicum of certainty into the private economy—shouldn't it? Instead of partisan posturing and political gamesmanship, our elected leaders should listen to the job creators on what it will take to get the economy growing again. Instead of incentivizing cash-hoarding (and the subsequent low rates of return), we should be encouraging entrepreneurial risk-taking.

    The good news is that America has come back from worse before, and can again—we must again become a land that gives all the opportunity to risk (and gain) everything in pursuit of the American Dream.

    • Read David Brodwin: Put the Federal Government on Autopilot to Solve Deficit Crisis
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