After Republicans won the 2010 election, Eric Cantor, the incoming House Majority Leader, sent a letter to congressional Republicans that put “resolving policy uncertainty in Washington” atop the agenda. But that didn’t stop Republicans from trying to repeal the Affordable Care Act without naming a replacement, or threatening to breach the debt ceiling if their fiscal demands weren’t met — moves that vastly increased policy uncertainty.
In Washington, “resolving uncertainty” is a fancy term for “undoing policies you don’t like, and replacing them with policies you do.” And when I say “fancy term,” I mean misleading bit of obscurantist rhetoric. But in the market, “policy uncertainty” is exactly what it sounds like: uncertainty about the future path of policy. And if politicians want to solve it, they need to compromise.
That was the message Lloyd Blankfein, chairman and CEO of the Goldman Sachs Group, delivered before the Economic Club of Washington, D.C, today. “Uncertainty,” he said, “makes everything worth less,” and the uncertainty around the fiscal cliff is, even as we speak, “a real burden” on the economy. To that end, he said, resolving it should be the top priority of policymakers.
The problem in Washington now, he continued, is that even when one side or the other gets something done, the market can’t trust that the uncertainty is resolved. “When one side wins, as they will win, you don’t achieve certainty because the other side is plotting and planning to undo it two years later. Stability in our system can only be achieved if everyone throws in at least a little.”
So how would Blankfein solve the fiscal cliff? ”I would almost capitulate to either side rather than have things drag on,” he said. That’s not a position either side is going to take in Washington. But that’s because they, unlike Blankfein, are not primarily interested in resolving policy uncertainty. They’re primarily interested in making policy. When they say otherwise, they’re lying.