Via Don Boudreaux; Baker, Bloom and Davis have a new paper on policy uncertainty. I draw your attention to this graph.


There are a couple of interesting things here.

1) Neither The Stimulus, nor ObamaCare show up on this index. The you can see Obama’s election. You can see the 2010 midterms. However, between those is a valley of “relative” calm.

2) The Debt Ceiling Debate is huge, much bigger policy uncertainty than Lehman.

Those two points are interesting because if you look through this graph, the elections, wars and financial panic produce economic policy uncertainty. I am not really sure if you can see a tax or spending package besides the minor Bush stimulus. You can’t see HillaryCare. You can’t see Medicare Part D. You can’t see the Clinton tax increases or the Bush tax cuts.

You can sort of see Gramm-Rudman but it barely beats out normal spikes.

You don’t see the fall of the Berlin Wall. You don’t see the passage of NAFTA. You don’t see the crack-up of the former Soviet Union. You don’t see the death of Deng Xiaoping. You don’t see the “Gore Bill” You don’t see the repeal of Glass-Steagall.

And, I mean you don’t see these in anyway, positive or negative. They are just not meaningful policy events according to this index. In some ways that raises questions but it could simply mean that these things don’t matter as far as the macroeconomy is concerned.

Now, back to point (2), you see the debt-ceiling debate as being the high point of uncertainty in the last 25 years. That certainly rings true for me. That thing was no joke.

However, it went well, while Lehman went bad. So it will be interesting to see what happens to growth in the wake of these two events. Just riffing off the chart you would expect the debt-ceiling debate to have been worse than Lehman but obviously that seems a little crazy to me.

However, we shall see.