The Cult of Uncertainty


A colleague and I agreed the other day that if we could banish one word from the economic lexicon, it would be "uncertainty."

Why? Because uncertainty has become the overused excuse for anything you don't want to do or are unhappy with. Scared to invest? Blame uncertainty. Low returns? Uncertainty. Businesses aren't hiring? It's due to uncertainty. High deficits? Uncertainty. Upset stomach? Must be that darn uncertainty.

Uncertainty is the inability to predict the future. And if you say there's more uncertainty today (as many do), it follows that there had to be less uncertainty at some time in the past. It's just hard to quantify what that means.

Well, it was, anyway -- until now. A group of economists from Stanford and the University of Chicago started a website called, which attempts to track uncertainty over time. They do it by measuring mentions of "uncertainty" in 10 major newspapers and changes to the tax code. It's a really smart idea.

What do their results show? Here's "uncertainty" over the last 27 years:


Sure enough, there's lots of uncertainty today.

But here's what baffles me about this chart: Uncertainty bottomed -- and thus, certainty about the future peaked -- two distinct times in the last two decades:

  • In the months before the 9/11 terrorist attacks.

  • In the months before the financial crisis and bank bailouts.

That should give you pause about how seriously to take today's uncertainty problem.

You will never hear the cult of uncertainty say, "Boy, I wish we could go back to the predictability we had in 2007, just before the financial crisis I didn't see coming, the stimulus package no one could have predicted, and the health care reform bill no one foresaw." But look at the data, and that's what they're longing for.

The lesson of that is simple: The world is always uncertain. No one has any idea what will happen next. What changes is people's perception of uncertainty, and that's driven overwhelmingly by recalling the recent past, not by forecasting the future.

Take the top two issues the cult of uncertainty has beef with.

1. "I don't know what my tax rate is going to be next year."
Right, but that's always been the case. Congress and the president can change the tax code at any time; there is no such thing as permanent reform. Since 1913, the top marginal tax rate has been tweaked on average every 3.3 years, and many of the changes were unforeseen results of a new administration or a new war that needed funding. The world where you can say, "I know what my tax rate is going to be for the next X years," has never existed, and it never will exist. Get used to it.

2. "I don't know what health care costs are going to be next year."
Again, you never have known. For decades, health care costs have been one of the most elusive variables that exist. That's true not only of actual medical costs, but of regulatory changes, too. The Affordable Healthcare Act wasn't the first attempt to alter health care in America -- not by a long shot. We've been doing it like clockwork for a century:

  • 1915: American Association for Labor Legislation drafts a bill for consideration detailing "protection of all low-income workers [providing] cash compensation and broad hospital and medical benefits to both workers and their dependents."

  • 1921: Sheppard-Towner Act provides federal funds for state-run maternity and child health programs.

  • 1935: Committee on Economic Security considers health care as part of coverage under Social Security program.

  • 1944: President Roosevelt calls for "The right to adequate medical care and the opportunity to achieve and enjoy good health."

  • 1946: Hospital Survey and Construction Act provides grants to improve health care facilities. Taft-Smith-Ball bill provides state grants to subsidize care for the poor.

  • 1965: Medicare begins, along with new taxes to pay for it.

  • 1974: In his State of the Union address, President Nixon says, "I shall propose a sweeping new program that will assure comprehensive health insurance protection to millions of Americans who cannot now obtain it or afford it."

  • 1985: President Reagan signs the Consolidated Omnibus Budget Reconciliation Act (COBRA), providing access to health insurance post-employment.

  • 1993: President Clinton proposes health reform, commonly known as HillaryCare.

  • 2003: Medicare Part D (prescription drug subsidy) is introduced.

And so on.

At any time during the last century you could have said, "I don't know what my health care costs are going to be next year," citing the pending health-care reform of the day. If you're waiting for a world where no one tries to fiddle with health care, good luck; that, too, doesn't exist.

You have to learn how to deal with uncertainty. It's just part of life. Some is caused by policy, most is just sheer randomness -- but it's always there.

As an investor, the most dangerous part of fretting over uncertainty is that you're likely to do so at the worst possible times.

A few examples: People didn't start worrying about our economy's debt problem until the debt-to-GDP ratio was declining for the first time in 40 years. People didn't start thinking the stock market was a sucker's game until valuations set them up for the best returns in decades. And worries that the world would soon run out of oil peaked right at the start of the biggest domestic oil boom in half a century. If you followed what "uncertainty" was telling you about these three trends, you missed reality by 180 degrees each time.

Warren Buffett put it better: "If you wait for the robins, spring will be over."

Uncertainty will never die. But let's stop using it as an excuse to worry.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.


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