Uncertainty fosters low expectations

Polling this election cycle confounds even those whose job it is to make sense of political public opinion. News reports are awash with data, snapshots of ephemera. Touts with tip sheets abound. In a few weeks we’ll know. Some will claim prescience. Singed soothsayers will rationalize failure.

They’ll be back. Like NFL coaches, political pros occupy a strange niche, where winning and losing matter less than having played the game. Once in, they rarely leave the field.

Something strange is happening with public opinion this year and not just with politics. Consider some recent polling on voter and consumer confidence.

Gallup reports that Americans are increasingly satisfied with things. Nothing to brag about — only 30 percent claim satisfaction — but it’s at a three year high, up from 11 percent a year ago.

The national pollster also found a remarkably high level of trust in state and local government. Nearly three-quarters of those polled say they trust their local governments, while nearly two-thirds trust their state government.

Political fortunes correlate with fiscal fortune. Most states are enjoying a budget recovery, with more than half expecting surpluses this year and nearly half predicting a return to pre-recession revenues next year.

“With the economy improving somewhat and states apparently on better financial footing after making cutbacks in recent years,” Gallup says, “trust in state government has improved a total of 14 percentage points since 2009.” (Love that “somewhat” and “apparently.”)

Consumer confidence is also rising. The Thomson Reuters/University of Michigan index climbed in September, standing nearly one-third above “the disastrous lows during the debt ceiling debate” last year.

Chief economist Richard Curtin says confidence has grown “due to more favorable prospects for the economy and for jobs.” He also cites lower debt and rising stock and housing values.

Still, Curtin adds, the “overall economy … will not expand continuously but suffer some setbacks over the next several years.”

Safe bet.

We’re reaping the harvest of a stuttering recovery and depressed expectations. While the numbers are improving, they’re neither good nor stable. Weary of our pessimism, we respond positively to hints of good news — even politicians’ promises — but the bubble of optimism bursts at the first sign of trouble.

There are signs aplenty. Last week came predictions of stalled consumer spending and the nation’s top business leaders weighed in with a downbeat prognosis.

The Business Roundtable announced the CEO Economic Outlook fell sharply, reaching its lowest level since the third quarter of 2009. The survey tracks expectations for sales, capital investment and hiring.

Boeing CEO and Business Roundtable chair Jim McNerney says the decline “reflects continuing concern about the strength of the recovery, including uncertainty over the approaching fiscal cliff … the tax code, sequestration, and the debt ceiling.”

Economists have found that as policy uncertainty increases, economic performance falls. It’s what McNerney is saying: When business leaders do not know what to expect, they don’t make long-term commitments, sidelining investment and job creation.

Today, uncertainty abounds. At the national level, staggering debt, unchecked entitlement spending, and a refusal to commit to enduring reform have stymied growth.

State governments ride the tide of the national economy, but they are not helpless. Successful states maneuver to create a comparative advantage over their competitors, using tax policy, regulatory reform and aggressive strategies to attract and grow business. Washington state has been a middling competitor.

Although the recent revenue forecast for Washington remained unchanged, there’s reason for concern. Steve Lerch, the economist responsible for the state forecast, cites “slow growth, high unemployment, and weak confidence” in the national economy. Our state is performing better than expected — expectations were modest — with gains in employment and housing construction offsetting slowing manufacturing and weakened exports. There’s risk. Pervasive policy uncertainty may trigger another economic downturn, slamming state revenues.

Weak confidence may reflect resignation. We doubt certainty is possible and think the problems are too big. There’s a danger that we have grown accustomed to distant horizons and arid plateaus. We’re told to be patient — it’s hard to recover from a financial crisis. Slow growth and high unemployment represent the new normal. But we should not trim our designs to fit shriveled fabric.

We should expect more.

Richard S. Davis is president of the Washington Research Council. His email address is rsdavis@simeonpartners.com.

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