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Certain Uncertainty

The economic difference between confusion, fear, and panic.

12:00 AM, Sep 27, 2005 • By IRWIN M. STELZER
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Economic forecasters confess to being increasingly uncertain. In August, economists assigned a 67 percent probability to the accuracy of their projections. In the Wall Street Journal's latest survey of 56 economists, the respondents said the probability that they have it right has declined to 57 percent.

Walter Bagehot once observed that "the early stages of confusion . . . intensify apprehension, and . . . cause panic where otherwise there would have been merely fear." But panic, he added, occurs where there is "a general destruction of all confidence." America is nowhere near that point. The best guess is that after the fog of uncertainty lifts we will see an economy that continues to grow at upwards of 3 percent per year, if not considerably faster. The great American job creation machine remains intact, corporate profits and cash flow continue to break records, fiscal policy is loose and heading to looser, and consumers, so far at least, have not allowed higher gasoline and fuel costs to reduce their desire for bigger and better houses, still affordable in most parts of the country.

Perhaps in the end Americans will agree with Keynes' conclusion, "It would be foolish . . . to attach great weight to matters which are very uncertain," and go about their business unaffected by these new uncertainties.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.