Back during the Obama administration, critics always used to say that there was too much “uncertainty.” Business executives being fragile flowers and all, they could not be expected to make tough decisions without absolute 100% certainty about everything.
That argument made no sense back then. After all, the Obama administration was well inside American norms during 2009-10 … and hamstrung afterwards. You can make a case that the DAPA order pushed executive action too far, but that’s really not what people were complaining about. Anyway, investment steadily rose during the Obama administration while the cost-of-capital remained low, meaning that the whole premise of the argument that “uncertainty” mattered was based on nothing.
The Trump administration, however, has brought the whole argument over “uncertainty” roaring back! Here we are, a month in, and you’ve got political uncertainty galore. Will Obamacare survive? Will the administration survive? Will it lash out? What norms will be broken? How can you trust a government that lies with such ease about everything? How bad will corruption get? Will we have a trade war? A real war? Civil unrest? Impeachment? WHO KNOWS! RUN FOR THE HILLS! CASH UNDER THE MATRESSES!!!
Or maybe let’s take a deep breath and ask if there is anything that history can tell us. Turns out that there is! In the 1930s, Huey Long ran a very Trumpian administration in Louisiana. Governor Long was, in fact, the model for an American dictator in It Can’t Happen Here. (A novel I recommend, by the way. Free at the link.)
The picture, yes, is of Texas, not Louisiana. I was just in Austin and will be returning fairly often. I’ve only been to Louisiana once, in 2004, when I stopped outside Baton Rouge on my way to Boston from Mexico City. (I also drove through New Orleans in 1996, on my way from Florida to California.) The place seemed crazy, but then again I was idiotic enough to decide to stop into a biker bar outside the city. I’m fairly certain that my Army Reserve ID was the only thing that kept me from severe physical harm.
But I digress. Let’s return to Huey Long. His regime really was that wild, wilder than any 2004 biker bar. In 1928, he won election. He then trampled over what little civil service there was in Louisiana, firing opponents and forcing state employees to donate to his campaigns. He passed out jobs to active legislators. (Really. He did that.) He imposed taxes on political opponents. In fact, he threatened to impose taxes that business people considered tantamount to expropriation. In return, they had to negotiate with him. When one opponent complained by saying, “Maybe you’ve heard of this book. It’s the Constitution of the State of Louisiana,” Long replied, “I’m the Constitution around here now.”
It got wilder. In 1930, he won a Senate seat but postponed taking it while remaining as governor. He then installed a puppet, Oscar Allen, who won in a massively fraudulent election. Allen was such a puppet that Long’s brother said, “A leaf once blew in to Allen’s office and fell on his desk. Allen signed it.” The legislature, meanwhile, turned into a Soviet rubber-stamp: the governor’s bills passed in minutes. He passed a newspaper tax he called the “tax on lying.” On 1934, he strengthened the Bureau of Criminal Identification, an agency empowered to make warrantless arrests throughout Louisiana. In 1935, the opposition was reduced to organizing a paramilitary to seize the Baton Rouge courthouse, prompting Senator Long to declare martial law. To cap it off, he established a state printing board that could effectively shut down any newspaper in the state.
Finally, Carl Weiss shot him on September 10, 1935.
So talk about uncertainty! That was American uncertainty. If uncertainty matters, we should see it in Louisiana under Long.
So Gabriel Mathy (American University) and Nicolas Ziebarth (Auburn) went looking to see what uncertainty did to the Louisiana economy under Long! In a forthcoming paper for the Journal of Economic History, they constructed uncertainty measures for Louisiana and found … nothing. All the uncertainty had remarkably little economic impact.
That should not make you complacent about the future of the Trump administration. Quite the opposite, in fact. First, the result may be specific to the southern United States. One of the best parts of a great paper is where they look for border effects with Mississippi. Mississippi didn’t get a Huey Long, but maybe markets thought that it might: the craziness was already priced in. If that’s the explanation, then the U.S. may be in a for sudden crash.
But that seems unlikely. (The paper uses multiple methods, all pointing the same direction.) What’s more likely is that you can’t trust the markets to discipline the a truly-erratic administration until it is too late. If you want to make sure that the Trump administration doesn’t wreck American governance then you’ve got to act yourself and act politically.
Go see and join the debate at this post.