Policy

Editors' note: Can't we all just get along?

By Hal Weitzman,  Emily Lambert   
September 2, 2014

From: Magazine

The global economy is attempting to recover from its long and painful slump. In the United States, the unemployment rate has been falling, and the Federal Reserve is winding down the bond-buying program it used to encourage growth. Elsewhere, in eurozone countries and Japan for example, signs of growth compete with troubling setbacks. 

What could knock this nascent recovery off course? One possibility: politics.

The financial crisis prompted policymakers to intervene more in their economies than they had done in decades, because of stimulus programs, bailouts, and loose monetary policy. That forced investors to pay closer attention to policymakers’ words and actions. It also prompted academic researchers to analyze the specifics of how policy affects the economy. Their data suggest that political bickering, stalemates, and brinkmanship can spook investors and depress growth. 

As we explain in our cover story (page 22), measuring “policy uncertainty” is useful for investors, which is why it’s being embraced by the likes of Blackrock, the bond-trading giant. It is also controversial. Steven J. Davis, an economist at the forefront of uncertainty research, took to these pages last year to defend the idea in an essay (“Policy uncertainty matters,” Summer 2013). Now finance researchers including Lubos Pastor and Pietro Veronesi are analyzing how government-related uncertainty affects financial markets. 

Among other things, the research suggests that ugly politics of brinkmanship, posturing, and bickering can create growth-sapping uncertainty. Politicians who get this message could help investors by working together to ease uncertainty. Feel free to send this magazine on to your representatives, or email them an online version, which you’ll find at ChicagoBooth.edu/capideas

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We hope you will find this issue full of ideas that make you think or, better yet, act. Featured research by Stefano Giglio (page 16) suggests why we should invest more to fight climate change. Work by Jane L. Risen and Juliana Schroeder (page 19) indicates that summer camp can bridge the divide between Jewish Israelis and Muslim Palestinians. Laurens G. Debo (page 34) suggests businesses should use long lines strategically to attract customers. Michael Gibbs (page 38) offers four ways companies can encourage innovation, based on data from a large IT-services firm.

Earlier this year we bid farewell to an economic giant, Gary S. Becker. We share Becker’s final post from the blog he cowrote with Seventh Circuit Court of Appeals Judge Richard Posner, also a senior lecturer at the University of Chicago Law School (page 46). Fittingly for a man who constantly challenged the status quo, Becker wrote about the need to end the US embargo on Cuba. As with the new research on uncertainty, to the end Becker tried to get policymakers to confront the unintended consequences of their actions.  


Hal Weitzman 
Executive Director, Intellectual Capital 
Editor-in-Chief, Capital Ideas

Emily Lambert 
Senior Associate Director, Intellectual Capital
Editor, Capital Ideas

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