War is good for the economy, except that it isn't

You have probably heard the claim that "war is good for the economy." When considering this claim, ask yourself...if war is good for the economy:

Why do investors run from warzones? Why isn't there an ETF called WAR that focuses solely on areas ravaged by combat? Why don't investors line up to place their seed money between the falling bombs? That would certainly give new meaning to the term "angel investor."

It is because war wrecks the economy. Aside from all the property damage (aren't we always hearing that smooth working infrastructure is one of the keys to growth?), war creates the worst kind of uncertainty.

If you've been awake in the last year, you've heard pundits complain that business is being harmed by all the uncertainty being caused by the federal government. The pundits are't wrong; uncertainty is bad for the economy. And nothing causes more uncertainty that war. Ironically, many of those lamenting all the government-created uncertainty are big-time war hawks.

Stability is what attracts investors. This is why emerging markets like Indonesia produce commercials highlighting that they are "politically stable." Countries don't run ads that say, "Bloody. Crumbling. Conflicted. Invest in regrettable Indonesia."

War isn't good for the economy, unless you're talking about the six feet underground economy.

Uncertain? You Bet!

Eavesdrop on an interview with a CEO or business commentator nowadays, and the buzzword you'll hear most often is uncertainty. Can't get away from it (not even in the hot new Chevy Volt). Doesn't matter if the person is selling real estate, maternity clothing, or moose lips, whenever they're pressed to give a bird's-eye view of today's challenging business climate, they file everything in a generic folder marked "uncertainty."

The exchanges go something like this:

Talking Head: "So what's the biggest challenge facing your industry today?

CEO: "Uncertainty."

Talking Head: "We all know that small business does most of the hiring in this country. What would you say is the biggest challenge facing small businesses today?"

Small Business Owner: "Uncertainty."

Talking Head: "Having successfully managed not to foresee a single aspect of the recent credit crisis, what do you think is driving the market today?

Business Commentator: "Uncertainty."

You get the picture.

Depending on the political persuasion of the talking head interviewing them (hack Republican or hack Democrat), it may get slightly more specific; meaning the hack will editorialize about taxes or regulation (pro or con), then cleverly "hide" the editorial by ending his tirade with a questioning lilt in his voice. Usually, it is only then the CEO/business commentator will reference Washington and its proposals.

For those unfamiliar with the work of economist Robert Higgs, one of his key concepts is regime uncertainty. Abridged version: Extensive government intrusion into the economy creates an atmosphere where businesses become prudish about hiring, purchasing capital equipment, and other important decisions, because they don't know how these decisions might be affected by whatever tax or regulation the government brews next.

So why aren't more businesspeople saying this outright?

Part of this reluctance exists because being a CEO is a lot like being a politician. One "scandalous" comment can singe you (remember Whole Foodsgate?), so canned platitudes and stiff upper lips come with the job.

But also, given how much of the economy has already been ambushed these last few years, it could just be these guys are so uncertain about Washington they've even become uncertain about speaking its name. Washington has become their Candyman; don't say his name and maybe he won't come for you!

Truthfully, things really AREN'T that uncertain. Taxes ARE going up. Obamacare WILL happen in some form. The milquetoast "uncertainty" line is a fuzzy way of admitting the government is handicapping business without offending Obamamaniac customers or running the risk of becoming a certain target of that epicenter of uncertainty; Washington, D.C.