Un­known un­knowns

The Covington News - - Opinion - Thomas Sow­ell is a se­nior fel­low at the Hoover In­sti­tu­tion, Stan­ford Univer­sity, Stan­ford, CA 94305. His web­site is www.tsow­ell.com.

“ Amer­i­can in­ver­stors are send­ing more of their money out of the coun­try than for­eign in­ver­stors ” are send­ing here.

When Don­ald Rums­feld was Sec­re­tary of De­fense, he coined some phrases about knowl­edge that ap­ply far be­yond mil­i­tary mat­ters.

Sec­re­tary Rums­feld pointed out that there are some things that we know that we know.

He called those "known knowns."

We may, for ex­am­ple, know how many air­craft car­ri­ers some other coun­try has. We may also know that they have troops and tanks, with­out know­ing how many. In Rums­feld's phrase, that would be an "un­known known" — a gap in our knowl­edge that we at least know ex­ists.

Fi­nally, there are things we don't even know ex­ist, much less any­thing about them.

These are "un­known un­knowns", and they are the most dan­ger­ous.

We had no clue, for ex­am­ple, when dawn broke on Sept. 11, 2001, that some­body was go­ing to fly two com­mer­cial air­lin­ers into the World Trade Cen­ter that day.

There are sim­i­lar kinds of gaps in our knowl­edge in the econ­omy.

Un­for­tu­nately, our own gov­ern­ment cre­ates un­cer­tain­ties that can par­a­lyze the econ­omy, es­pe­cially when these un­cer­tain­ties take the form of "un­known un­knowns."

The short-run quick fixes that seem so at­trac­tive to so many politi­cians, and to many in the me­dia, cre­ate many un­knowns that make in­vestors re­luc­tant to in­vest and em­ploy­ers re­luc­tant to em­ploy. Politi­cians may only look as far ahead as the next elec­tion, but in­vestors have to look ahead for as many years as it will take for their in­vest­ments to start bring­ing in some money.

The net re­sult is that both our fi­nan­cial in­sti­tu­tions and our busi­nesses have had record amounts of cash sitting idle while mil­lions of peo­ple can't find jobs. Or­di­nar­ily these in­sti­tu­tions make money by in­vest­ing money and hir­ing work­ers. Why not now?

Be­cause nu­mer­ous and un­pre­dictable gov­ern­ment in­ter­ven­tions cre­ate many un­knowns, in­clud­ing "un­known un­knowns."

The quick fix that got both Democrats and Repub­li­cans off the hook with a tem­po­rary bi­par­ti­san tax com­pro­mise sev­eral months ago leaves in­vestors un­cer­tain as to what the tax rate will be when any money they in­vest to­day starts bring­ing in a re­turn in an­other two or three or ten years. It is known that there will be taxes but no­body knows what the tax rate will be then.

Some in­vestors can send their in­vest­ment money to for­eign coun­tries, where the tax rate is al­ready known, is of­ten lower than the tax rate in the United States, and, per­haps even more im­por­tant, is not some tem­po­rary, quick-fix com­pro­mise that is go­ing to ex­pire be­fore their in­vest­ments start earn­ing a re­turn.

Al­though more for­eign in­vest­ments were com­ing into the United States, a few years ago, than there were Amer­i­can in­vest­ments go­ing to for­eign coun­tries, to­day it is just the re­verse. Amer­i­can in­vestors are send­ing more of their money out of the coun­try than for­eign in­vestors are send­ing here.

Since 2009, ac­cord­ing to the Wall Street Jour­nal, "the U.S. has lost more than $200 bil­lion in in­vest­ment cap­i­tal."

They add: "That is the equiv­a­lent of about two mil­lion jobs that don't ex­ist on these shores and are now lo­cated in places like China, Ger­many and In­dia."

Pres­i­dent Obama's rhetoric de­plores such "out­sourc­ing," but his ad­min­is­tra­tion's poli­cies make out­sourc­ing an ever more at­trac­tive al­ter­na­tive to in­vest­ing in the United States and cre­at­ing Amer­i­can jobs.

Blithely pil­ing onto Amer­i­can busi­nesses both known costs like more taxes and un­know­able costs, such as the mas­sive Oba­maCare man­dates that are still evolv­ing, pro­vides more in­cen­tives for in­vestors to send their money else­where to es­cape the has­sles.

Hardly a month goes by with­out this ad­min­is­tra­tion com­ing up with a new anti-busi­ness pol­icy, whether di­rected against Boe­ing, banks or other pri­vate en­ter­prises.

Nei­ther in­vestors nor em­ploy­ers can know when the next one is com­ing or what it will be. These are un­known un­knowns.

Such anti-busi­ness poli­cies would just be busi­ness' prob­lem, ex­cept that it is busi­nesses that cre­ate jobs.

The big­gest losers from cre­at­ing an ad­verse busi­ness cli­mate may not be busi­nesses them­selves, es­pe­cially not big busi­nesses, which can read­ily in­vest more of their money over­seas. The big­gest losers are likely to be work­ing peo­ple in Amer­ica, who can­not just re­lo­cate to Europe or Asia to take the jobs cre­ated there by Amer­i­can multi­na­tional cor­po­ra­tions.


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