Uncertainty. What comes to mind when you hear this word? Your Future? The Stock market? A test score for a major exam? Your bi-weekly paycheck? Your Financial goals?
I interpret the word uncertainty to mean any outcome or event that is not what is to be expected. Uncertainty lies in many aspects of the business world and plays a critical role on decision making in business. The word uncertainty is typically in high relation to the word risk. Some of the most successful businessmen and women are the ones who can analyze the risk and make knowledgeable business decisions based upon the underlying risk.
While many risk's can be interpreted and then avoided, there will always be some uncertainties that are even to complex for formulas and brilliant decision makers to predict. A very prevalent risk in todays economy is what is being referred to as the "Fiscal Cliff." In short, The Fiscal Cliff is a metaphorical edge that the U.S. will face at the end of 2012 when the Bush-era income tax cuts and government spending cuts will expire. This cliff has been created by congress' inability to agree on ways to fix our countries debt crisis. More detailed information on the Fiscal Cliff can be found here.
Fiscal Cliff relation to a Business Owner or Manager
More than just the tax rates and spending cuts issues, the uncertainty brought about by this Fiscal Cliff has caused many managers and business owners to change its business strategy and become more conservative with their actions and spending. Since business owners are uncertain on the taxes they will have to pay at the beginning of next year, owners and managers mitigate this risk by not hiring new employees, sitting on cash and failing to seek other opportunities for expansion. This is uncertainty is demonstrated by the lack of job growth and low GDP growth we have seen over the previous months and years. This lack of job growth then creates higher unemployment levels, resulting in more citizens dependence on the government. Higher dependence on the government then increases government's spending on assistance programs. It is a very slippery slope, and one decision (in this case deferring the debt crisis resolution) can have monumental financial repercussions directly and indirectly.
What next?
So what happens next on the road to the edge of the fiscal cliff? One major landmark will be in November when the presidential election of 2012 takes place. Although it is not safe to assume the winner of that election will stick to his every word with regards to the tax rates and spending, one can infer that Obama will enact a more progressive tax system then Romney intends to. Whoever it may be and whichever plan is enacted will be positive for our economy in the sense that one can assume it will bring about certainty and lead to job growth.
Other optimist on the subject suggest that a short term "fall off the cliff" might not be such a bad thing. In Neal Lipschutz's blog, he recognizes that a short term hike in tax rates begin taking a "chunk" out of the annual budget deficit. The remainder of Lipschutz insights were much more pessimistic. Lipschutz describes the economic outlook as "Anemic" even if the fiscal cliff gets resolved.
I, as an actuarial science student, am constantly analyzing risk and finding ways to mitigate it in my every day life. I feel that this topic of the fiscal cliff is playing a major role in many aspects of the financial industry which then trickles down to main street through various ways. Although I am not currently seeking employment, I will be in the spring after graduation and I feel that if this fiscal cliff uncertainty continues, the job market will be much more competitive. This has an effect on everyone wither it be directly or indirectly and everyone should be aware of how this uncertainty plays a role in their life.
