Brian Moore’s ’13 thesis: Is All News Bad News? The Effect of Policy Uncertainty in Manufacturing Investment
Economics major and and former Student Body President Brian Moore wrote his thesis on government policy change and whether or not this effects investments made by manufacturing companies. In times of economic downturn, Moore says, many say that the government should not try to change policy, as this creates an uncertain economic environment that possibly discourages investment. For instance, “if you’re a small manufacturer, and the government is considering regulating your industry, you’re less likely to invest until you know how that regulation is going to look, or how that regulation might effect you as a firm.”
This economic theory is gaining a significant amount of traction in these past few years, Moore says, because the policy change surrounding “Obamacare” and the concern that such a move in the current economy would only damage it further.
The thesis is incorporating data regarding policy change from the year 1982 through 2008. To collect data, Moore has an “index of policy uncertainty based on Google news search results that is trying quantify some that uncertainty.” The hardest thing, he says, about writing his thesis is that, prior to this year he had not known how to code, and, in order to collect his data, he needed to be able to program. He had to teach himself Python at the beginning of the year and was then able to execute a script.
Moore says that the end result of his thesis was the most interesting part in that he found, “that policy uncertainty only has only a relatively small effect on manufacturing investment levels… There were some estimates made by Republican economists that had, like 40 percent of the recent downturn in spending was due to this policy uncertainty. My estimates are closer to like, 2 and 3 percent.”
The incident of the New Carissa shipwreck, off the coast of Oregon in 1999, Moore says, is a very good example of policy change that did not have long-term effects on manufacturing investment. “So this ship crashes… and it gets stuck up on the beach and the government has no idea what to do for a couple months.” As they try to move it, Moore says, “they discover they can’t actually just tug it out with a tug boat, and they drop napalm on it to try to burn off all the excess fuel.” This event catalyzed the government to pass legislature to make sure nothing similar ever happens again. The government began to look at boat manufacturing and boat repairs. Legislature was eventually passed giving the Coast Guard additional authority to prevent accidents of this kind again. A year after this legislation was passed, Moore says, the manufacturing investment for firms in that sector was down about half from what it was a year before. Only a year later, however, it rebounded back to previous levels.