It's not as if the political dysfunction and discord that lead to past policy Armageddon in Washington has subsided. Clearly, Tuesday's stunning primary defeat of budget hawk and House Majority Leader Eric Cantor, R-Va., to a tea party rival, brings a fresh round of political uncertainty to the capital.
But until the Cantor shocker, it had been going so much better, with none of the kind of heart-stopping, market-roiling policy gridlock on the order of the near-default of the Treasury or the infamous fiscal cliff. Which may help explain why the stock market was powering higher these days.
To be sure, there are plenty of things to worry if you own stocks. The U.S. economy is coming out of a nasty slump brought on by a dismal winter. The job market may have perked up a bit, but stalled wages are holding back consumer spending. After halting growth the last two years, corporate profits have stalled.
But lately there had been marked a drop in the level of fear-inducing in-fighting emanating from the nation's capital. That's according to the Policy Uncertainty Index, created by a team Stanford University economists who track the impact of policy uncertainty on business and the economy
The last time we visited the index, the country faced a made-up budgetary crisis that shut down the government and threatened to take a big bite out of gross domestic product. Prior spikes in the index accompanied the fiscal cliff of 2013 and the July 2011 threat to force the Treasury into default—a move that eventually cost Uncle Sam his pristine triple-A bond rating.
But those policy panic attacks had faded into distant memory, according to the index, which fell sharply last year after the government went back to work and has been trending lower since.
The index—created by economists Nicholas Bloom and Scott Baker and University of Chicago economist Steven Davis—relies on three sources of information: newspaper coverage of policy-related economic uncertainty, the number of federal tax code provisions set to expire in future years and disagreement among economic forecasters.
When they crunched the data, they found that before the Great Recession struck in 2007, the index moved in a relatively narrow range, spiking on fairly obvious events like wars, elections or stock market corrections.
Since the recession, those spikes have become more pronounced, culminating in the all-time policy panic high of July 2011, when dithering over the debt ceiling sent the government to the brink of default. That month, the index surpassed a string of other high anxiety nail-biters, including two Gulf Wars, Y2K, the Sept. 11 terrorist attacks and the 2008 collapse of Lehman Brothers.
The Cantor shocker aside, for now, those spikes have abated and the index has eased into calmer territory. Maybe it's because investors have gotten over the anxiety sparked by a change of leadership at the transition at the Federal Reserve. Or maybe they figure that Washington mischief will remain in remission with a lame duck in the White House and mid-term elections six months away.
Whatever the reason, a tentative calm seems to have set in, according to the index.
That could also bode well for business and consumers. As Bloom and his colleagues have tracked the ups and downs of the index, they've found it does a pretty good job foreshadowing changes in economic growth and employment in the following months. Economists, in fact, are generally pretty optimistic that we'll see fairly robust improvement in gross domestic product—north of 3 percent annualized growth—for the rest of the year.
Or at least until Congress and the White House come up with the next self-induced crisis.