Regulation and the “Unknown Unknowns” Effect

“Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know.” —  Donald Rumsfeld[1]

I ingest a large amount of business media—and even more that passes itself off as business media. There is a lot of head scratching going on about the small business optimism index (among the highest levels in 43 years), CEO Confidence Measurement (up 15 points in the most recent measure) and even the strong consumer confidence survey (up 9.5 points in the most recent survey).

“How could this be,” many business media pundits ask, “with the GOP healthcare bill failure, no tax reform yet, no new infrastructure spending bills, and no new laws to roll back regulations?”

I say it’s the reduction in the “unknown unknowns.” More specifically, I mean the bad unknown unknowns that come with high and increasing levels of regulation. Whatever your feelings about the current administration, I believe most would agree that the current level of regulation on business will be lessened, and any future regulatory actions will likely be much more pro-business. This can be seen in recent executive actions that undo some of the prior administration’s executive orders, rules and requirements.

Businesses may not believe that all of the positive things the President promises will actually happen, but they have some belief that the burdensome regulatory environment will not continue (or get worse). That’s either good or bad depending on your point of view, but for many in the business community, it’s one less unknown unknown.

[1] “Defense.gov News Transcript: DoD News Briefing – Secretary Rumsfeld and Gen. Myers, United States Department of Defense (defense.gov)”