The
election is over and based on what the winner has presented as his
economic plan I will look into my crystal ball and make some
predictions of what we can expect in the short, medium, and long
term.
Unemployment
In
the very short term, unemployment is likely to see a slight
increase. With the myriad of tax increases set to be
implemented in January, there is a very real expectation that the
economy could slow and there could be a small rise in unemployment.
Also,
Obamacare will be a huge drag on employment for the immediate
future. I have heard owners of small businesses talk about
moving people from full to part-time and even reducing their payrolls
to avoid the costs from this legislation. In a year, we will
know whether Obamacare will help employment as stated by the
administration or send more middle or lower class workers to the
unemployment line. I think the latter.
Over
the medium-time horizon (two to three years) there is little reason
to expect unemployment to decrease. The President currently has
a $300 billion stimulus that he would like passed. Even if it
were spent wisely, which is highly unlikely, this would be a drop in
a bucket for a $15 trillion-a-year economy.
When
trying to see what is going to happen in the economy, stay focused on
the fundamentals. If nothing is changing in the fundamentals of
the economy, then expect little change. The current
administration’s first goal is to have a “fair”
economy, not a growing economy. Until this fundamental changes,
there will be anemic growth in the economy.
The
long-term picture is not much better. I have heard so many
people in this administration pine for the policies that were in
place in the 70s that I expect the U.S. to move to the economy of the
70s. In fact, all we need is a little more inflation (and we
are just about there), and the Federal Reserve is working as hard as
it can to provide the inflation. Businesses hire people when
they feel good about their long-term future prospects. As long
as the government keeps acting like business is the problem,
employment is not going to improve.
Healthcare
In
the short term there will be little impact from the passage of
Obamacare. It will take time for everyone to see what is going
to change and then to react.
In
the medium term you will start to see more and more businesses and
corporations quit offering medical insurance and move their employees
to the government exchanges and paying the fine/fees. This is
where we will start to see the separation in services between the
rich and upper middle class and the rest of the country.
This
brings me to the long-term changes in healthcare. Government
will control the cost of healthcare by controlling the amount they
are willing to pay health providers for the services rendered.
It is the long term where healthcare will change. When
the government artificially suppresses the price of a good, then the
demand will always exceed supply.
Two
quick examples. When the local government tried to suppress the
cost of rent in Southern California, after a few years there were not
enough apartments for renters. When President Nixon froze the
price of oil in the early 70s, there was not enough gas for everyone.
(I waited in those lines to get gas).
So
when the government suppresses the amount that doctors and hospitals
get paid for their services for the majority of the population, then
in the long run, expect that there will not be enough doctors or
hospitals for the people covered by the government.
The
group that is going to be devastated the most will be the lower
middle class and the poor. These are just the people that it
was meant to help, but the laws of economics will, in the end, cause
their care to get much worse. It is beyond depressing.
This
shortage will not apply to the rich and upper middle class.
They will be able to buy their own insurance or self-insure.
This is also the group that doctors will want as patients because
their payment will not be controlled by the government.
Also,
small private hospitals will start up because if you think that the
rich are going to go to what are essentially government-controlled
hospitals (run like your state DMV) then you probably think the work
gullible
is not in the dictionary.
Energy
In
the short and medium term, I think that we will continue to see
volatile prices at the gas station but with the price actually
trending downward. Even though the current administration is
against fossil fuel and has tried through regulations to restrict its
use, the United States is becoming an energy giant again. It
has been estimated that by 2025 we could once again be the largest
producer of oil in the world. Also, more and more industries
are finding ways to move from oil to natural gas for their energy
needs, and the U.S. is the king of natural gas.
When
you combine these facts with a stagnant and maybe regressing U.S.
economy, the supply and demand equation may actually be tipping to
supply exceeding demand. The world economy can only grow so
fast with a dormant U.S. economy, and so world demand will not be
increasing at the same rates we saw in the past decade.
The
long term for energy is fascinating. I believe that someone is
really going to figure out how to economically produce and use a
renewable source of energy. It is just hard to figure out what
it will be. Wind is never going to work, and the improvement in
solar seems to be at a snail’s pace. But somewhere,
someone is somehow going to figure this one out, and energy will only
be a minor part of our concerns.
I
do not think it is that far in the future — ten
to thirty years. If you know what company or person is going to
finally solve the energy puzzle, please let me know before anyone
else. I would love to retire wealthy.
So
there you have three guesses about what is going to happen in the
economy. Of course my prognostications are wrong, but so
are everyone else’s who try and tell us what is going to
happen. No one knows the future but He who knows all things
from the beginning to the end, and I am a little unsure of my
interpretation of the Book of Revelations.
The
economic hard times are not likely to end soon, so hold on to those
you love and enjoy the blessing of friends and family. If you
have resources to spare, consider increasing your fast offering
donations to help those less fortunate. The need right now is
greater than it has been in decades.
Adam Smith is obviously not the actual name of the author of this column. The real author has
worked for two Fortune 500 companies, one privately held company, and a public accounting
firm. His undergraduate degree was in accounting, and he earned an MBA for his graduate
degree. He also has completed coursework for a PhD. in finance. He continues to be employed
by one of the Fortune 500 companies.
The author grew up in the Washington D.C. area but also lived for several years in Arizona. He
currently resides with his family on the East Coast.
The author has held various callings in The Church of Jesus Christ of Latter-day Saints.