|Print | Back||November 20, 2012|
The Dismal ScienceEconomic Prognostications
by Adam Smith
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.
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.
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.
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.
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