By John Reizner |
Americans are known for voting according to the health of their pocketbooks, and this year's election may be no exception. While Ronald Reagan's election in 1980 emerged out of the very noticeable dissatisfaction with the economic policies of the Carter years, Senator Obama may capitalize on similar sentiment among voters today in the race for the Presidency.
Reagan asked the voters if they felt that they were better off than when Jimmy Carter was elected. The voters ushered in Reagan to the White House as voters answered that question for themselves. The misery index, a measure of consumer discomfort based on the high inflation and high unemployment of the Carter years made Reagan's election more likely.
Senator's Obama rapid rise to become a popular candidate for the Presidency may be attributable to the current level of dissatisfaction with the economy: the level of high inflation, mortgage defaults, bank failures, a faltering stock market, and the feeling among the citizenry that they are not better off than they were four years ago. Senator Obama has been saying that America needs change, though he has stated that he is going to tell Americans not what they want to hear, but what they need to hear. I think Americans hunger for something, though I am not sure that many are bargaining for the changes that Senator Obama might effect.
I would argue that while the Reagan years ushered in an era of relative economic stability, dramatically lower inflation and unemployment, and a stock market boom, the Obama years may result in a contracting, less globally competitive (competitiveness is a must in today's globalized world), less flexible economy, higher inflation and unemployment, a declining or range-bound stock market, and waiting lists for such essential health services as non-elective surgery. The consumer may feel more pain, not less under Obama.
Inflation results in the debasement of the currency. When prices rise, it takes more dollars to buy goods and services. The current high oil price and easy monetary policy have resulted in price inflation across many sectors of the economy and may auger in greater inflation in the future as the level of inflationary expectations continues to rise. Obama may face this threat to economic health from day one if he is elected, as people are conditioned to expect greater inflation, and may act accordingly. Inflation has a distorting effect on the economy, and consumers may feel more pain under Obama if the price level of goods and services increases more rapidly.
Obama's proposed economic policies of greater trade protectionism (free trade tends to moderate the level of inflation), budget-busting government spending, tax increases, and policies favoring higher cost, less flexible unionized labor may do little to curtail inflation, and may actually add to the problem. I believe that it is important to put the inflation genie back into the bottle at this time as the rate of change of the inflation level appears to be accelerating. Obama's budget-busting policies may not accomplish this end.
As readers of this article blog know, I have been making the case for a year and a half that we may be experiencing, and may continue to experience a worsening inflation rate similar to the 1970's period that caused so many economic problems. What was needed then, as inflation surged into double digits, was a tighter Federal Reserve monetary policy. This contained inflation for two decades commencing in the early 1980's as Paul Volker's Federal Reserve clamped down on the economy, the latter which endured a terrible recession at that time.
Containing inflation is really a balancing act, as an overly zealous Federal Reserve and poor government economic policy choices can result in an economic depression, as happened in the 1930's, and which some feared a repeat of after the millennium stock bear market commenced. Current Fed Chairman Bernanke seems to be playing with fire as he vigorously eases (for now) monetary policies to stave off recession and the effects of the housing crisis.
I must write a moment about the potential future of our healthcare system under an Obama administration. His stated goal of reducing the cost of everyone's health insurance policies by $2,500 may not really reduce by much the cost of healthcare, as many existing insurance policies may be unprofitable for the insurance companies to continue to offer in their existing forms to new clients.
Uninsured individuals entering the insurance market for the first time may receive less expansive coverage reflecting the reduced premium levels to the insuring companies. Some insurance companies that rely on healthcare premiums for their entire business may fall into financial distress as their lines at the reduced mandated premiums may not cover costs. Thus the burden of insuring many citizens may fall into the government's hands, which may cost the American taxpayer more, not less. Even if government picks up the slack and there are more insured, expect waiting lists for life-saving surgeries as a more heavily regulated health system struggles to keep pace with demand.
I do not believe that Obama's vision for the economy will produce enlightened government policies that will protect the value of the dollar, contain inflation, keep us globally competitive and maintain the quality and rapid accessibility of our healthcare. Rather it appears that many of the ideas of the Obama campaign are drawn from the economic and political ash heap of history: the utopian concept of equality between the haves and the have-nots, or a society that redistributes wealth from its producers to others who are not as productive, is an idea that was hated by the citizens who lived under such "utopias" and whose end was celebrated when the regimes that embraced such ideas collapsed.
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