In the days when it was still necessary to explain to one’s parents just what an economist does, my first job was to crank out a forecast of economic activity, interest rates and other variables in the coming quarter.
Get it wrong often enough, and you were gone. More senior employees assigned themselves the longer-term outlooks: their forecasts would be long forgotten by the time actual data became available.
That was then and this is now. So I will exercise the prerogative of seniority and for this week at least leave it to others to decide whether the green shoots will bloom or wither. Instead, let’s take a look at what the world will look like when President Barack Obama has worked his reformist will on the sectors that trouble him.
There is little doubt that we will be paying more for energy, either directly in the prices of electricity and other energy sources when the cap-and-trade system agreed by House Democrats takes effect, or indirectly by paying higher taxes to cover the costs of the subsidies being lavished on solar, wind, ethanol and other parts of the energy economy by environmentalists.
Or, in the case of ethanol, by politicians who equate ethanol with corn, corn with Iowa, and Iowa with the first presidential primary in 2012. Throw in the costs of a “smart grid” and all of us, especially those who have been stockpiling incandescent electric bulbs so as not to be dependent on the dangerous and malfunctioning new energy-saving fluorescent types, will pay more.
We will also end up paying more to borrow than we would have paid before the government decided that contracts are made to be broken. The Obama administration demonstrated in the Chrysler bankruptcy that it has no regard for the contracts that have in the past protected lenders who made their money available on the assumption that they would have a preferential claim on the borrowers’ assets.
Nor does it believe that contractual compensation arrangements should withstand a raised eyebrow in the White House or a raised voiced in Congress. This weakening of the sanctity of contracts increases lenders’ risk, and higher risk means a demand for an offsetting higher interest rate.
There will also be a major change in the structure of the financial services sector. New regulations will have a greater effect on the too-big-to-fail banks and other institutions that create systemic risk than on smaller, below-the-radar enterprises.
So the best and brightest will leave the job of second-vice-presidential-assistant-to-the deputy-risk-manager to the more bureaucratically inclined, and set up shop on their own. Or seek other outlets for their entrepreneurial urgings. One of the few pleasant unintended consequences of new regulations.
We are also certain to see the portion of our pay that we actually get to take home decline significantly. The debt that Obama is running up will have to be repaid. Already, there are grumblings in the market about the future of the dollar, with the Chinese not the only one of our creditors worrying that we will inflate our way out of our obligations.
Run the presses, make dollars cheaper, and use the debased currency to repay debts. But that is not the only possibility. Instead, politicians, remembering the fate of Jimmy Carter when he allowed inflation to climb towards 20%, will try to restore fiscal sanity by raising taxes.
After all, they won’t be able to cut spending. Obama’s drive towards a trillion-dollar, tax-funded health care system seems to be irresistible. Drug companies will go along so they can be relieved of the cost of subsidizing lower-income folks’ prescription drug needs.
Insurers will go along because the law will require everyone to take some sort of coverage. Employers will go along so they can shift the cost of employee-benefit plans to taxpayers.
So higher taxes are in our future, as is the inevitable queuing with which patients in Canada and Britain are familiar.
Finally, there are the cars we will be driving. It is difficult to predict whether the government will be able to prevent consumers from buying the big, comfortable, safe cars they prefer, and shoe-horn them into the Schumermobiles that urban legislators, who rarely drive, prefer.
But the greens and the peak-oil crowd will give it a good try. Perhaps in addition to stocking up on incandescent light bulbs, now is the time to snag that discounted SUV off some overstocked dealer’s lot.
Have a nice day.
Examiner columnist Irwin M. Stelzer is a senior fellow and director of the Hudson Institute’s Center for Economic Studies.
