ELECTIONS HAVE CONSEQUENCES, REVISITED
Looking Back at 2013
Just about a year ago, I wrote a series of predictions
resulting from the election of President Obama to his second term in 2012. How
did I do? Pretty much spot on.
1.
Obamacare
will go into effect, and will fundamentally change the structure of health care
in the United States. Correct. Obamacare has gone into effect, and so far
it has been an unmitigated disaster. There is still plenty of time before the
final chapter is written on this gigantic experiment in government intervention
in social engineering and government control of the health care system, but the
results so far do not bode well. Obamacare was to reduce the average cost of an
American family’s health care premiums by $2,500. FALSE. My own personal
experience is that the monthly premiums plus deductibles (ignoring co-pays) for
my wife’s coverage under a Bronze plan (the least expensive alternative under
Obamacare) was $13,000 per year before insurance kicked in: that is a 40+%
increase over what she was paying under COBRA
from my last employer. The prediction by the CBO that the average cost for a
family of 4 for a private healthcare premium under Obamacare for a family of 4
will actually exceed $20,000 does not
seem so fantastical anymore, does it? Medicare premiums have increased and
benefits curtailed, even for the supplemental plans, reducing the benefits of
government subsidies for healthcare to the population segment that needs it the
most, the elderly. Many drugs have been dripped from Medicare covered lists.
Reimbursements are reduced under Medicare with the result that more and more
doctors are no longer taking Medicare covered patients. “If you like your
doctor, you can keep your doctor.” FALSE. All but the most expensive medical
plans offered on the government run exchanges have their own network of medical
providers, and if you go outside that network, you get NO (not reduced)
coverage. There are innumerable news stories of doctors who find themselves no
longer included in those networks, whose patients will have to go elsewhere.
What will the doctors do to replace the lost revenue from those patients? The
most obvious answer is reduce their fees. My own personal experience? My wife’s OBGYN is
not included on any network offered by any policy offered in our area. Two of
my prescription drugs are no longer covered by my supplemental Medicare policy
(I will now buy them from Canadian pharmacies, which get them from suppliers in
places like Turkey and India – not the most comforting source but what choice
do I have?).“If you like your current health care plan, you can keep it.”
FALSE. The final figures for 2013 are in: 4,700,000 policies have been
cancelled so far. The number of
people affected is closer to 10,000,000 because many of these policies were
family coverage policies. Many, many more will be cancelled in 2014 on policy
anniversary dates. What does the other side of the ledger look like? The final
figures are in: just over 2,000,000 people “enrolled “ (i.e. signed up on line,
not paid premume, not covered: enrolled) for Obamacare through all the
“exchanges”, state and federal. It is no surprise that Obamacare did not meet
its stated objective of getting 3,300,000 enrollees by December 31, especially
because of the website problems. They
will also fail to achieve the 7,000,000 projected for March 31. Yes, the
debacle of the rollout of the website contributed to this, but anybody who
knows anything about marketing could see this coming. People are not going to
willingly pay for a product that they
don’t want which is more expensive
than what they had with coverages they
don’t need and provisions that exclude doctors that they want –
while at the same time exposing their
most sensitive private information on a website that even the
administration has admitted was designed
without adequate security measures, in the age of identity theft. There are
only two groups of people who will willingly
sign up: those getting Medicaid who pay no
premiums (which by all reports is the vast majority of those who have
signed up so far), and those who desperately need health care and have no other
choice – this is adverse selection on steroids, by premium and by health
condition. In time, this will cause the economic basis of the program to
implode. Advice: sell your stock in companies that have a big stake in offering
Obamacare mandated health insurance. Step one in the socialist plan to destroy
the private sector health insurance system in the name of income inequality.
Meanwhile, as I predicted part time employees have proliferated as employers
keep employees below the 30 hour per week threshold for mandatory
employer-provided health care coverage. Unions and big businesses (oh, and of
course, Congress!) have been (illegally) granted exemptions from the law for
2014 –but not, also of course, individuals with no political clout). What will
happen when these exemptions expire in 2015 is anybody’s guess at this point.
Everything else I predicted about Obamacare seems to be in process but have not
yet fully come to pass: less healthcare for each person so that more people can
get some healthcare; rationing of medical services according to federal government guidelines; together,
resulting in a decline of the average level of health care provided. What I did
not predict (but which was entirely predictable) was the depressive effect of
all this on retail sales during the critical Christmas shopping season. If you
were the head of a family with their health care costs going up by 25-50% in 2014,
and/or facing becoming a 30 hour part- time employee, the prudent thing to do
is to spend less money on Christmas presents. En masse, individuals left to
their own decisions tend to make individually prudent choices. Look for final
retail sales figures for the 2013 Christmas season to be anemic. And, Obamacare
is not out of the legal woods yet. Aside from the extra-legal adjustments,
extensions and exemptions that have been granted unilaterally by the executive
branch contrary to the express provisions of the law, there are still legal
challenges to the law working their way through the court system, the two most
significant being that the mandate on contraceptive devices is a violation of
the Constitutional right to freedom of religion, and that the law itself is
un-Constitutional in its entirety because (as the Supreme Court ruled) it is a
tax law, which did not originate in the House of Representatives as required by
the Constitution. Although I do not believe that the Supreme Court has the guts
to declare the entire law un-Constitutional, because it is so wildly unpopular,
and its economic basis is so suspect, there is very little chance that
Obamacare will ultimately survive in the form in which it was passed.
Nonetheless, Obama will have succeeded in fundamentally changing the US health
care system simply because nobody ever will be able to put Humpty Dumpty
together again. The question now is what will finally emerge as our health care
system.
2.
Taxes
will increase. Correct. The Obamacare individual mandate to purchase
insurance or pay a penalty of 2.5% of their AGI
was ruled to be a tax by our illustrious Supreme Court.: your taxes went
up. The “2% “holiday” on payroll tax deductions was allowed to expire: your
taxes went up. The Bush Tax cuts for higher income earners are no more, and
taxes on capital gains and dividends went up. The Medicare payroll tax went up,
and fifty-five (55) deductions formerly available were eliminated. Here are
just a few by way of example: the states sales tax deduction; the education
expense deduction; the mortgage insurance premium deduction for homeowners. If
you a have a short sale on your underwater house and the bank forgives the
difference in what you owe them, that is now income and taxable. If you hire a
veteran, you no longer receive any tax credits. If you contribute to a charity
directly from your IRA, you now have to pay a tax on the distribution from your
IRA. There are 49 more tax hikes disguised as deduction eliminations. Your tax
bracket may not have changed, but your taxes went up. That is, of course, if
you pay taxes. 50% of the adults in this country no longer pay federal income
tax.
3.
Government
spending and deficits will not be reduced. Correct and incorrect. The total US budget deficit went up by $680
billion in 2013. This was actually a dramatic improvement in the rate of the deficit increase because of
increased taxes, low interest rates on government borrowings, a slight
improvement of the economy (resulting in increased tax collections) and
restrictions on spending imposed by the “sequester.” For similar reasons, total
federal government spending actually decreased slightly in 2013 from 2012 – I
was wrong on that one. Frankly, I did not think that the Republican leadership
had the guts to stick to their guns on the sequester, but they did, goaded by
the Tea Party Republicans elected in 2012 – at least until this December, when
they backtracked on some of the budget cuts mandated by the sequester in order
to make a budget “compromise” for 2014. But hold on to your seat: 2012 will be
an aberration, not a trend. The
sequester wall has been breached. Unless checked, Obamacare alone will increase
federal health care spending by $1.8 trillion by 2023 (and if you don’t like
that number, substitute your own, it’s still massively huge), and by 2015 (!)
will overtake Social Security as the single largest budget item. Hey , you
haven’t heard of any credit rating agencies upgrading United States debt back to AAA, have you? Not gonna happen
any time soon.
4.
The value
of the dollar will decline, and inflation will increase. Correct and incorrect. One British
pound sterling will buy 1.65 dollars today. A year ago, one pound would only
get you 1.62. One Euro will buy 1.38 dollars today. A year ago, one Euro would only
get you $1.32. QED. Of course, it’s not the same for all currencies: contrary
to the trend, for example, the Looney has gotten back in line. One Looney would
get you just over$1.00 in January. But overall, slow but steady, the trend is
pretty clear: the dollar is worth less. Domestically, the official inflation
rate in the US for 2013 is about 1.2% vs. 2.1% in 2012 – a decline! I was wrong
in predicting an increase, if you are willing to exclude food prices and
energy. All I know for certain is that my European vacation will cost more, my actual
cost for a gallon of gasoline was higher this year than last (nationwide, the
average today is $3.32 vs. a year ago of $3.29), and my cost for a bottle of
vodka and my lobster for Christmas eve dinner was much more this year than
last. Regardless, whatever the “right” inflation
number is, it is clear that inflation has been kept pretty much in check. The question now is “For how long?” So far, the
effect of federal spending increases has been muzzled because the fed has
required higher reserves to be held by banks, and has kept a very low cap on
long term interest rates. Banks are not lending because their potential profit
margin (the difference between what they can lend money for and what that money
cost them) is too slender for them to take the risk. Private corporations have
also been hoarding cash instead of spending. They have enormous amounts of cash
on their balance sheets. As a result, little of the money spent by the US
government has actually made it into the general US economy for a “multiplier”
effect. So what happens when the fed begins to “loosen up” by stopping the sale
of government bonds at very low interest rates, as everybody is now predicting
will happen very soon (and in fact has already begun)? I hope they can continue
to keep the inflation tiger tamed, but the longer the cure of low interest
narcotics, the harder the withdrawal. Nevertheless, the stock market has voted
its confidence that the fed will be able to pull this off, up an improbable
27% in 2013.
5.
The
economy will hardly grow, and unemployment will remain high. Correct. But
2014 looks like it will be marginally better for the fourth year in a row.. Over
84 years, from 1929 to 2013, the average growth rate of the US GDP has been
3.3%. At the end of 2012, the BEA reported that the US economy stumbled badly and
the GDP rate actually fell for the first time in 3.5 years, by 0.1%. Even with
that number, the economy grew slightly faster in 2012 than in 2011. However,
three months later, the 2012 numbers were “revised” to a positive 0.1%, and annual growth for 2012 was pegged at 2.2% - well
below average, but still positive and better than 2011. Then growth accelerated
beyond what had been predicted in the first and second quarters, and the third
quarter was better still. Long story
short, 2013 was a positive growth year for the economy, better than projected
and better than both 2011 and 2012. The final numbers are not in yet but I
expect them to end up around 3.0% for the year. Better but not by much, and not
great – but still positive (which I believe is why the stock market is
soaring). According to the BLS, the unemployment rate dropped to 7.0% in
November and has been below 8% all year – again, better but not great.
Especially with the bias toward low numbers in the way this statistic is kept,
this still way too high. So far, at least, it appears the recovery will
continue in 2014. Slow better is still better. The Fed has said it will
increase interest rates when the US economy is growing at 2.5% and unemployment
is at 6.5%, indicating that we are “safely out of danger from falling back into
recession.” It appears that one half of that formula has been satisfied.
Interest rates will be allowed to rise in 2014.
6.
Constitutional
rights under the 2nd Amendment will probably erode. Correct. Definitely. The fight is on,
in earnest. Obama issued Executive Orders to restrict the rights of gun owners.
Many states passed legislation with the same purpose. Other states have enacted
legislation to strengthen those rights. So far, the courts have seemed to side
with gun owners, and have struck down many of these provisions. It will end up
in the Supreme Court. How it ends up will depend on who is on that court when
these cases finally arrive there.
7.
Organized
labor will have increasing influence. In the short term. Correct. In the longer
term, maybe not. As I predicted, Obama did eventually find a way to get his
pro-labor appointees onto the NLRB and the federal bench. In concert with Harry
Reid, he eliminated the Senate filibuster, and with it 60-vote de facto requirement
for confirmation of appointments. So in the short term, organized labor will
have friendly federal forums for pushing
their agenda, and their influence should increase. However, that may be
short lived, especially if the Senate change hands in 2014 – not a probability
as of now but a distinct possibility. If that happens, Obama’s ability to pack
agencies and courts with those friendly to his ideology will abruptly end.
However, he will pack them plenty in the interim. The key to the power of
organized labor is the union shop, whereby they can force employees to pay
union dues, which is under assault by the passage of right to work laws in most
states; the public sector unions, which even FDR opposed and are now under assault
by laws such as Wisconsin passed to limit public sector union collective
bargaining; and, union elections, which the unions hope to rig in their favor
thorough “card check, which became stalled in Congress when the Republicans
took control of the House. If the Democrats maintain control of the Senate in
2014, the union agenda will continue to advance. If the Republicans take
control, no way. Union membership in the private sector is very small and
diminishing. Union power in the public sector is extraordinary, but maintaining
that power depends on the future of these three “keys.” It will also be
interesting to watch the political fallout when the (illegal) temporary
exemption to Obamacare for collectively bargained contracts expires.
8.
American
military power will decline. Correct.
Pax Americana is dead under this President. The US military is pulling back
everywhere. The defense cuts under the sequester have not been restored.
Military pensions have been cut. The exodus of senior officers that do not agree
with Obama continues. China has been emboldened sufficiently to unilaterally
claim a larger ocean defense zone, challenging the US, South Korea and Japan
all at the same time.
American influence in the Middle East will continue to
decline correspondingly with the increase in power of fundamentalist Islamists.
Correct, in spades. Who could ever have predicted that the US has so
antagonized and so lost influence with its allies in the Middle East that
Egypt, Israel and Saudi Arabia are all united
in opposition to his policies in the region? Egypt is involved in what is
really a smaller civil war of its own. The US is now at odds with its former
allies, the secularists who are trying
to rescue the country from the Islamic Brotherhood by military intervention
(much the same way Chile was rescued from communism and Salvador Allende by
General Pinochet). Saudi Arabia is now
providing military aid to the Lebanese army to counter Hezbollah and its
Syrian-Iranian allies. Secretary of State Kerry touts a settlement with Iran
over its nuclear “ambitions” that is anathema to Israel, and even the French
oppose. Nothing has been done about the Benghazi attack. The Russians are once
again fully invested in the region as an ally of Syria. The Syrian civil war
continues with the US on the sidelines, our apparent strategy being to hope
that it becomes another 100 years war without resolution so both sides exhaust
themselves against each other (actually not a bad strategy, given the
opponents!). Turkey continues to drift away from the West, and is increasingly
under semi-dictatorial control of an Islamist President (although at this
moment there is strife with Turkey as some secularists are trying to remove
him). The US has left Iraq and the country is descending into increased
sectarian strife. The US is leaving Afghanistan and is engaged in rather nasty
withdrawal negotiations with the Afghan government that it helped create. Relations with Pakistan, well, suck. Is there
any place in the Middle East where the US has better relations or more
influence than when Obama was first elected? Further north, the Ukraine is
being prevented by an increasingly belligerent Russia from having closer ties
with Western Europe. To the south, the government of Sudan that the US helped
to establish is on the brink of being toppled by a renewed civil war. I am not
and never have been a fan of sending US troops to intervene everywhere.
However, it is not a strategy to stand by with our hands in our packets and
just withdraw from problems. Influence lost is harder to regain. Pax Americana
may be dead after this President.
9.
The
American standard of living will decline. Correct. Higher income taxes, higher inflation,
reduced quality of health care, and a slow growth economy. QED.
So I give myself 8.5 out of 10, so far. God, I hope my score
declines by this time next year!
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