Day 5

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Day 5

• The US Economy Today and Near-Term Future
• U.S. remains largest economy (about 22 of world
  GDP)
• China is certainly rising

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(No Transcript)
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Positives

• Growth, although slow in the U.S. has outpaced
  growth in Europe and Japan
• Other than some small banking-based economies (
  Norway), U.S. standard of living remains higher
  than that of other industrialized countries

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Its Not all Bad News!

• Growth Rates
• Year/Country U.S. Euro Area Japan China
• 2006 2.7 3.2 1.7 12.7
• 2007 1.8 3.0 2.2 14.2
• 2008 -0.3 0.4 -1.0
  9.6
• 2009 -2.8 -4.4 -5.5
  9.2
• 2010 2.5 2.0 4.7 10.4
• 2011 1.8 1.5 -0.6 9.3
• 2012 2.8 -0.7 1.4 7.7
• 2013 1.9 -0.4 1.7 7.7
• Source Council of Economic Advisors, Economic
  Report of the President

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GDP Per Capita PPP Basis
Liechtenstein 141,100 2008
Qatar 104,300 2011
Luxembourg 81,100 2011
Monaco 63,400 2009
Singapore 60,500 2011
Falkland Islands 55,400 2002
Norway 54,200 2011
Brunei 50,000 2011
Hong Kong 49,800 2011
United States 49,000 2011
United Arab Emirates 48,800 2011
Switzerland 43,900 2011
Cayman Islands 43,800 2004
Netherlands 42,700 2011
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What Economic Problems must we deal with if the
U.S. is to return to long-term growth
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The Math is Scary

• U.S. Debt 18 Trillion
• _at_ 2 interest 360 billion of goods and
  services foregone
• _at_ 4 interest 720 billion in goods and
  services forfeited
• Without reform, Federal Government will be able
  to do little except pay Medicare and other social
  program obligations and fund (to some degree)
  defense.

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• Some indications that there will be discussion on
  fixing the structural deficits, but no action yet
• Note that this concern should straddle the
  political spectrum
• Conservatives want lower debt
• Liberals/Progressives want expanded social
  programs will not happen if debt not brought
  under control

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Health Care Industry

• Current ACA is not going to solve problem
• Will leave 31 million uninsured after full
  implementation (CBO)
• Conjecture is that already delayed employer
  mandate may be deleted from ACA funding becomes
  problematic
• U.S. healthcare still too expensive
• Tort Reform might be a good first step
• Remove tie between employment and health
  insurance, which is becoming untenable, and embed
  deduction in the tax code.

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Other Possible Reforms include

• Single-Payer (as in Canada)
• Americans unlikely to tolerate wait times

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Canadians are now turning to private
alternatives, however
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Transparency through Tactics such as HSAs

• Most patients have little idea what healthcare
  costs
• After cost-saving measures at Fairfield, I no
  longer know what is being billed
• I have not incentive to seek less expensive care
• HSAs could provide an incentive mechanism, at
  least for routine and routine sick care

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Or, Catastrophic Health Insurance

• Consumer liable for X/year, Insurance (public or
  private) kicks in after that
• No one is ever permanently economically ruined by
  an illness
• Insurance of this kind can be written very
  cheaply, as the insurer avoids the costly nickel
  and dime expenses normally associated with
  coverage
• Low probability of actually using the insurance!
• For reference, see LeClair, Bentivenga (1999),
  Connecticut Medicine

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The U.S. Trade Deficit
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Best Cure is a Good Recession(see data)

• A of every dollar (17 in the U.S.) is spent on
  imports
• If we grow faster than our trading partners, the
  deficit will worsen again.
• Growth in Europe is NOT picking up.If growth
  returns to the U.S., problem will worsen
• U.S. still has a lot of work to do in its
  relationships with its trading partners
• Particularly China (a WTO issue)

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Other Factors

• Self-sufficiency in energy would be a major
  accomplishment
• Devaluation of dollar probably destabilizing
• History of strong policy
• Can, however, work to force the Chinese currency
  to more closely follow the market
• Protection of intellectual property also key, as
  was noted in last weeks presentation

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Solving the weakness in the labor market

• Need to accept that this is a multi-faceted
  problem
• Regional (unemployment in North Dakota is
  technically zero)
• Specific to certain parts of the labor market
  (younger, inexperienced workers, both
  college-educated and not --- and older workers
  (50))
• Much of unemployment is structural (usual
  government policies to solve problem will not
  work)

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• Recognize that the life-time employment with a
  single firm is gone
• Labor mobility much higher by firm, by region
  and by occupation
• Policies that increase the fluidity of the market
  are probably the best bet.

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Other problems in search co solutions

• The 1 trillion of student loans outstanding

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Most Solutions Politically infeasible

• Complete forgiveness
• Allowing students to declare bankruptcy (?)
• Income-Based Repayment already in use
• Student loans become a lifetime commitment
• Allow students to work off debt in public
  service jobs
• Teaching in inner-city
• Makes some sense no means to pay for it

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Mandatory Education on Loan Repayment Realities

• Few 18-year olds understand burden of loans
• Few consider realities of repayment when choosing
  a major
• Could be regarded as a substitute for the
  collateral that would traditionally be required
  for loans of this size
• Could, of course, substantially alter the make up
  of degrees offered by colleges and universities

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And What about Home Ownership?

• A means by which to incentivize home ownership
  that does not return us to a housing bubble and a
  repeat of 2008
• Or a recognition that home ownership in a more
  mobile society makes less sense, and maybe this
  should not be a national goal.
• Germans function with a homeownership rate that
  is measurably lower (53.3) downside is that
  wealth accumulation is deeply hampered.

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Thank You!