Transcript A Global Transformation Mark S. LeClair, Fairfield

Day 5
• The US Economy – Today and Near-Term
Future
• U.S. remains largest economy (about 22% of
world GDP)
– China is certainly rising
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
It’s Not all Bad News!
Growth Rates
Year/”Country” U.S. Euro Area Japan China
2006
2007
2008
2009
2010
2011
2012
2013
2.7
1.8
-0.3
-2.8
2.5
1.8
2.8
1.9
3.2
3.0
0.4
-4.4
2.0
1.5
-0.7
-0.4
1.7
2.2
-1.0
-5.5
4.7
-0.6
1.4
1.7
Source: Council of Economic Advisors, Economic Report of the President
12.7
14.2
9.6
9.2
10.4
9.3
7.7
7.7
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
What Economic Problems must we deal with if
the U.S. is to return to long-term growth
The Math is Scary
• U.S. Debt = $18 Trillion
– @ 2% interest = $360 billion of goods and services
foregone
– @ 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.
• 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
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.
Other Possible Reforms include:
• Single-Payer (as in Canada)
– Americans unlikely to tolerate wait times
Canadians are now turning to
private alternatives, however
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
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
The U.S. Trade Deficit
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)
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 week’s presentation
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 collegeeducated and not --- and older workers (50+))
– Much of unemployment is “structural” (usual
government policies to solve problem will not
work)
• 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.
Other problems in search co
solutions
• The $1 trillion of student loans outstanding
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
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
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.
Thank You!