Tuesday, January 12, 2010

The Economy in 2010

The economy ended 2009 on an upswing. Some are predicting that the recovery will continue in 2010. I hope so. But I’m not so sure. I think there’s a chance for a “W” shaped recovery, although the second dip should not be as deep as the first.

Many of the jobs generated in the closing months of 2009 were temporary. Now, perhaps employers will make those workers permanent if they regain confidence in the economy. But in the meantime, there are still a lot of temporary and underemployed workers making less in wages than they would in a normal economy. That means less consumer spending than normal.

I’m also worried about the scope of the debt. In the next two years, we’re going to have to raise taxes substantially (probably across the board). At the same time, I expect interest rates to rise as foreign investors worry about the size of the deficit, and require a higher risk premium to keep them investing. This will mean taxes may have to rise still more to pay higher down the debt at higher interest rates.

Of course, raising taxes is hardly a recipe for economic recovery. Higher taxes could depress consumer spending and investment just as the economy is improving. I think these factors combined with a relatively weak job market will cause some loss in consumer confidence and cause the economy to worsen somewhat. There is the possibility that these factors don’t cause an actual decline, but instead growth to remain sluggish.

Fortunately, the worst is behind us, but the best may not be right in front of us either.

Friday, January 1, 2010

A New Year in Politics!

It’s a new year for politics! I want to share what I think will be the biggest issues this year, and what I think will happen with each.

1. The culmination of healthcare reform

I expect we’ll get something along the lines of the Senate bill from a conference. That’s because the Democrats have a healthier margin in the house, and the party leadership wields more power. If even one Democrat defects in the Senate, then reform will get filibustered. Abortion language may get toughened some more to appease anti-abortion Democrats. The effects and the popularity of the legislation remains to be seen, and the Gadson Review will of course weigh in as results come in.

2. Immigration reform

This issue is critical, and has been festering for many years. But I don’t expect anything meaningful to happen on this issue because of the midterm elections coming up. I’m not sure congressmen facing tough reelection races want to alienate a sizeable portion of the population. Something may happen in 2011. But not in 2010.

3. Taxes and Spending

With the record debt, I expect both parties to try and put forward proposals to balance the budget. There may be a bipartisan commission formed to figure out a way to reduce entitlement spending. If taxes do go up this year, then I think they’ll go up mostly on wealthy families. Democrats don’t want to go to the polls defending an across the board hike. Nonetheless, I think that hike is inevitable. Read my lips: your taxes are going up eventually.

4. Midterm elections!

I personally can’t wait. The parties will clash over healthcare reform and the budget. I predict the Republicans will pick up seats (as the opposition party usually does in a first-term President’s midterm elections) but not enough to take back the House or Senate.