Economic uncertainty escalates

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On March 23, 2010, President Barack Obama signed into law the Patient Protection and Affordable Care Act.

No one knows what the economic impact of this law will be, because:

Whether the inflation 'money hurricane' will hit now, is less certain.

1. There is a ‘reconciliation bill’ that will immediately change this law, if the bill should pass the Senate;
2. There are subsequent laws that must be passed, such as the so-called ‘Doctors’ Fix’, if the new law is not to wreck the current health care system entirely;
3. Many of the most touted provisions of this law do not take effect for years;
4. The bill was signed into law before the Congressional Budget Office completed its estimate of the economic impact;
5. Even with a final CBO estimate, the history of such official projections does not inspire confidence.  Typically, these estimates significantly understate actual costs.
6. The law was passed on a purely partisan vote, with bipartisan opposition and against the wishes of the majority of the US population.
7. On the day following signing, there were already over a dozen states bringing suit, alleging that the law was un-constitutional.
8. Republican Party senators, which were entirely shut out of the process of drafting this law and which now have most of the public on their side, have vowed to no longer cooperate with the Obama administration for the remained of the term. Since the Democratic Party no longer has a filibuster-proof majority in the Senate, this could signify difficulty for the administration in passing any further significant legislation this term.
9. Republican Party leaders have  indicated that their goal is to retake control of the House of Representatives in November 2010 and the Presidency in 2012, upon which they intend to ‘repeal and replace’ this new law.
   

   The Petrograd Soviet 1917: Radicals trampling the rule of law.

10. Because of opaque, secret drafting, this extremely voluminous legislation (over 2,000 pages), the impact of this law is largely unknown and is unlikely to be known for a considerable time.  Furthermore, the law is dependent upon regulations of dozens of new agencies, not yet established or staffed.  The degree to which the staffing of these new agencies depends upon the ‘advice and consent’ of the Senate is not clear at this time, or, if such approval is required, whether it will be obtained in the current hostile political environment.
11. The economic scope of this legislation is so vast that, combined with similar out-size legislative packages passed in 2009, also with similar opaque drafting and long-term disbursement of funds, that no one seems sure of the combined impact on the economy.

Never has legislation of such magnitude and importance been passed by Congress and signed by the President on a purely partisan vote, against the wishes of the majority of the American people.  Public approval of Congress is at a historic low. The President’s own approval rating has plummeted since his inauguration, little more than a year ago.

Furthermore, President Obama, along with his lieutenants in Congress, Harry Reid and Nancy Pelosi, in the effort to jam this legislation down the throats of the American people,  have engaged is such blatant acts of political corruption and full-frontal prevarication, on an unprecedented scale — truly an historical achievement in itself — that the Democratic Party has been severely wounded, opening doors to loss of control of Congress in 2010 and the Presidency in 2012.

The sheer magnitude of undisciplined government spending of the Obama administration is bound to lead to the discovery of fraud measured in the billions of dollars in coming years.

Good news, bad news

The good news for the US economy and for the American people is that the outrageous nature of the circumstances leading up to the passage of the Patient Protection and Affordable Care Act make it more likely that undisciplined fiscal behavior of the Obama administration may, by normal political process, be halted and reversed in time to take remedial action.

Furthermore, it is also good news that the Obama administration, in its efforts to fudge the numbers in order to get ‘good results’ from the Congressional Budget Office, has postponed the implementation of many of the most costly features of this bill.

The bad news is that it is likely that unemployment will continue at high levels for a year or two, while political changes are taking place.

Furthermore, because so few people fully understand the implications of the current health care law, or the previous ’spending is stimulus’ packages, there is a possibility of unpleasant surprises yet to be discovered.

The outlook for inflation

The outlook for inflation has changed suddenly from a high level of probability to undetermined — since uncertainty as to disbursement timing, combined with uncertainty as to the outcome of the elections of 2010 and 2012, makes it possible to imagine scenarios under which things either get radically worse, or better.

Most economists, reporting to the government,  have been predicting that inflation will be kept under control, while unemployment remains high. But then, political pressures, and a checkered history of predictions, lead one to doubt the validity of such prognostications, one way or the other.

In any event, and the point of this article, the dramatic political events of the last month will have a lasting impact on the remaining years of the Obama presidency, while making it even more difficult to foresee coming events.

What do you think?