A Look At The Economy If Obama Is Re-Elected

Now that the lines have been drawn for the November election, economists are speculating on what a win for Obama will mean for fiscal policy and investment. If Obama wins, a safe bet is that Democrats will hold the Senate and Republicans the House, which means the full weight of Obama’s policy plans will not be realized. Obama is expected to let the Bush-era tax cuts to expire while also raising taxes on the rich, which will be possible for him to push through Congress. He will also recalibrate healthcare to better reflect agenda goals. In addition to these fears harbored by opponents, many question whether more regulation will impact the economy as the president limits fracking, pushes uneconomic green technologies and imposes stricter environmental compliance rules. For more on this continue reading the following article from Money Morning.

This problem will be faced by the “lame-duck” current Congress in November and December, but it’s likely the election results will heavily influence what it does.

President Obama has made several attempts to raise taxes on the rich, and re-election would allow him to succeed. As well as allowing most of the Bush tax cuts to expire, it’s likely a re-elected Obama will close some of the major tax loopholes – for home mortgage interest, charitable deductions and state and local taxes – at least for the rich, probably defined as those with an income over $500,000.

However, he probably won’t engage in a Francois Hollande-style attempt to raise the top rate of tax to 75% — that would yield no extra revenue and would make it more difficult for him to do other things he wants.

On healthcare, re-election will allow Obama to adjust Obamacare to reflect his own priorities more closely. If the Supreme Court strikes down the individual mandate (whereby individuals must purchase health insurance) then he will probably extend Medicaid up the income scale, so that middle-income people can take advantage of the program.

Spiraling healthcare costs will be controlled by price restrictions on reimbursements to healthcare providers.

In four years’ time, more people will likely be covered by health insurance, but healthcare quality will decline as increasing numbers of providers refuse to accept patients from the expanded Medicaid.

Obamanomics and the U.S. Economy

From the U.S. economy’s point of view, the most worrying feature of President Obama’s re-election is the free rein it will give to the regulators. With a full set of regulators in place, and President Obama not facing re-election, the more damaging regulatory schemes will have a full four years to be implemented.

Possible hazards include a shut-down of fracking, tight regulation of carbon emissions that will force increased use of uneconomic green technologies, further detailed restrictions on non-discriminatory hiring that would prevent employers from taking criminal records and past employment history into account, and tightly-directed bank lending rules restricting availability of capital for small business.

The precise nature of regulatory restrictions in 2013-17 is unknown, but their general direction and seriousness is certain.

There is some evidence that the entire decline in U.S. productivity growth after 1973 is due to the creation of the Environmental Protection Agency (EPA) and other regulators around 1970. Enthusiastic regulators given full rein could well cripple U.S. competitiveness for decades to come.

On the monetary front, President Obama’s re-election will mean Ben Bernanke and his “soft money” acolytes will be given full rein.

Either Bernanke will be re-appointed in January 2014 or one of his acolytes like Fed Vice-chairman Janet Yellen will succeed him.

Interest rates will remain at near zero-levels until late 2014, while inflation will get out of control. For investors, stocks will be good but commodities, oil and gold will be even better, with EPA restrictions limiting prospects for new oil supplies.

Overall, the U.S. economy will be in a very different place in January 2017 than it was in 2009, with the state representing a much larger share in output and exercising considerable control over the rest.

But that’s what Americans would have voted for, twice.

This article was republished with permission from Money Morning.