The first legislative setback of the Trump Administration is being celebrated
by many, but not by middle class taxpayers and business owners. A
Republican-led Congress last week failed to generate the consensus required to
overturn key provisions of the Affordable Care Act (ACA). In a frank
admission of defeat, House Speaker Paul Ryan declared that Obamacare would
remain "the law of the land."
The stock market wasn't too thrilled about it, either, although there wasn't a
concerted selling effort on the part of the bears. The major indices were
down for the week, but the tech sector continued to show resilience with
semiconductors in the leadership position. There was a suggestion in
the press last week that the stock market "couldn't care less" about
Obamacare, and perhaps that's true. But there's one thing that will be
seriously impacted by the lack of Obamacare reform and that's the middle class
economy.
Performing a postmortem of a failed political reform effort is seldom a
gratifying task, but in this case there are a couple of things that need to be
addressed. From the start, the mainstream press tried to control the
debate by constantly reminding everyone of the 24 million Americans who stood
to lose coverage should Obamacare be repealed. Never mind that is only
about eight percent of the entire U.S. population, hence an extreme
minority. In a representative-style democracy such as ours, public policy
is supposed to benefit the majority -- not the minority at the expense of the
majority.
What too many pundits have failed to consider in their treatment of the
Obamacare debate is that the legislation which mandates health insurance for
Americans is at root a personal liberty issue. It's not about providing
free (or cheap) coverage for the needy or the underinsured. The main
issue, which seemed to escape most commentators, is that Obamacare is a form of
redistributive economics: socialism in its essence. Obamacare represents
the government putting the proverbial gun to the individual's head and saying,
"You will buy health care whether you need it or not...or
else!"
I found it shocking that Obamacare was passed in the first place with little of
the impassioned protest among individuals which characterized the first attempt
at establishing socialized medicine in America (in 1993). Even more
surprising was the limp-wristed effort with which the current Congress failed
to address the underlying problem with Obamacare, viz. the individual mandate.
An easy solution to the Obamacare reform debate would have been to simply
eliminate the individual mandate and leave everything else intact. This
would have highlighted the single biggest problem with the legislation while
avoiding direct confrontation from those who insisted that Obamacare not be
entirely repealed.
Aside from personal liberty considerations, the other main consequence of
leaving Obamacare intact is that it does nothing to alleviate the problems
faced by individuals and small business owners who are forced to shoulder the
burden of expensive healthcare coverage or else pay a hefty penalty. One
of the big reasons why the current economic recovery since 2009 has been the
slowest on record is because of the exorbitant tax and regulatory burden imposed
by Washington in the wake of the credit collapse. Rather than remit
taxes, the tried-and-true palliative for getting out of recession, the
Washington establishment did the exact opposite. No wonder then that Middle
America has struggled to restore its financial condition ever since the housing
bust laid waste to it some 10 years ago.
If
you want to see just how the middle class business economy is doing right now,
take a look at the following graph. It combines the stock prices of some
of the leading U.S. publicly traded companies which cater primarily to the
average American. As you can see, it's hardly a picture of health and
prosperity.
Had Congress signaled its sympathy with middle class struggles by remitting the
Obamacare taxes, there would almost certainly have been a strong consumer
spending boom in its wake. Lowering taxes always has a stimulative
effect, and there's no better way to facilitate economic health than to make it
easier for individuals and businesses to spend more of their hard-earned
dollars into the economy than by letting them keep more of it. Failure to
lift the burden imposed by Obamacare means that the millstone remains tied
firmly around the necks of millions of Americans. It also means the
economy won't be returning to a vigorous state anytime soon.
The failure of the Obamacare reform attempt also paves the way for the
continued dominance of financial engineering in steering the economy.
Congress let slip an opportunity to regain the control over the economy that it
surrendered to Wall Street and the Federal Reserve in the wake of the credit
crash. Instead of economic healing via fiscal stimulus and tax
remittance, the economy will for now continue to be dominated by financial
sector and central bank policy. Any economic improvement from here will
likely be due to the trickle-down effect of a rising stock market. The
direct stimulating effect of Congressional tax policy would have been far
preferable.
While
the tone of this article might be construed as fatalistic, by no means should
it be assumed that the die is cast. There's still a chance, however
remote, that the Congress will come to its senses in time to at least address
some aspects of tax reform before the 2018 mid-term election. By failing
to seriously address one of the leading issues facing the middle class economy,
however, Congress has telegraphed the message that it lacks sympathy with the
majority of U.S. taxpayers. An overnight change in this
attitude would seem unlikely.
I personally found Mind, Money & Markets to be an engaging and insightful read. At over 400 pages, there’s a lot of info to digest but the writing is smooth and the chapters seemed to fly by. The book is richly illuminated with many colorful charts and illustrations and is lively with many accounts of how psychology influenced the financial market debacles from the distant pass to the present. 
