CSE Economic Predictions for 2013

A long-time friend from high school sent me an email asking me, as the Common Sense Economist, my economic predictions for 2013. He, as a former CEO of two major corporations, should be in a better position than I to make said predictions, but here I go. For my B-52 friends, his construction firm turned Diego Garcia into a major B-52 base.
The common sense economist’s prediction for the economy is not good. According to a recent WSJ opinion, current economic indicators point to a recession in 2013. I do not disagree. “Orders for durable goods in August fell 13.2 % in August and inflation-adjusted personal income fell 0.3%.” Median income is down nearly 6% since the recession “ended.” Economic growth was only 1.3% for the third quarter while inflation was 1.7%, indicating negative real growth. A 2.3% tax on total revenue of Medical Device Manufacturers translates to a 15% tax on profits, driving this industry to tax-friendly countries. These are not good signs. A deepening recession in 2013 is highly likely. My prediction is dim regardless of who wins the presidency. If Obama wins, the prediction is much worse because of tax increases and sequestration. A win by Romney will moderate the recession through better expectations of business owners and consumers.
I see three major problems with the economy: debt, excessive government regulation, and taxes. National debt currently stands at $16 trillion and will grow to over $20 trillion in four years under current policies. But $16 trillion is only part of the problem. When you include unfunded liabilities, state and local debt, and personal debt, we owe over $154 trillion. We can pay this two ways—by hyperinflation or massive economic growth. Excessive government regulation is an impediment to economic growth. During his first three years, President Obama unleashed 106 new regulations costing the economy $46 billion annually, with more in the pipeline. The WSJ estimates that implementing Dodd-Frank could cost taxpayers $2.9 billion. Forbes reports that EPA regulations could kill the coal industry and cost $700 billion. Obamacare will cost $2.6 trillion in the first decade.
Taxes and their expectation cause uncertainty and decrease spending power. If businesses expect new taxes, they will not hire new workers. Consumers will spend less to save money to pay taxes. Excessive taxes will lead to a smaller tax base and less revenue. Government will waste tax dollars taken from consumers or business.
I can’t offer a rosy prediction for the economy over the next few years. I agree that we face a continuing but deeper recession in 2013. I say “continuing” because we are still in recession. The recovery announced by the Obama administration was political rather than economic. We have a decision to make on November 6. Do we want the government or the economy to grow? Growth is the only way out of the current mess.

Posted by at October 14, 2012
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