Unemployment is currently at 5%, gas is below $2.00 a gallon, and the economy is growing at 2% per year… so why isn’t anybody smiling?
One of the most unusual aspects of the most current recovery is just how miserable everyone is, despite the seemingly benign economic backdrop. But the American consumer is not fooled by the sunny proclamations of the bulls. The pie may be growing in aggregate, but most people are just seeing crumbs for all the work they put in.
Incomes in the US are actually growing at a tepid 2.7% rate – far lower than the 3.5% growth in prior recoveries… but that’s not even the bad news.
Most of the savings from lower gas prices and lower heating bills are being redirected into higher healthcare costs. This year, experts estimate that Affordable Act premiums will rise by 6.5%, with half the savings from lower gasoline prices going to pay for those higher insurance premiums.
At nearly 20% of the GDP, healthcare quite possibly may be the most expensive product killing the American economy. To understand why high healthcare costs are so toxic to growth, you need to appreciate that healthcare, like defense, is a negative good.
The fact is that both defense and healthcare are here to prevent pain, rather than provide pleasure; and as such, are highly unproductive goods.
Think about it. A healthy American consumer, who is in good physical shape, may have an extra annual savings of $1,000.00 due to lower gas prices.
Unfortunately, because of the potential rise in healthcare costs, he may have to put off spending his windfall savings on a new Iphone, Xbox, or vacation, to pay more for the same healthcare service that he received last year… a service that he may NEVER actually use.
Little wonder then, that the right populist Donald Trump and the left populist Bernie Sanders, are both resonating with the electorate this year, as they both speak about the need for some type of universal healthcare.
The fact is that when it comes to healthcare, America has the worst of both worlds. It has neither the true market competition that engenders innovation and low prices, nor the public healthcare option that distributes costs across the society like the Public Highway Administration. The net result is simply a corporate bureaucracy that is no better that the governmental kind.
None of this would pose a serious problem were it not for the demographic trends that inexorably lead to greater and greater healthcare spending as the US population ages.
Remember how the Soviet Union’s economy blew up because it simply could not handle the level of defense expenditure needed to compete against Ronald Reagan’s massive build up?
Will the US economy be on the same dangerous path of unsustainability?
The answer depends on whether or not the US continues to create the highest healthcare costs per GDP in the industrialized world, and thus diminishing its productive capacity year after year.
This may explain why so many of us have the “case of the healthcare blues”, despite low unemployment and uber-low Gas Prices.
Until next time,
Mr. Schlossberg is a weekly contributor to CNBC’s Squawk Box and a regular commentator for CNBC Asia and CNBC Europe. His daily currency research is quoted by Reuters, Dow Jones, Bloomberg and Agence France Presse newswires and appears in numerous business publications and newspapers worldwide. Mr. Schlossberg has written articles on trading for SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is the author of Technical Analysis of the Currency Market and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game, both of which are published by Wiley. Boris’ extensive experience in trading and developing momentum based techniques provide the foundation for BKForex’s strategies.