The end of the year being upon us, it's time to engage in some prognostication for the new year. I'm going to limit myself to a few key areas.
Obamacare. I have already officially predicted that Obamacare will fall apart over time, although we can't know how quickly that will occur. So that one doesn't count. But here's an important one: I predict that the number of "uninsured" in the U.S. will increase as Obamacare is fully implemented in 2014. (I put the word "uninsured" in quotes because health coverage in this country long since ceased to be real insurance, and instead is some muddled mixture of part insurance, part prepayment of routine expenses, and part income transfer program.) At this point it is virtually certain that the number of "uninsured" will be up on January 1 over a year ago, because the rate of sign-ups is not nearly fast enough to catch up with the number of policy cancellations already in place.
The increase in the number of uninsured is a big deal because the existence of a large population of uninsured in this country, and the alleged need to fix that terrible problem, was the main reason given for Obamacare in the first place. Well, the supposed solution was to increase the price, make the product less desirable for most people by forcing payment for lots of things they don't want or need, and increasing deductibles, and then ordering healthy people with little money to buy this undesirable, overpriced product. In other words, they made health "insurance" much less insurance and much more income transfer program than it already was. Why again did anybody think that this would reduce the number of uninsured?
One more prediction re Obamacare: the "mainstream media" will treat the increase in the number of uninsured as a non-story. However, I think that Fox News and the Wall Street Journal (as well as the Manhattan Contrarian) will be on top of this one.
Red states/blue states. I predict the continued relative economic advance of the red states and the continued relative decline of the blue states.
The sales pitch for the blue state model is a generous society that cares for the neediest among us. But when you actually look at the numbers, you find out that the lion's share of the extra spending in the blue states does not go to the neediest, but rather to the state and local employees, and even then not to the active ones, but rather to the retired ones for pensions and healthcare. California, New York, Illinois, New Jersey and Connecticut are at the top of the list of states that have overcommitted to pensions and healthcare for retirees, with the bill starting to come due.
As the pension costs mount, alternative programs get squeezed out, and the pressure is on to increase taxes. Thus California has seen almost no pension reforms, but passed by referendum in November 2012 a big income tax increase that takes the top state rate to 13.3%. Supposedly the money is mostly for education, but there's nothing to keep the pensions from swallowing it up. Illinois raised its income tax from 3% to 5% in 2011, and finally passed its first serious steps toward pension reform just a few weeks ago. Those steps (mostly adding a few years to retirement ages for new hires and reducing cost of living increases) are rather paltry, and fall far short of fixing the problem. But of course the employee unions are suing to overturn the changes, on the theory that Illinois' constitution protects workers who have been working for as little as one day from ever having their pension formula reduced, even on a prospective basis.
Here in New York City we are up to contributing over $8 billion per year for employee pensions, and multiple additional billions for retiree health care. The pension contribution alone exceeds the entire take from the city income tax. New Mayor Bill de Blasio seeks an income tax increase, supposedly for pre-K education and after school programs, but again, nothing will keep the pensions from swallowing the money. Mayor Bloomberg gave an important valedictory address two weeks ago, using the occasion principally to warn of the desperate need to reform the pensions:
The costs of today’s benefits cannot be sustained for another generation–not without inflicting real harm on our citizens, on our children and our grandchildren . . . . Simply put, our pension and health care system must be modernized to be sustained.
De Blasio still has not even mentioned the issue. Is he even aware it exists?
Meanwhile, in the red states, things are going exactly in the opposite direction. Here is a rundown on eight states that cut income taxes in 2013: Arkansas, Indiana, Iowa, Kansas, North Carolina, Ohio, Oklahoma and Wisconsin. States including Kansas, Nebraska and Louisiana are talking about complete elimination of their income taxes.
The stock market has given the blue states a good year, showing returns of around 25% for the major indices. That has undoubtedly taken off some of the pressure for pension reform in the blue states. But this is a slow moving problem. Continued gradual economic advance for the red states, and decline for the blue, is a very safe prediction.
Those interested in the slow relative change going on between red and blue states will enjoy the chart below taken from Steven Hayward at Powerline. It compares our third and fourth largest cities, Chicago and Houston. Currently Chicago has 2.7 million people, while Houston has 2.15 million. In 1970, Chicago had 3.4 million, while Houston had 1.2 million. Houston has just about caught up from way behind in household income. And check out how that gun control thing is going for Chicago: its murder rate is fully four times that of wide-open-for-guns Houston.
UPDATE (January 5, 2014): A reader points out that Chicago did not have over 1800 homicides in 2012, but rather about 500. This would translate to a homicide rate of about 18.5/100K, rather than the 38.4/100K in the chart above. This is about double the rate in Houston, but not four times. i regret the error.