An Affordable Recession – Because We Care

Will Obamacare(less) trigger a recession due to an increase of out of pocket expenses? Some people think so. Here is a headline for you:

Obamacare Will Change Everything — And I Think It Might Cause A Recession

If you reduce the revenues of 18% of the economy by 6 to 8% every year for 4 years, you are forcing a reduction of about 1.4% of GDP over the entire economy. Admittedly, this money will eventually be freed up to go elsewhere, but it is the short term that is the concern. In an economy that is growing at not quite 2%, what would be the effects of such a reduction in employment and revenue? The cost reduction has to come from some portion of the economy. Fewer bandages? Cheaper medicines? One organization’s cost reduction is another organization’s lost sales.

Further, it is fairly evident that the US has too many hospitals and that one of the outcomes of cost savings and reorganization is that some hospitals will simply have to shut down and/or consolidate. What happens to those workers while they are looking for jobs? Will this reorganization happen slowly, or will cash-flow concerns become readily apparent in the third quarter of 2014, forcing drastic reductions in hospital staff and/or pay? There is simply no way to know until we get there. Reducing the redundancy in the system may be good for the overall system, but it is quite difficult for the individual participants who are part of the reduction.

So what happens when you reduce redundancy in a system? The system does not do well handling surges. Brilliant. You will get rationing by availability. Triage (death panels) will be required.

Here is another headline: Is the Affordable Care Act triggering the Obama recession?

STUART VARNEY: Take a look at this number please: $2,000. That is the fine employers with more than 50 workers will have to pay per employee per year if they don’t provide health insurance all thanks to Obamacare. Now, before the election, our next guest said he might have to move some of his employees from full time to part time if President Obama got re-elected. So what’s he going to do now? Zane Tankel joins us. What are you going to do?

ZANE TANKEL: We’re going to continue to evaluate it. Look. Business is real simple. More money has to come in the door than goes out. We’re in a fragile business time. Just adding to overhead doesn’t add to GDP, doesn’t put cash into the system, doesn’t do anything.

VARNEY: In each Applebees, how many employees do you have, roughly?

TANKEL: It varies from, I’d say, a minimum of 80 employees to over 300 employees here in Manhattan.

VARNEY: Let’s take the big one in Manhattan. You are supposed to supply them with health care. If you don’t, you face $600,000 in fines. Now does that take away all of your profitability or part of it or what does it do?

TANKEL: Sure it does. Look. There’s 3 ways that it’s got to come back: more efficiencies, reduce overhead or raising prices. Let’s look at each. In this environment, you can’t raise prices, particularly in our spaces. Efficiencies. Hopefully, we’ve got all of our efficiencies because we’ve just faced 3 terrible years in the environment and in the economy. So then it’s cut back on overhead.

Overhead? I think he means people.

The money has to come from somewhere. Maybe restaurant business will decline. Or perhaps sports will be taking a hit. Well who knows? Suppose Obamacare raises costs by $100 a person on average. That is a $30 bn hit to the economy. If it is $1,000 then the hit will be $300 bn. Now we are talking real money. No. The money doesn’t disappear. But some will profit and some will lose. Adjustments will need to be made. Those kinds of adjustments can easily cause a recession. Like the bursting of the housing bubble did.

I blame hoarders, wreckers, and those unwilling to pay their fair share. And mostly Republicans who just don’t seem to CARE. I might add that people who think the money they earn is their own are about to get their comeuppance. The future is so bright I need to wear dark glasses. To avoid government face recognition software.


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2 responses to “An Affordable Recession – Because We Care”

  1. bob sykes Avatar
    bob sykes

    Actually, that money can literally disappear. Money isn’t just dollar bills in your wallet, it’s bank deposits and debt. Private debt is already decreasing. And if it weren’t for Qualitative Easing, we would be in a deflationary trend and a strong recession.

    The probability of a deep recession or even depression leading into the next election is very high. If it actually happens, the Dims will lose the Senate as well as the House.

  2. Neil Avatar
    Neil

    “I blame hoarders, wreckers…”

    Da, comrade. Five year plan in four!

    Seriously, I’m trying to figure out how this plays out in the short term (over the next year or so). It looks to me like it might be a wash. In the short term, the delays in implementation probably put cash in people’s pockets–the people who need the subsidies are going to get them, and the people who will pay can postpone the payments a bit. That would tend to goose the economy a tad.

    However, the health care employment cuts are going to start biting any minute now. Those were good high-paying jobs, too.