The Five Most Important Questions About Our Economy

The biggest worry on every Americans mind is continuously the state of our economy. People everywhere are always asking what are the biggest questions and concerns about the current state of our economy. While that is a rather broad subject, the Motley Fool recently did a great job at narrowing down that question and giving a great answer by providing us with five great questions about our economy.

1. What happens with the Fiscal Cliff?

The Fiscal Cliff is probably the single most important issue we’ve faced in the last three years. In the next 50 days, Congress and the president have the opportunity to A) put forth a legitimate deficit-reform bill that instills confidence in American businesses and consumers, or B) do nothing, go over the fiscal cliff, and throttle the economy back into recession (the Congressional Budget Office estimates unemployment will rise to 9.1% if we go over the cliff).

There could be a third option: a short-term deal that punts the hard deficit decisions down the road again. I actually think that’s the most likely outcome. But given Washington’s history of partisan flamethrowing and gridlock, the odds that something ugly will happen are uncomfortably high. What’s dangerous about the fiscal cliff is that the worst outcome will happen if Congress does nothing — which is the one thing our legislators are really good at.

2. Will there be a long-term shift in labor versus capital?

The economy has moved in three long cycles over the last 100 years. From the early 1900s through the 1930s, workers did poorly while owners of capital did very well. From the 1940s through the 1970s, workers did great while owners of capital did so-so. And from the 1980s through today, workers have done poorly (most real wages have stagnated) while owners of capital have done extremely well.

I want to know: Are those three periods coincidental, or does the economy move in consistent cycles that favor labor in one, then capital in the next? If it’s the latter, then it’s possible that the next 50 years could be more favorable to workers and less to owners of capital.

There are so many complex variables involved here — globalization, taxes, innovation, productivity — that I don’t think it’s possible to predict what will happen. This could, however, become one of the most important trends of the next half-century.

3. Will China go the way of Japan?

Twenty years ago it was assumed that Japan would become the world’s economic superpower. It grew faster, was more productive, and had more ambition and potential than any other country in the world — just how we see China today.

Of course, Japan didn’t live up to expectations. One big reason was demographics. As Japan’s elderly took up a larger and larger share of its population, its labor force didn’t have the vitality necessary to keep economic growth booming.

China could face a similar dilemma. Due to its one-child policy, China’s working-age population is projected to decline by 200 million by 2050.

I want to know: How will relaxing the one-child policy and other shifts in China’s demographics play out over the coming decades? Answer that, and you’ll have a good idea where its economy is heading.

4. How will demographic shifts affect America?

America is blessed with one of the youngest populations in the developed world. But we are getting older. Working-age individuals (age 15-64) currently make up 66% of the population. That’s expected to fall to 60% by 2050.

Not only will older Americans make up a larger portion of the population, but they are living much longer than before. Two weeks ago, BlackRock CEO Larry Fink noted that a healthy 25-year-old female can now expect to live close to age 100.

How will this change the economy? Will it mean the new retirement age is 80 instead of 65? And if people are living longer, will they need to save much more for retirement? What does it do to Social Security? If a lower portion of the population is of working age, will young Americans have an easier time finding a job? What does it mean for health care costs? Or pension fund obligations? Interest rates? It could affect so many things in so many different ways that it’s mind-boggling.

5. What impact will health care costs have on wages?

A big reason average wages have gone nowhere in the last decade is that rising health insurance premiums took up a larger share of compensation. Most employees were given a nice raise in recent years — it just came in the form of health insurance.

But there’s evidence that growth in health care costs has topped out. Annual growth is now near the lowest level in 50 years.

I want to know: Is that trend the reality or just noise? If it’s real, workers could see higher real take-home pay for the first time in years.

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  1. Zach says:

    I believe that the fact that we are part of this generation, will greatly influence the prosperity that is soon to come. Investing in private accounts rather than Social Security is a safer because I firmly believe that this social program is outdated. I’m excited for the future of our generation because our children, the “future”, will not only benefit but will learn from our ways as well.