WASHINGTON -- The No. 1 question for 2011 is whether the bullish economic forecasts for the new year will be justified or remain pie-in-the-sky exaggerations.
The answer will likely be based on how much President Obama's social and regulatory policies will slam the brakes on economic growth and kill jobs. The draconian health care cost mandates Obamacare will pile on businesses large and small have already led to casualties in the job market.
The cheerleaders for Obama's lackluster economy have been making over-the-top recovery forecasts that have been missing their mark by a mile. Last month, forecasters predicted a third-quarter growth rate of 3 percent or more, but the GDP came in at an anemic 2.6 percent. Estimates of 200,000 jobs in November similarly fell flat after the Labor Department reported the economy produced just 39,000 private-sector jobs.
Well, these same soothsayers are back this month, with the most exuberant among them (namely, Richard Berner of Morgan Stanley) predicting the economy will grow by roughly 4 percent this year, with the unemployment rate falling from near 10 percent to 8.6 percent by December.
One can never underestimate the power of the U.S. economy to do whatever it takes to innovate, survive and grow even in times of adversity, and the extension and expansion of the Bush tax cuts will temporarily alleviate problems in the business community.
But these optimistic forecasts are questionable when one looks at the larger obstacles Obama has placed in the path of the economic recovery, writes Washington Post economics analyst Robert J. Samuelson in a recent column. "The trouble is that Obama, having stabilized the economy, weakened the recovery," he says.
Businesses make their decisions about reinvesting and hiring by what they predict may happen in the future. And what they see coming at them is the iron fist of Obamacare sharply raising the costs of hiring by requiring firms of over 50 employees to provide each worker with health insurance or face costly fines.
"Will firms with, say, 47 workers eagerly expand beyond 50 if that imposes all the extra costs? It seems doubtful," Samuelson says.
It does indeed. Since Obamacare was passed in 2009, we have already seen businesses trim their sails by cutting jobs in anticipation of higher health care mandates. Common sense suggests that this is only the beginning of an exodus of employees unless the worst anti-growth provisions in the health care law are repealed.
But this is just the beginning of Obamacare's threatening rules, which basically tell the insurance industry how to spend its money.