Towson University’s Outreach Blog

Raquel

As we are approach the end of the year, Thomas and I thought this would be a good time to reflect on key economic events that happened during 2010.  Let’s start with health care reform.  In March, after months of bitter debate, President Obama signed the Affordable Care Act—more commonly known as the health care reform.  The law includes many provisions including prohibiting insurance companies from denying coverage or refusing claims based on pre-existing conditions, providing subsidies for insurance premiums and establishing a new competitive private health insurance market.  Aside from the impact to the health care industry and uninsured individuals, the act will also have overall economic impacts.   Although the actual impacts are cause for debate, according to the Whitehouse’s Council of Economic Advisers (CEA), we should see a number of positive impacts.  Below is a summary of the findings as outlined on the Council’s website.

• Slowing the annual growth rate of health care costs by 1.5 percent would increase real Gross Domestic Product (GDP) by over 2 percent in 2020 and nearly 8 percent in 2030.
• For a typical family of four, cost savings imply income gains of $2,600 by 2020 and $10,000 by 2030.
• Slowing the increasing cost of health care would lower the unemployment rate by approximately one-quarter of a percentage point for a number of years.

We must note that due to the complexities of the bill and all the possible ramifications across many sectors of the economy, this is just an overview of some of the expectations.    What it comes down to in the end is that, good or bad, businesses and people will be affected by this reform for years to come.

Photo Credit: T. Al Nakib

Another significant economic event during 2010 was the Federal Reserve Bank’s announcement that it would purchase approximately $600 billion worth of long-term Treasury bonds and assets by mid-2011 (also known as quantitative easing), in an attempt to stimulate a flagging and sluggish economy.  The Federal Reserve Bank has the dual role of keeping unemployment rate and inflation low (or at least at a reasonable level) via the means of monetary policy.  Short-term interest rates, the Fed’s usual means of monetary policy, were at nearly 0 percent and with the unemployment rate still hovering near 10.0 percent; the Fed had to resort to new methods.    Ben Bernanke, the current Federal Reserve Board of Governor’s Chairman, released an Op-Ed in the Washington post explaining the committee’s decision.

This approach [quantitative easing] eased financial conditions in the past and, so far, looks to be effective again.  Stock prices rose and long-term interest rates fell when investors began to anticipate this additional action.  Easier financial conditions will promote economic growth…. we will review the purchase program regularly to ensure it is working as intended and to assess whether adjustments are needed as economic conditions change.

Which leads us to one of the last battles that have been raging in Congress over the last few weeks.  As their expiration date was looming, Bush-era tax cuts as well as the extension of jobless benefits came to the forefront of political debate.  President Obama worked with congressional leaders on a tax cut deal that would ensure the extension of both.  The deal was mired by opposition particularly by Democrats.  However, late Thursday night, the House of Representatives gave the final approval and the bill was signed into law on Friday afternoon.

There are a number of tax breaks associated with a bill that will put additional money in our pockets.  For example, as a result of the payroll tax cuts, a worker with annual income of $40,000 would save about $800 a year. A worker with $70,000 in income would save $1,400.  The key in determining the overall impacts of these tax cuts will be just how much of that money is spent—further stimulating the economy—and how much will be used  for savings or to pay down existing debt.

As you can see, up until the last minute, several developments had a major impact on 2010 but will have a much stronger impact as we go forward.   What we all hope for in 2011 is a lot more positive economic activity to blog about.