Will Arthur Laffer Predictions of 2011 Economic Collapse Become Self-Fulfilling Prophecy?
Financial Crisis Already Hitting Home for Many
Are Nation's Financial Worries Fueled by Laffer's Financial Take?
It may not take much to fuel the fires of people's financial fears in today's economy, and Laffer's words could do just that. Here in Indiana, the economic impact is already taking its toll as homes on or near our street, normally selling briskly, sit for so long that they are taken off the market and put back on sale again a year or two later - where they sit again. People are already jittery. I see and talk to them every day.
Local Financial Impact Already Felt in Indiana and Across Nation
Meanwhile, people struggle to stay in those homes, pay their bills and hope that the economy improves. Signs of hard times are everywhere here. Even garage sales are more like estate sales, with desperate homeowners selling items they would never consider parting with before.
Things don't appear to be improving any time soon. Indiana foreclosure rates went up 17 percent in April and loans which were at least 90 days behind on payments rose to 7.9 percent, according to IndyStar.com.
Today, I stopped at a garage sale near our house, where the homeowner told me that they were downsizing (not by choice) and moving from a modest but nice home to a 988 sq. foot apartment. They were forced to sell antiques, family heirlooms, and barely used designer furniture for a fraction of the prices they'd paid and for less money than they might have gotten in better times.
I'm seeing items for sale at these sales which bring tears to the eyes of those parting with them. The economy is spooking them, and they want to save what they can and live on even less than before - far less.
Could Arthur Laffer's Words Become Self-Fulfilling Prophecy?
This brings me back back to Laffer and his gloomy forecasts about dire prospects for the economy. Do we really face an economic collapse in this country? Even if we don't, could the predictions of Laffer and others like him become a self-fulfilling prophecy?
Just by writing an op-ed piece in the Wall Street Journal, he got enough attention to hit Google Trends, a parameter of public interest in Laffer's take on the economy. The larger question is whether people will believe him. If enough financial and economic experts share his opinion, could frightened consumers turn those words into reality? Or would they truly have no choice, without enough funds left to spend money and help stimulate the economy?
It is hard not to think back to the fears felt by many when the gloom and doom prophets predicted that Y2K would cause the end of the world - or, more recently, the very real crisis felt on Wall Street which brought the economy to the brink of a Great Depression.
Laffer Makes Connection Between Expiration of Tax Cuts and Increased Taxes
Laffer ties his views to the expiration of tax cuts for the wealthy. As tax rates soar on income, dividends and capital gains in January, Laffer believes the results will be a worst-case scenario. How bad will tax increases get? Personal income taxes (federal) will go from 35 percent to 39.6 percent, federal dividend taxes could go as high as 39.6 percent (from 15%) and estate taxes will soar from zero percent to 55 percent.
Middle Class Predicted to Feel Financial Impact in 2011 and Beyond
But, it isn't only the wealthy that Laffer sees taking the hit. Payroll taxes will go up within two years, with state and local taxes rising by next year. The Alternative Minimum Tax will hit middle class taxpayers harder than ever. In short, Laffer sees everyone being affected by the tax, payroll, and other changes on the horizon, with economic growth coming to a halt. Whether he is right or wrong, I'm seeing more and more friends and neighbors who aren't willing to wait around for the outcome. They are selling their homes for a loss, retiring early, downsizing, putting away whatever savings they can, and preparing to hunker down for the next few years - or longer.
Sources:
Wall Street Journal, June 6, here
Wall Street's Biggest Bears, Forbes, June 10, here
Arthur Laffer Predicts Economic Collapse in 2011, Salon, June 10, here
Indiana-Area Foreclosures Soared 17% in April, Indy Star, June 4, 2010 www.indystar.com/apps/pbcs.dll/article
Published by Jan Corn
I've had extensive experience with DIY and home renovation projects, particularly after buying a home that was in need of repair. As the daughter of a builder, I'd learned a few things when helping my fathe... View profile
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62 Comments
Post a CommentIf people will look back in time. They may see whats coming? Chance favors the prepared mind. I have been making slight changes over the last year that may help me. My 401k is all in a savings account. I bought and use a woodburning stove for my homes heat source. I have most of my spending directed towards things which will improve savings from bills. Limited my credit debt to less then $2000.00 at any given time. Started searching for a second career in a growing field. Most importantly, accepted the fact that nothing job wise is set in stone. In summary I would like to say that I am greatful that I have no children. The storm that is coming will be an awful one for all of us. Money means less to me then it ever did before. We will all need to make adjustments that were from a simpler time before.
what have we done to derserve this ? Well , american corporations sold our leading edge technologies to other countries to manufacture , we exercised little or no control in our spending , we allowed our government to seperate the Dollar from the gold allowing them to print money at will , those three things seem very important and they are , but the most important thing that people seem to forget is the wisdom of our founding fathers , they sought Gods blessings and were not afraid to put it in INK and on paper , if we fall it will be because we forgot about God and the TEN COMMANDMENTS , for if we remembered them the thieves of wallstreet would not have been there
Great article...and yes, lots of crazy predictions abound.
However, not all predictions are thoughtless....we examined our own for the past 2+ years in the January 2011 edition of AlternativChronicle, a free web based monthly newsletter.
Some were correct...others, less so. See what we think about 2011 at:
http://www.alternativchronicle.com/201101.html
So should we all ask for Dr. Jack Kevorkian to come out of retirement and end the pain and suffering for all of us? :-(
I do not think self fulfilling prophesy is accurate nor appropriate. You already talk about a very stressed economy, people not able to sell their house nor able to continue paaying for their house with rising forclosures and unsold houses sitting in once thriving neighborhoods, high unemployment, and fear of losing jobs that they have now. With QE2 coming up, and losing tax breaks this is not because of some article in the Wallstreet Journal. This blatant attempt to belittle and downplay obvious realities of the hard working people of the US and even attempt to blame their plight on the analysts chronicalling these trying times and warning us of obvious trends suggests the author's contempt for the readers suggesting that she thinks them ignorant; either that or she is truly ignorant of our plight.
We have: (ergo)
Well then, is it any wonder that we are taking on the attributes of a ship of fools? If we are going to get out of this mess, we must reverse these partial causes of our decline, and bring about a public financing of elections, hold corporations accountable to our nation at large, reward productivity with living wages, and increase the quality of our educational institutions with access being available to all citizens. If we’re unable to make such changes, we deserve to continue our decline as a nation and as individuals. To buy into the notion that the cure for ours ill is to do away with government, as Libertarians and their teabag followers are eager to do, is folly capable of inflicting great damage upon us as a nation. The most just and viable form of government is not singularly rigid in its approaches to individual and common health. Rather, it embraces the best ideas and discourages the practices that are detrimental.
I've read Laffer and I'm not laughing. I'm still expecting a further collapse because there's nothing on the political and economic horizon that gives any indication of its being otherwise. Taxes will go up, consumer spending will go down, and government will continue to enlarge while its spending and debt go up. Not much reason for great expections in such an environment.
Let's hope he's not right. By his focusing on the tax cut expiration, it does seem like he has an axe to grind.
There are those who seem to think this is all hogwash and we will soon have things fixed and that some politician will fix it. Wrong. Did Hitler fix things? WE DON'T MAKE ANYTHING HERE ANYMORE. Don't you fools get it. We sold our very souls out to China in the name of cheap!! When's the last time any of you bought an American consumer product? You don't know? How would you? You don't look, you just buy, buy, buy and throw away to fill more landfills. Say bye to America becauase you sold it years ago! Corporate America turned it all over to Hong Kong then Japan then Taiwan then China. What the hell do you expect? here are all kinds of issues causing problems here but number one without a doubt is China! This time next year they will own "America"!! We are a manufacturing nation that makes nothing!!!!!!
He is not the only one making this prediction. And, anyone with their eyes open can see what we're headed for. They're going to print more of the devalued dollar like crazy and take this charade as far as it will go. We will either end up with complete tyranny or a revolution like what happened in Iceland.