Recent elections have revolved around issues of great importance to investors and consumers that are still, well, at issue. Although tax rates, health insurance, and the future of Social Security and Medicare dominated campaign rhetoric in 2004 and 2006, voters are still waiting for a clear direction on these matters.
But in this year’s election, there are yet more issues playing a role that could have a significant effect on investors and consumers over the next four years. Here’s a look.
Energy
The Energy Independence and Security Act of 2007 raised fleet fuel-economy standards for auto makers, mandated increased use of biofuels, and set efficiency standards for everything from federal office buildings to dishwashers and light bulbs, all to be phased in over the coming decade and beyond.
But the law contained no provisions to encourage or even enable the country to increase supplies of conventional fuels. In the meantime, the price of crude oil, the lifeblood of industrial economies, is setting records. Incoming officials may face a struggle to keep energy prices from squelching economic growth.
Free Trade
At the beginning of 2008, the United States had free-trade agreements with 14 countries, including six that were implemented in 2006. Arguably the most controversial has been the North American Free Trade Agreement, which has been criticized on the campaign trail for reducing wage growth, exporting jobs, and killing the U.S. manufacturing sector.
Certainly, workers who were displaced suffered setbacks, but the net effects for the country have been positive. In the first 14 years of NAFTA (1993 to 2007), business investment in the United States rose 117%, compared with 45% in the 14 years prior to the agreement; and U.S. hourly wages grew 19.3%, versus 11% during the previous 14 years. From 1993 to 2006, manufacturing output rose 58%, compared with 42% during the previous 13 years. And between 1994 and 2007, the U.S. unemployment rate averaged 5.1%, down from 7.1% during the previous 13 years.
Inflation and the Dollar
After several years of low inflation rates (by historical standards), higher inflation appears to be making a comeback. This revival has occurred on the heels of a Federal Reserve effort to stave off an economic slowdown through aggressive cuts to benchmark interest rates. Inflation is a frequent side effect of low interest rates.
Although elected officials have little control over inflation, they can influence the value of the U.S. dollar, which figures into the inflation equation. The incoming administration and Congress may have to consider measures to strengthen the dollar, which could affect inflation and energy prices.
Let us hear your thoughts below:
