People are extremely nervous about the financial situation in the nation. So, when economist Arthur Laffer, listed as one of Wall Street’s Biggest Bears by Forbes, writes a piece for the Wall Street Journal focusing on economic collapse in 2011, people take heed. The buzz is building about Laffer’s predictions of a double-dip recession – and worse – in 2011. His words were stark and to the point: the economy will collapse in 2011.
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.
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