Can Addressing Energy Security And Healthcare Costs Help The Us Compete In A Global Economy?

A decade after its economy went into a tail spin precipitated by the sub-prime crisis, the US economy seems to be back on track to regain its status as the global economic engine. One of the reasons of its revival is the success in dealing with energy security by the Shale gas revolution. However, another equally important challenge is still unaddressed. The Healthcare costs must be reduced to more sustainable levels. Stability in keeping energy costs low woul
Can Addressing Energy Security and Healthcare Costs Help the US Compete in a Global Economy?
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The Challenge of Healthcare Costs in the United States

Healthcare costs are the biggest challenge faced today within the US economy, while energy security is the biggest contributor to the burgeoning US current account deficit. If the greatest internal and external challenges faced by the economy are addressed, the results can only improve US competitiveness in the global economy. This is not an argument, it is a fact. The debate should be as to how much the improvement will be, once these two issues are addressed.

Healthcare forms one of the biggest expenses that are faced by the individual as well as

the firms. Some estimate that every other bankruptcy in US is related directly or indirectly with healthcare costs that are self insured by the firm for its employees. The per capita healthcare costs of a US citizen are over $ 6000, compared to less than $ 3500 everywhere else in the world, including all members of the OECD and G-8 countries. More importantly, the health care costs are rising further, and showing no signs of stabilizing. They threat to make the whole US economy uncompetitive. On an average the risks faced by a US firm on the account of uncertain future healthcare commitments for its employees are greater than any firm anywhere else in the world, and that itself is a challenge worthy enough for any US President to take as his top priority.

President Obama brought in Obamacare in 2010, which the new Presidency want to repeal. However, the challenges posed by healthcare in United States may not make it easy for him. If recent surveys are any indication, people want more, not less of improvements.

The Other Challenge: Energy Security

Energy security poses a challenge in many ways. Firstly, at the macro-economic level, rising price of oil contributed most to the US trade deficit in the first decade of this century, putting pressure on US dollar, threatening its depreciation, and even raising speculation of recession. To some extent at least, the US trade deficits with OPEC contributed to the lower Fed rate, which in turn led to the asset bubbles and precipitated the sub-prime crisis that almost destroyed the global economy.

At the Micro-economic level, any rise in energy prices can raise costs of input for all firms including those in


the service sector. Its impact on monetary market arises indirectly from inflation, which in turn can put pressure on the Federal Reserve to deviate from its goals. But the greatest concerns arise from the long term impact of price rise of petroleum goods, the risks of possible supply interventions from threats like terrorism and international conflict, as well as the greater assertiveness of OPEC and its attempts to drive oil prices northwards, all of which pose a huge risk for the economic well-being of US economy, which comprises nearly 30% of global GDP today.

The Shale gas supply chains provide an excellent mechanism of buffering these threats, even if there are temporary downturns in the Shale economy resulting from the fall in global crude prices. The Shale industry largely hedges the energy risks to the US economy, and to some extent, even the global economy, arising from any artificial restrictions on supply by the OPEC led cartel. However, it is only when the crude prices begin to rise again that its efficacy will really get testes.

No Easy Solutions in Sight for Healthcare Challenge

Both of these challenges require a long vision, tactful strategies, cost consciousness and great political maneuverability to achieve any significant success.

The battle for controlling healthcare costs will have to be fought on domestic turf, and may include measures like refining managed care packages, higher co-payments, selective public healthcare, greater role of personal savings in financing healthcare and curbing supplier induced demand. On the other hand, in the long run, the energy challenge may depend to a greater extent on the innovative abilities of the market to improve feasibility of using renewable energy. In particular, the recent developments in Europe related to the growing possibilities of using hydrogen as an alternative fuel, reducing cost of solar energy and somehow connecting the two, offer a lot of hope. Till that happens, there can only be efforts to improve technology further to improve energy utilization. Ironically, higher costs of oil, while threatening the worst, will also be the most critical stimulus to innovation and may actually hasten its solutions.



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