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My 5 Questions About the Economy

Morgan Housel
November 12, 2012

Last week, a radio show asked me what my biggest questions about the economy are. I'm not good on the spot, so I gave a long, rambling non-answer. Now that I've had some time to think about it, here are five things I want to know.

1. What happens with the fiscal cliff?
The fiscal cliff is probably the single most important issue we've faced in the last three years. In the next 50 days, Congress and the president have the opportunity to A) put forth a legitimate deficit-reform bill that instills confidence in American businesses and consumers, or B) do nothing, go over the fiscal cliff, and throttle the economy back into recession (the Congressional Budget Office estimates unemployment will rise to 9.1% if we go over the cliff).

There could be a third option: a short-term deal that punts the hard deficit decisions down the road again. I actually think that's the most likely outcome. But given Washington's history of partisan flamethrowing and gridlock, the odds that something ugly will happen are uncomfortably high. What's dangerous about the fiscal cliff is that the worst outcome will happen if Congress does nothing -- which is the one thing our legislators are really good at.

2. Will there be a long-term shift in labor versus capital?
The economy has moved in three long cycles over the last 100 years. From the early 1900s through the 1930s, workers did poorly while owners of capital did very well. From the 1940s through the 1970s, workers did great while owners of capital did so-so. And from the 1980s through today, workers have done poorly (most real wages have stagnated) while owners of capital have done extremely well.

I want to know: Are those three periods coincidental, or does the economy move in consistent cycles that favor labor in one, then capital in the next? If it's the latter, then it's possible that the next 50 years could be more favorable to workers and less to owners of capital.

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