by V. Kumar

Created on: June 07, 2007   Last Updated: March 26, 2008

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 will the improvement 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 $ 5000, compared to less than $ 3000 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 the next US President to take as his top priority.

Energy security poses a challenge in many ways. Firstly, at the macro-economic level, rising price of oil have contributed most to the US trade deficit, putting pressure on US dollar, threatening its depreciation, and raising speculation of recession. At the Micro-economic level, it threatens to raise costs of input for all firms including those in the service sector. Its effect on monetary market arise indirectly by way of inflation, which in turn may pressurize the Federal Reserve to maintain high interest rates or even raise them further, thereby again raising concerns of a possible recession. 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.

Neither of these two challenges are easily manageable, and even the most well meaning leadership will 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, the battle for energy will depend to a greater extent on the innovative abilities of the market to improve feasibility of using hydrogen as an alternative fuel, reducing cost of solar energy and somehow connecting the two. 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.

Learn more about this author, V. Kumar.
Click here to send this author comments or questions.