Income, Poverty, and Health Insurance...Where does this leave our economy?

This week the Census Bureau reported that annual household income sunk to levels not seen since 1995. Average annual income currently is an inflation-adjusted $50,054, a 1.5% decline from the 2010 median. Due to the drop in income, there was a rise in people eligible for Medicaid, the state and federal program that covers health care for the needy. Medicare also grew as the baby boomers begin to turn 65. This is a bittersweet situation.

Even though the reason for more citizens being covered by healthcare is because their annual income has decreased, at least if a medical emergency were to occur they would not be turned away. However, since the government funds Medicaid and Medicare, the government will have to figure out a way to pay for the increase. With a national dept over $16 trillion, this potentially could result in a tax increase which will end up harming families with a decreased incomes even more.

These factors may end up causing deflation. If families have less money to spend, they will be more cautious about their spending. In order for businesses to sell their product they will need to lower their prices. That may mean more layoffs for businesses and an expansion of unemployment. Deflation could help strengthen the dollar, but if people are not working then they aren’t making money, which means they aren’t spending money. This will not help our economy grow, so in the long run, our country as a whole loses.

Image from Wall Street Journal, "Household Income Sinks to '95 Level"
by Conor Dougherty and Anna Wilde Matthew