What are the big economic unknowns for 2015?

by on December 29, 2014 at 1:27 am in Current Affairs, Economics, Political Science, Uncategorized | Permalink

Justin Wolfers considers that topic here.  I don’t disagree with his points, but I’ll offer a separate (but somewhat overlapping) set of picks:

1. The major economic and indeed geopolitical question of 2015 will be whether the Russian economy can manage a graceful decline.  I’ll say no, they can’t, but it is hard to see what lies around the corner or even to outline scenarios.

2. U.S. gdp is now growing at a five percent clip.  Will that finally translate into significant real wage growth?  Again, I’ll say no, see this recent piece by Barry Bosworth.  Either way, this question will shape our entire future looking forward.

3. Can India continue and indeed extend its recent momentum?  They are one of the bright spots in the global economy right now, in terms of rates of growth that is.  I say yes they can, they “enjoy” the odd liberty of not having been very successful exporting in the past and thus they have a relatively insulated position where they can rely on internally generated catch-up growth.

4. Will Canada and Australia turn out to have been bubbles of a kind, due to falling resource prices?  Will the global economy enter a new forty year period where Julian Simon is right once again about resource prices?  I say the word “bubble” is misleading here, but they will see a further growth slowdown in 2015 in those two nations.

5. Will anyone still be pretending that Abenomics has a chance of succeeding?  I say no, not really.

6. Will Greece vote itself out of the eurozone?  (Technically speaking, that could start in very late 2014).  I say yes.

7. How slowly/rapidly will the Chinese government allow the growth rate to fall?  How much excess capacity will be wracked up in the meantime? Does there exist a scenario in which the growth rate decline is so slow that the excess capacity can be worked off in a relatively orderly manner?  I say no.

8. Will Brazil and Mexico turn around the fading economic fortunes of Latin America?  I say no, not this coming year at least.  Not next year either.

9. Will the economies of Italy and France continue to fester?  I say sadly so.  The risk is that Germany joins them.

What are the “unknown unknowns”?  (Can that concept still make sense these days, with so much on-line commentary?)  North Korea was always one, but it can’t fit into the total surprise slot any more.  In any case, the Sony hack and its aftermath will continue to be a big story.  What else might count as speculative guesses?  (NB: not all of these are maximum likelihood estimates, rather they are undervalued possibilities.)  U.S. equities could turn out to be a bubble, even with continuing superior American economic performance.  So we may have a 1987-style crash.  The traditional relationships between macro variables such as currencies, interest rates, growth rates, stock prices and the like will not hold up.  No one’s macro theory will look very good (now that’s a daring prediction).  Each year the chance of a nuclear weapon going off is larger than we think.  Maybe not in 2015, but the chance of France having another “constitutional revision”/peaceful revolution is larger than most people realize.  Private space travel will prove ever more dangerousAvian flu will reemerge.  The Supreme Court will rule against the current version of Obamacare subsidies.  Haiti will reenter political chaos.  An American terrorist will operate in the Middle East and pull off one surprise attack, not huge in terms of casualties but it will create a lot of attention.  The new Star Wars movie will be good.

1 Davis December 29, 2014 at 1:36 am

I agree. The new Star Wars movie will be good.

2 Artimus December 29, 2014 at 1:48 am

I think no matter how much online commentary we have there will always be unknown unknowns.

3 Thomas December 29, 2014 at 1:52 am

Since Wolfers insists on linking to his “it was the debt ceiling, not the European debt crisis” theory about the events of 2011, we can continue to think he’s ideologically blinkered and unlikely to offer straight-forward assessments of the coming year, right?

4 anonymous December 29, 2014 at 11:14 am

Agreed–the concept of the “unknown unknowns” by definition cannot be foretold, certainly not by online commentary

5 Mark Thorson December 29, 2014 at 1:17 pm

I think he means somebody would have foretold any unknown unknown that might occur. They just were not believed/recognized at the time. For example, if a free energy or cold fusion device suddenly makes coal, nuclear, and natural gas irrelevent, there’s a good chance it was already described here (possibly with an interview of the inventor):

http://pesn.com/

Of course, the betting is that the Second Law stands. But however unknown your unknown is, chances are somebody on the net knows all about it and has a webpage where you can read about it in detail.

6 JonFraz December 30, 2014 at 2:22 pm

No matter what breakthroughs might occur it will take a while– longer than a year certainly– to implement them on a major scale. (The 2nd Law of Thermodynamics is not going to change, but it only applies to closed systems, which the Earth is not)

7 Lori December 30, 2014 at 7:43 pm

Online commentary generates more noise than signal. The question is whether that concept still make sense these days, with so much “Big Data.” Big Data is usually proprietary data, that wants to be expensive, so the operative question is, “unknown to whom?”

8 David Wright December 29, 2014 at 1:52 am

Agree on most but disagree on #6. Greece will stay in the Euro no matter how bad that is for its prospects of recovery and Germany will do whatever it takes (but no more) in terms of debt forgiveness/refinancing to keep it there.

9 The Devil's Dictionary December 29, 2014 at 6:29 am

That’s true. No government dares to leave the eurozone. The perceived risk is so huge that any other option looks acceptable in comparison.

10 msgkings December 29, 2014 at 2:08 am

Wow, that’s grade A Tyler pessimism there. Since no one can be right that much (optimist or pessimist), I’d say only 1-2 of that list will happen.

11 JMCSF December 29, 2014 at 11:25 am

That’s what I thought too. Tyler is such a Debby Downer.

There are plenty of reasons to be optimistic about 2015 as well, starting with the new Star Wars movie.

12 Lori December 30, 2014 at 7:54 pm

Are not optimism and pessimism subjective? Based on my (mis?)understanding of the source, the list of prophecies reads like a morality play. Reading the internal mental states of others is admittedly not my strong suit (meaning, I dunno, maybe I should build my own economy). At any rate, my best guess as to the attitudes of the author concerning his beliefs about the future is that there might just be an element of “burn, baby, burn!” in there. I know, it’s horribly uncharitable of me, especially considering I’m not good at this type of prognostication, but this is, after all, “Marginal Revolution.”

13 Rick Hull December 29, 2014 at 2:34 am

Did anyone really think Abenomics was going to work?

14 RoyL December 29, 2014 at 5:18 am

Well I am sure there will be someone at Vox.

15 Thiago Ribeiro December 29, 2014 at 5:26 am

Well, Abe, I think.

16 Boonton December 29, 2014 at 7:15 am

How exactly will it not work?

17 mofo. December 29, 2014 at 8:09 am

They will lack the political strength to change anything that isnt monetary policy.

18 Boonton December 29, 2014 at 10:04 am

So is Abenomics Keynesian economics actually applied in the real world without half-measures? Or do we mean it is betting that using unlimited monetary stimulus will beat a deep recession?

If it is the former, I think it is important to define how exactly is can ‘not work’. One way would be stimulus leads to inflation and interest rate increases without increasing real GDP and employment while increasing interest rates and inflation would be the market putting a check on additional stimulus. Another way would be lots of stimulus is done but the economy remains depressed with low interest rates and inflation.

If it is just about monetary stimulus, then I think we have a test of the Keynesian liquidity trap which holds that printing lots of money is like ‘pushing on a string’…it just goes into paper assets like bank account balances, stocks, into people’s mattreses etc. without actually increasing actual purchases.

Or is it about political will. Will the political system get ‘spooked’ by irrelevant numbers (“ohh we can’t have a deficit of $1T!” or “200% of GDP is a magic tipping point!”) and cut off stimulus before it has worked, like a patient who stops taking a two week antibiotics course because the infection isn’t cleared up in a day.

19 John Thacker December 29, 2014 at 11:39 am

If you define it in terms of “can Japan’s total GDP / wages go up?” then it probably can’t be a success just because of the declining population (without, at this point, lots of immigration.) If you define things in per capita or per working age person terms, then there’s a much greater chance of success. People can debate about whether or not that’s relevant.

From the strict “total GDP decline” definition of recession, it’s practically impossible for Japan to avoid lots of recessions over the next few decades.

20 John Thacker December 29, 2014 at 11:42 am

They’re doing a fiscal stimulus as well– but as you note, that’s not a change at all. Continual fiscal stimulus has been a consistent policy, so it would be not having it that is a change. They are putting off raising the consumption tax again, after the first increase seemed to go poorly.

We also may get a chance to see if any fears of a debt crisis ever come true.

21 Boonton December 29, 2014 at 2:52 pm

http://www.pewglobal.org/2014/01/30/chapter-2-aging-in-the-u-s-and-other-countries-2010-to-2050/ indicates that absent any break in trends, Japan will loose 15M people between 2010 and 2050. That isn’t a huge figure and like I said demographics moves slowly. GDP is determined by 3 inputs. Labor is one, capital another and ‘know how’ the third (we can probably disregard land if we are talking about economies that are no longer agriculture based). So it is hardly clear that Japan must experience declining GDP over time. If Tayler’s ‘Average is Over’ thesis is correct, that more and more output is done by a smaller portion of excpetional workers rather than large numbers of workers, then you don’t even need much population to get a lot of GDP.

In terms of Keynesian economics, you can in fact have an economy that is in line term declining GDP. For example, say you had a country that experiences massive emmigration combined with aging and loses a huge portion of its population, say 50%? Even with positive increases in capital and productivity, it is probably unlikely that total real GDP will not feel the impact. But nominal GDP could be keep from recession by simply pushing inflation up to compensate for declining real GDP. Why would one want to do that?

Well a critical question here is are you suffering from a demand shortfall or is there some problem with your supply? Supply problems could be a decline in workers which may be impossible to quickly reverse or it could be things like poor regulations and policies which could be fixed quickly.Problem is there’s no way to really know unless you take demand off the table.

That being the case, it does seem to me if Japan’s problem is labor supply, we should see some evidence in prices. For example, wouldn’t firms faced with fewer and fewer workers start doing things like increasing wages? Offering incentives for women to join part or full time? Rather than offering early retirement benefits offer extra pay for workers who delay retirement? Has this been happening in Japan as it has aged?

Continual fiscal stimulus has been a consistent policy,

Has it? We recently had a pretty big increase in sales taxes. It seems one aspect of Abenomics is to print lots of money on one side but on the other toy with austerity measures to assure markets that the budget will be controlled tightly. While this sounds good in theory perhaps it just creates too many conflicting signals in practice.

22 JC December 29, 2014 at 7:47 am

I think the program is still popular in Japan despite lack of meaningful results so far. Abe is gearing up for another stimulus package…

23 Jan December 29, 2014 at 9:25 am

It’s certainly not hurting.

24 Brian Donohue December 29, 2014 at 10:55 am

Tyler is pushing some kind of BS story on Japan. I don’t get it.

25 TMC December 29, 2014 at 1:16 pm

“not hurting” is not reason enough to piss away a lot of money with no effect.

26 londenio December 29, 2014 at 2:37 am

US GDP growth at 5%? Did I miss something? Where is this number from? We’ve been hearing the 2-3% for a long time.

27 Artimus December 29, 2014 at 3:23 am

The 3rd Revision for 3rd quarter GDP was 5.0%. The initial GDP figures are usually a bit inaccurate so the figures have a 2nd and 3rd revision as more date comes in.

http://www.businessinsider.com/gdp-q3-revision-2014-12

28 stan December 29, 2014 at 8:40 pm

It’s only 5% for people who don’t want to know how the sausage is made. For those who look behind the curtain, 5% is a fantasy number.

29 JonFraz December 30, 2014 at 2:24 pm

And those who don’t think tinfoil hats are an attractive fashion accessory. (Allowing for the usual error bars in any statistics)

30 Kevin Erdmann December 29, 2014 at 3:00 am

#2: there has been no core – minus – shelter inflation for 5 months. Almost all the core inflation is coming through shelter inflation. Capital income from rents has also been very strong. So, for home owners, real income gains are very strong, since they are paying rent to themselves. Rent inflation is being used to adjust from nominal to real wages, but this is not an income reduction that most households notice in any way.

31 Tom December 29, 2014 at 3:56 am

Even with the latest upward revision the quarter-on-same-quarter-of-previous-year growth rate was still only 2.7%. We’re unlikely to beat that for the full year. A 3% growth rate in 2015 is still on the optimistic side. I’m calling another year of around 2.5%. Housing is struggling, exports will struggle.

One thing to keep in mind with the fracking boom is that for all the amazing technology going into it, it’s still less productive in real terms than conventional oil. GDP doesn’t give any points for extra effort or for overcoming bigger natural obstacles.

32 Ray Lopez December 29, 2014 at 4:23 am

It’s that time of year again, for year end predictions, quickly forgotten the next year. But I did go back into the archives and found that in late 2008 TC was pretty accurate about what was going to happen in the next few years, as transpired. His crystal ball is pretty good, go back and see for yourself.

My prediction: “History repeats … first as tragedy, then as farce” – K. Marx, The Eighteenth Brumaire of Louis Napoleon

33 Andrew M December 29, 2014 at 5:15 am

You’ve mentioned the commodity-driven economies of Russia, Canada, and Australia; but what about the big oil producers in the middle-east? It’s too soon to say whether oil will remain under $60 a barrel, but it’s already blowing a huge hole in their finances. Unlike the US, Japan, or Britain, the markets won’t let them print their way out unpunished. Could we see a renewed Arab Spring?

34 David S. December 29, 2014 at 8:27 am

I think this is a good prediction. There have already been a disturbing number of arrests of Sunni extremists affiliated with IS in Saudi Arabia, where they have been murdering members of the substantial Shiite minority. A regime collapse there is not out of the question.

35 A Definite Beta Guy December 29, 2014 at 9:42 am

An Unknown Unknown is indeed Saudi political stability, particularly those affecting oil supplies. The major Saudi oil supplies actually lie near the Shi’a dominated Qatif province, which has had a few rebellions in the past. These areas have been affected (somewhat) by the Arab Spring in recent years. However, the Throne will stop at nothing to control this region, which will put the US in an extremely compromising position.

36 Artimus December 29, 2014 at 10:28 am

Actually, the fact that you are discussing this means that it not an “unknown unknown” it is a “known unknown”.
You know that you don’t know what will happen. An unknown unknown is when you don’t know that you don’t know!

37 prior_approval December 29, 2014 at 6:11 am

‘Will Greece vote itself out of the eurozone? (Technically speaking, that could start in very late 2014). I say yes.’

Still sticking it out for eurogeddon. Why change a prediction merely because it hasn’t occurred yet, right? Let us be honest – the euro, like every single currency in human history, will not exist at some point in the future. It takes real acumen to predict its end over and over again, though.

38 JC December 29, 2014 at 7:50 am

I’d bet on a future with more common currencies than the contrary. Greece is not leaving the euro for the simple reason a new currency will not solve their competition problem.

39 8 December 29, 2014 at 8:48 am

I don’t think Greece will leave because the Troika will blink. They will do the math and figure sending a few billion to Greece is much cheaper than a bailout of the European banking system. The bill will come in the Finnish and UK elections later this year.

40 Ray Lopez December 29, 2014 at 9:01 am

@JC–what is Greece’s biggest export? Not ‘wheat, corn, barley, sugar beets’ as the CIA World Factbook might mislead you to believe, but tourism. So a devaluation by dropping out of the Euro would indeed boost their exports and solve their competition problem (they compete with Spain’s islands, Turkey for the cheap college binge drinker summer vacation crowd).

41 Millian December 29, 2014 at 5:10 pm

If a very large devaluation had absolutely no consequences except on the tourist industry, you would be right.

42 prior_approval December 29, 2014 at 6:19 am

‘Each year the chance of a nuclear weapon going off is larger than we think.’

Well, for people who don’t remember the 1990s – or 2006, 2009, or 2013. http://en.wikipedia.org/wiki/Nuclear_weapons_testing

43 David S. December 29, 2014 at 8:11 am

I think the difference is that the coming “test” of a nuclear weapon will be in the middle of a city, not on an island in the South Pacific or in the middle of a desert.

44 JonFraz December 29, 2014 at 2:05 pm

If India goes to war with Pakistan you may be right. Otherwise, with a small exception for North Korea getting ugly with South Korea, the chance of that is all but nil.

45 carlospln December 29, 2014 at 3:14 pm
46 JonFraz December 30, 2014 at 2:25 pm

I repeat, all but nill

47 prior_approval December 29, 2014 at 6:23 am

*’An American terrorist will operate in the Middle East and pull off one surprise attack, not huge in terms of casualties but it will create a lot of attention.’

Already happened – ‘The Cave of the Patriarchs massacre or Ibrahimi Mosque massacre, also known as the Hebron massacre,[1] was a shooting attack carried out by American-born Israeli Baruch Goldstein, a member of the far-right Israeli Kach movement, who opened fire on unarmed Palestinian Muslims praying inside the Ibrahimi Mosque (or Mosque of Abraham) at the Cave of the Patriarchs in Hebron, West Bank. It took place on February 25, 1994, during the overlapping religious holidays of Purim and Ramadan.[2][3] The attack left 29 male worshippers dead and 125 wounded.[4] The attack only ended after Goldstein was overcome and beaten to death by survivors.’ http://en.wikipedia.org/wiki/Cave_of_the_Patriarchs_massacre

Well, maybe not the lot of attention part.

48 Anon December 31, 2014 at 8:16 pm

It’s pretty telling you had to go back twenty years for you man bites dog story.

49 dearieme December 29, 2014 at 7:15 am

#6 + #9 > #1

50 rayward December 29, 2014 at 7:26 am

Summers (in his explanation of secular stagnation referred to in a prior post by Cowen) cautions that the U.S. stock market may be a bubble that could burst and undo much of the progress in this slow economic recovery. Of course, inflating the value of financial assets has been the main tool of the central bank both to rebuild bank balance sheets and to stimulate economic recovery. What Summers is saying, but only indirectly, is that the tool (i.e., inflating the value of financial assets) provides the illusion of restored balance sheets and economic recovery. Summers promotes “infrastructure spending” as the alternative to the illusion, financed by government borrowing at these very low interest rates. I’ll be more direct than Summers and suggest that “infrastructure spending” is a euphemism for redistribution. To paraphrase President Clinton’s political adviser, it’s the inequality, stupid. Absent redistribution, we are doomed to slow economic growth (i.e., secular stagnation) or worse, recurring financial crises triggered by bursting bubbles that are created by the central bank’s rinse and repeat tool of inflating the value of financial assets. I can’t be too critical of Summers for being less than direct since economists haven’t got a clue.

51 ChrisA December 29, 2014 at 7:50 am

Too pessimistic Tyler.
So to balance things out I will present some more optimistic scenarios;

1. Russia will do fine as it has just had a massive devaluation in the cost of its labor, which will translate finally into internal industrial growth. Arguably its currency has been far too high due to the oil price effect which has prevented investment in industrial sectors. Russian are very smart engineers, but have been over priced in recent years.
2. US wage growth will start to take off in 2015 as the unemployment level falls below 5% by the end of the year. The big head winds, such as the large pool of the discouraged workers is finally being worked off. In addition the retirement of the baby boomers, as the stock market rally continues, will finally bite.
3. Can India continue and indeed extend its recent momentum? Sorry not optimistic on India. Anyone who has tried to make anything happen in that economy will join me. It is a cultural dysfunction not a political one.
4. Both Canada and Australia will do fine, again similiar to Russia, they have floating currencies see. That text book.
5. Will anyone still be pretending that Abenomics has a chance of succeeding? An economy with 3% unemployment and a powerful export sector with a significantly depreciated currency is going to do badly. Give me a break. We should all be such failures.
6. Will Greece vote itself out of the eurozone? No. Too much invested in the Euro by the other Euro countries so they will find a fudge. Greece is going to have to go through internal devaluation regardless.
7.China is a challenge as they are about to face the demographic cliff, with their prime age workers starting to fall in absolute numbers in 2015. Despite that there is still huge momentum in the China economy, I saw a bunch of Chinese holiday makers in Thailand this year, they were coarse nouveau riche types but have an appetite for life and for spending that will be hard to suppress in just one year. So short term optimism, long term more pessimist on China.
8. Mexico is very interesting. I would never believe they would open up their oil industry with such little opposition. Mexico is a young country so demographics are in their favor. Brazil I agree will suffer more, but again floating currency.
9. Maybe next year the ECB will finally crack as deflation becomes obvious and the comparison with UK and US , and then Italy, France and Germany could be seeing a bit of boom by year end. Lower oil prices could help as well. The best of times is always right after the screws have been released.

52 Ali Choudhury December 29, 2014 at 9:46 am

Isn’t a lot of Japan’s employment for the young made up of short-term, unskilled, contract roles?

53 Ted Craig December 29, 2014 at 8:05 am

What about some upside?

Cuba has a Berlin Wall moment.

The California drought ends.

As for downside, here’s two:

1. Major labor unrest.

2. Forget about a nuclear weapon. What we luckily avoid every year is a seismic event on the Pacific Coast, either a tsunami or an earthquake.

54 Ted Craig December 29, 2014 at 8:08 am

Oh, and Obama and the Republicans open the free trade spigot. That’s an upside prediction.

55 JonFraz December 29, 2014 at 2:08 pm

If you are talking internationally we had a pretty major seismic event in Japan in 2011.

56 Ted Craig December 29, 2014 at 2:49 pm

I meant in the U.S.

57 David S. December 29, 2014 at 8:08 am

Drone-enabled assassination of a major political figure, and/or a Sony-style cyber exposure of a major political party/organization (perhaps a US presidential campaign?), leading to a determined, broad-based assault by the political class on the semi-libertarian ideology of technology. The line will be something like, “Modern technology is too dangerous to be allowed to be distributed and used freely based on outmoded 18th century political philosophy”.

58 dearieme December 29, 2014 at 9:20 am

But Hellary’s past has been pretty much exposed already and it seems to make little difference.

I suppose you must mean a Presidential campaign by someone the media would love to tear down.

59 Art Deco December 29, 2014 at 10:05 pm

little difference.

Little difference to whom? Somewhere around 48% of the electorate thinks she’s Hermann Goering in drag.

60 Grant December 29, 2014 at 9:14 am

Do you have an predictions of 2014 that you made in 2013?

61 Ted Craig December 29, 2014 at 10:11 am
62 collin December 29, 2014 at 9:19 am

Any good things in 2015? I say Russia is in the midst of hitting bottom and has a slow recovery. The US skilled labor market is a lot tighter than you think and we see some real wage growth with smaller than 5% growth rates. Firms will have a harder time keeping workers. With lower oil prices, both India and China go back to good growth. (China is starting the great big bubble but they have another 6 or 7 years till it bursts.) Greece does not vote out of the Euro.

Other Unknowns:
1) What happens to The Ukraine. There is no solution for this demographic economic spiral in a civil war and really should be broken up. This country needs a private equity firm to take over.
2) Immigration and continued baby bust become larger issues for all developed nations. The politics ain’t going to be pretty and there might be some real surprises here.
3) Solar growth and state political battles get interesting here. Solar grows a lot in the West coast but becomes the Great Satan in energy states.
4) Will low oil prices cause the Middle East decrease their support for terrorism or amp it up?

63 collin December 29, 2014 at 9:28 am

Also Obama’s Approval Ratings breaks 50% and the 2016 Republican Primary is going to be another disorganized circus. At one point, Ben Carson leads the candidates and close to Iowa Primary Fox News/neocons successfully push Rand out of a lead.

64 Ted Craig December 29, 2014 at 9:39 am

Obama’s approval might rise, but the primaries will be nothing like 2012. This time the GOP has a chance to win.

65 JonFraz December 29, 2014 at 2:10 pm

The GOP certainly thought it had a good chance to win in 2012 too, having (mis)interpretted their 2010 victories as voter repudiation of Obama.

66 collin December 29, 2014 at 2:31 pm

The Republicans did have a chance to win in 2012 although I always thought Obama should have been favored. The two primary reasons for Obama prospects was the 2012 economy was better than 2008 and the Bin Laden killing. However, it was not Reagan 1984. The problems was the Rs needed a combination of a stronger candidate, a smoother primary, a better healthcare solution, less Todd Akins or self-deportation, or less of neocon war discussions. Obama 2012 campaign felt like “Running Out Clock” strategies as they focused on key swing states of Ohio, Florida, Virginia, Colorado and long shot North Carolina. (They only lost NC which was the long shot.)

If history rhymes, the 2016 election may follow 1988 election. Heavily favored Centrist, HRC, against a Party with a field of locust (TM Charles Pierce) candidates.

67 Art Deco December 29, 2014 at 10:01 pm

You’ve made use of the nonsense term ‘neocon’ and referred to Hildebeeste as a ‘centrist’. Political terminology is not your strong suit.

68 msgkings December 29, 2014 at 2:38 pm

Not vs Hillary they don’t.

69 Ted Craig December 29, 2014 at 2:50 pm

Hillary is a terrible candidate.

70 msgkings December 29, 2014 at 3:11 pm

Perhaps, but she leads all polls now. Obviously a lot of time still on the clock. She’s definitely the odds on favorite right now.

Not saying that’s good or bad but partisans (on both sides) often have trouble seeing just how the other guy/gal has any chance even when it’s obvious (2012 being a recent example).

71 Art Deco December 29, 2014 at 10:02 pm

Perhaps, but she leads all polls now.

Because polls at this point measure name recognition.

72 Art Deco December 29, 2014 at 10:03 pm

Also Obama’s Approval Ratings breaks 50%

There is no precedent for a recovery in public approval registered in the 7th and 8th year of a presidential tenure.

73 JonFraz December 30, 2014 at 2:32 pm

Most presidents rebound in approvals as they reach the end of their term, absent major calamity (e.g., the meltdown of 2008), or major scandal– and even scandal may not wreck a presidency. Reagan and Clinton both survived their respective scandals and finished with high approval ratings.

74 Bill December 29, 2014 at 10:19 am

1. Return of Urban Riots. Every day something can go wrong somewhere, and whatever goes wrong can be a catalyst for minority and police interaction that can go bad.

2. European banking system of crony lending and insufficient reserves gets further exposed.

3. Nations begin interfering more with each others internet infrastructure and balkanize what could be an avenue for international growth, new products and integration.

4. Marginal investment projects become even more marginal as interest rates rise and there is a premature slowdown.

5. CBO will be overtaken by Congress, we will have dynamic scoring for tax cuts, with much larger deficits, particularly during recessions, to follow.

75 Bill December 29, 2014 at 3:31 pm

6. Avoidable mitigatable disasters are not prepared for, such as serious earthquakes in California.

We would rather repair than prepare. I wonder what will happen with Prop 13 after a major earthquake requiring massive infrastructure repair.

76 JonFraz December 30, 2014 at 2:33 pm

How are we supposed to “avoid” an earthquake. Last I checked we have no earthquake-stopping technology.

77 Bill December 29, 2014 at 11:47 pm

7. Death of an autocratic leader, or unclear lines of succession, in any number of countries leading to fights for power and regional instability.

78 Tyler Cowen December 29, 2014 at 10:52 am

Note that uncertainties tend to be negative. There is plenty of good news coming too, most of it not uncertain! So you should not read this list as so pessimistic.

79 Anonymous December 29, 2014 at 11:15 am

According to the WB/IMF China will grow at 7% in 2015.

Conventional view holds that next year it will still be the fastest growing economy (among large or even mid-sized economies).

80 Johnny A December 29, 2014 at 12:05 pm

Climate change? Tyler is not that interested in the natural world, but you still think he’d recognize the threats and uncertainties that climate change poses.

81 chuck martel December 29, 2014 at 1:45 pm

I guess you’re saying that there’s the possibility that the surface temperature of everywhere on earth will either go up perhaps 15 degrees over a years’ time or maybe drop by the same amount during that period. What’s the likelihood of such a thing occurring, even in part, over the next 368 days?

82 TMC December 29, 2014 at 1:46 pm

“World temperature holds steady for yet another year” is not an exciting prediction.

83 Al December 29, 2014 at 1:07 pm

Tyler may well be right that “The Supreme Court will rule against the current version of Obamacare subsidies.” A majority of the Supreme Court are pro-life-only-when-being-so-doesn’t-cost-the-rich-any-money conservatives. If, it fact, Obamacare is becoming more popular among the non-rich,I wonder what kind of reaction effectively killing Ombamacare will have.

84 JonFraz December 29, 2014 at 2:15 pm

An adverse Supreme Court decision will not “kill” the ACA: the entire law as written will still be in force except the Medicaid provisions that the Court gutted in 2012. The result will be people facing steeply higher premiums. And GOP governors and state legislatures facing pressure from both voters and the medical-insurance agency to fix the situation (cost free) by proclaiming the federal exchange to be their state exchange thereby allowing subsidies to return. This is one case where the old saying “Be careful what you wish for; you may get it” should be taken to heart by the Republican Party.

85 Nick December 30, 2014 at 3:06 pm

Citation needed. It’s as unpopular as ever according to every major polling outlet.

86 Harun December 29, 2014 at 1:27 pm

“If, it fact, Obamacare is becoming more popular among the non-rich,I wonder what kind of reaction effectively killing Ombamacare will have.”

The longer the ACA stays in place, the less popular it will be except among:

a) those receiving massive subsidies to both premium and deductible (not many people.)
b) those who had expensive pre-existing conditions for which they now buy platinum plans and effectively get subsidies. (not many people, if you check high risk pool popularity.)
c) people on Medicaid who don’t actually use the system much.

Balanced against these people will be

a) people who assumed the ACA would give them government employee style insurance and who begin to learn what a deductible is. Expect to start seeing stories about medical bankruptcies for people who got sick and then didn’t have the $12,000 for their deductible. Also, not in the news, but happening, expect people to get very testy about paying $100/visit to their doctors.

b) people who watch their premium and deductible go up and up and up. Most lefties imagine that the people have forgotten that the original promise was a $2,500 savings, not increases. Good news the chocolate ration has been increased from 35 to 25g! doesn’t sell in reality.

These groups could increase a lot in time if companies start dropping employees into the exchanges.

Then there are the people who don’t matter:

The people on Medicaid who have trouble getting actual care. They won’t vote differently, so they will just suck it up, as the blue state model requires medicaid reimbursement rates to be cut in order to pay state employee pensions. Gotta make sure assistant fire chiefs in California get their full $700,000 pension! (Yes, this guy has a pension that puts him in the 1%.)

87 JonFraz December 29, 2014 at 2:20 pm

The maximum deductible is not 12K; it’s in the 6K range– which may still be bad news for many people. However most of those people were either uninsured before, or had already high deductible policies– their situation is the same or somewhat better under the ACA.

Re: The people on Medicaid who have trouble getting actual care.

This group now includes many people temporarily on Medicaid– people who have lost their jobs and thereby qualify for Medicaid as a temporary stop gap until they find new jobs. Assuming that duration is reasonably short they won’t notice the problem of finding a doctor, but will notice the fact their prescription copays are $0 or close to it. (I was in this situation for three months earlier this year).

88 Michael December 29, 2014 at 2:39 pm

Don’t fool yourself, deductibles have gone up quite dramatically (not to $12k no, not yet), but this has masked much of the simultaneous premium increases we’ve seen. I’ve personally seen my deductible go from $2k to $5k.

As far as Medicaid, if “that duration is reasonably short they won’t notice the problem of finding a doctor,” then what was the point of this whole scheme?

89 JonFraz December 30, 2014 at 2:36 pm

I repeat, the maximum deductible is in the 6K range.

Re: As far as Medicaid, if “that duration is reasonably short they won’t notice the problem of finding a doctor,” then what was the point of this whole scheme?

1. If they do have an emergency it will be covered (ERs and urgent care clinics are not hard for Medicaid patients to access)
2. Rx, which can be very $$$, is covered (and pharmacies are not hard for Medicaid patients to access)
3. They will not run afoul of the old (HIPAA) uninsured limit of 62 days, and will be able to obtain coverage when they return to work.

90 Boonton December 29, 2014 at 3:04 pm

a: What people are these? Before the ACA people who purchased health insurance directly from the private market knew very well what a deductible is and were well aware of the financial danger in getting sick.

b: Premiums, though, appear to be relatively flat esp. when you compare the pre-ACA world of frequent double digit yearly increases.

Suppose over time employers did start dropping insurance more and more letting workers get ‘dumped into the xchanges’. A few interesting things would happen:

1. Tax payments by employers would go up. Stop paying $6K a year for insurance and you loose all the tax benefits that come from employer provided coverage.
2. Individual takehome pay would go up. If you make $60K a year and your boss pays $6K for your insurance, you are going to demand $66K if your boss dumps the insurance. Ok maybe he won’t cave in and give you the $6K raise right away but over time he is going to have to share that savings with you.
3. More tax revenue means more money for subsidies, more take home pay means buying your own policy from an exchange is more afordable. More people buying insurance themselves rather than letting their boss do it from behind the veil of tax deductions presumably puts a lot more competition and price pressure on insurance companies.

91 Ted Craig December 29, 2014 at 3:11 pm

“but over time he is going to have to share that savings with you.”

He is?

92 Boonton December 29, 2014 at 3:49 pm

OK so today you are costing him $66K a year, $6K for insurance and $60K salary. So what’s stopping him from cutting $6K from payroll either by cutting your wages or cutting insurance? Presumably at $66K per year he finds what you do for him worth enough to justify paying that AND you feel that is enough compensation to keep doing what you do for him. If the insurance disappears you are at least $6K worse off now, why would he not feel pressure to offset that by increasing your take home pay accordingly? The worse that could happen for him is he increases your pay $6K and he is no worse than he was before.

On the other hand if he suspects you’d work for him for just $60K a year, and if he is right then your pay would have already been cut!

93 Ted Craig December 29, 2014 at 4:50 pm

I honestly do not believe most people think of it this way.

94 Boonton December 29, 2014 at 5:24 pm

Well in general it is common for people to get raises (even if they are small) and very common for people’s pay to stay the same but it is very rare for people to get straight out pay cuts (I’m talking here about the same job same employer). Instead of giving everyone a $6K paycut, many employers would rather lay off some portion of their workforce and be left with a reduced payroll of people grateful they weren’t hit rather than have the same payroll and everyone’s pissed at them.

95 Ted Craig December 29, 2014 at 6:03 pm

Nobody would stand for a pay cut. A compensation cut is a different matter. Look how much money people leave on the table each year by not taking all their vacation days.

96 Boonton December 29, 2014 at 6:16 pm

Leaving a vacation day on the table is not a compensation cut since you presumably could have enjoyed that day but choose not too. In terms of costs it really doesn’t make a difference. Your boss has to write the same check for your payroll every year whether you are utilizing or not utlizing your vacation days.

I think, though, you will find most employees would consider eliminating health benefits to be very much like a pay cut and as you say ‘nobody would stand for a pay cut’. A company that did eliminate health benefits would feel a lot of pressure from angry workers to do something to offset that.

97 chuck martel December 29, 2014 at 1:50 pm

Don’t forget that during the next year the pool of those made unemployable and homeless because they can’t pass a background check will continue to grow. Nobody will come off the list either. So a caste of American untouchables will become more and more of a factor in the social environment.

98 JonFraz December 29, 2014 at 2:23 pm

Who are these people? Former criminals? OK, maybe, but even some of those can find work. I know a guy now retiring from a municipal (and pensioned) handyman position who spent some years in prison due to marijuana trafficking in his youth. A record is not necessarily the kiss of death.

99 B.B. December 29, 2014 at 3:54 pm

Can we have a reality check on US GDP growth? Yes,it rose a revised 5.0% saar in Q3:2014, after 4.6% in Q2:2014.

No, the US is not booming at a 5% clip. Those two quarters were largely rebound from the extraordinary 2.1% decline in Q1.

Year to year, real GDP rose 2.7% in Q3, moderately above the “trend” of potential, which I think is 2.2%. (Gordon thinks the trend is lower.)

That is the pace I expect for next year, in the 2.5% to 3.0% range. That is a moderate gain and better than anything so far in the recovery. But it is not impressive. We have appeared to have lost some of our potential forever. The damage done.

Obama’s groupies are all excited about two strong quarters without putting the figures in context.

And the GDP growth since recession trough remains lower than compared to the same length of the previous recovery.

100 Pietrandrea Ventisei December 30, 2014 at 12:18 pm

The “big economic unknowns” are well known, The “Yes&No”s seem randomly picked up.

101 Boonton December 30, 2014 at 6:26 pm

Tyler in fact passed away several years ago. This blog has been maintained by a conspiracy of the publishing industry. In a secret underground lair a chimp ranomly selects pieces of paper from a giant jar of economics quotes, a run through MS-Word’s grammer checker and you have blog posts in a few minutes. The goal of this is a ten year experiment to see if real life authors can be replaced by random text generators thereby saving the publishing industry millions in royalities.

102 ben December 30, 2014 at 9:46 pm

The American terrorist act in the middle east idea is oddly specific. Where does that idea come from? And why? And why now, not, say, 13 years ago? Individual americans have a lot to lose from conducting terrorism, given high incomes and rule of law.

103 Anon December 31, 2014 at 8:28 pm

Does American terrorist imply – a terrorist with American citizenship who joins some radical group (likely) or a terrorist on behalf of America (unlikely). Someone with an A passport fighting for ISIS doesn’t really seem to me to be an American terrorist, now if we could get Timothy McVeigh (redux) over to Syria he would be an American terrorist, although if such a person existed I think he would be plotting an attack on Dearborn.

104 Alec Yu January 7, 2015 at 5:48 am

In historic statistical data, one reason to have a wage stagnation when gdp is growing, is for wage to grow in industrials hiring less people and wage to decline in industrials hiring more people, so that the average wage looks like in a stagnation. I think it occurs with Taiwan after examined the historical data of total employee compensation per industrial in the factors of domestic production and the number of employees per industrial.

In this way, when the wage is determined by price of labor market, if more and more people compete for jobs in an industrial offering a total employee compensation not growing as fast as the number of employees in the industrial is, the average wage in the industrial declines. If the total compensation grows faster than the employee number in some other industrial, the average wage in that industrial grows.

Does it make sense for employers in an industrial that has the compensation growing faster than the employee number to pay also compensation to people who are not hired by them? Traditionally, it does not.

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