What to watch for in 2017

1. Iran’s presidential race in May.  Iran does run real elections — sort of — but will Rouhani survive?  Or will the hardliners ascend again?  How much is Rouhani a hardliner anyway?  Stay tuned.  I’ll just note a theorem in the margins here: the greater the unpredictability of the American president, the more the identities and decisions of the other world leaders matter.  According to Wikipedia, the only announced reformist candidate is a blogger (not a good sign for him or them).


2. How Nigeria copes with its recession.  This is the one country in sub-Saharan Africa that has the size and talent to make a significant commercial breakthrough.  Now that oil prices are back up a bit, can they dismantle their counterproductive exchange and capital controls, boost FDI, and get to four to six percent growth?  Or will they wallow in the range of one to two percent, which hardly means anything in light of Nigeria’s rising population?

3. Whether the Democratic Republic of the Congo remains stable. Joseph Kabila is staying past the end of his second presidential term.  Will this lead to renewed instability and conflict, beyond what is already the case?  “Africa’s World War” ended in 2003, not long ago, and it is not impossible to imagine it resuming.

4. African fertility ratesThey’re high.  In most other parts of the world, including Latin America and the Middle East, fertility has fallen much faster than most commentators had expected.  That is not yet the case for Africa, but will it be?

5. Modi’s India and where it it headed: Maybe the demonetisation was an unforced error, but it seems increasingly likely it was part of a broader strategy to push India into a semi-cashless, biometrically marked, income tax-paying society.  I’ll be curious to see how that goes.

6. Economic growth in Pakistan and Bangladesh.  Pakistan grew 4.7 percent last year and Bangladesh has averaged about six percent for the last decade.  Is all that (relative) good news going to continue?  If so, the world will be in much better shape than otherwise.

7. Will Xi Jinping overturn Chinese political conventions?  His term is supposed to end in 2022, but for a while he has been sending signals he might try to stay on as leader for much longer.  That could bring a new round of political instability to the Middle Kingdom.  Or a new round of stability.  Depending how you look at it.

8. Chinese capital flight and the currency peg.  This one seems to be heating to a boil.  Capital flight continues to rise, using every technique known to mankind including Bitcoin and e-purchases of Singaporean gambling tokens.  The government says that the sporadic reports of USD trades at 7-1 are nonsense, so they must be right.  When will it snap?  And when it does, will it be a non-event or a big deal?

9. American institutions: Will the United States Congress and courts continue to secure some version of rule of law in this country?  And will we agree on what that means?

10. What is the Latin American middle class good for?  Many Latin economies now have built a reasonably-sized middle class, but commodity prices are not in general favoring those economies.  Will those middle classes push their countries into better policies and educational systems?  Slowly but surely, I believe the answer is yes.

There is a chance the French or German elections make this list, but right now the best forecasts are for “business as usual” in both cases.  Brexit will continue to torture us with its drawn-out agony.  And remember — your emotional guide as to what is an important issue often reflects your own selfish concerns about the status of you and your preferred groups.  Do keep that in mind throughout this year.

If you’re looking for a few sleeper issues, I’ll cite Russia-Israel tensions over control of Middle Eastern airspace, economic and institutional recovery in Ukraine combined with sabotage potential from you-know-where, the political economy and geopolitics of aging in Japan, the rise of a Trump-like populist in Mexico, and the potential failure of the Saudi reform process as a few more to keep your eye on.  Climate change and the destroyed parts of the Middle East bear watching too, along with ongoing collapse in Yemen, for water supplies too.


Will the US switch from a policy combination of tight fiscal policy and easy money to one of tight money and easy fiscal policy?

I get your drift, but not sure adding almost $1 T to the federal public debt in the last 12 months qualifies as 'tight fiscal policy'.

More interesting: will the media 'all of a sudden' get interested in deficits?

Paul Krugman, after encouraging HRC to do massive fiscal stimulus for a long time, already has! :-)

It's not necessarily inconsistent per se.

For example, one might oppose deficits which primarily fatten the bank accounts of billionaires and other investors who regardless have few profitable plans on the horizon (and so it will probably not stimulate additional activity).

At the same time as worrying about the sustainability of debt which finances the fattening of billionaire bank accounts, one might adopt a position of being OK with deficits associated with increasing human and/or physical capital in the economy which contribute directly to productive potential.

(P.S. - a balanced budget in growth times of the business cycle is equal to a structural deficit.)

Equally interesting: will Team Red 'all of a sudden' stop caring about deficits?

Well after all the growth that Bush's deficit-fuelled tax reductions caused, it seems we have a pretty close analogue for the expected result.

Any guesses on whether the same results of asset inflation (facilitated by explicit efforts to promote housing ownership) followed by a popped bubble and major financial crisis will follow the strategy this time around as well?

Will Republicans decide again deficits don't matter?

That is the result of free lunch economics by conservatives based on treating everything as having very high elasticity for every quantity.

The Laffer curve is an elasticity curve.

The constant claim of conservatives is every cut in price results in far greater increases in quantity.

Thus if taxes are 90%, cutting the rate to 70% will increase quantity by 50% so revenue increases.

But likewise, of the rate is 9%, cutting to7%, will also in crease quantity by 50%, so revenue increases.

Cut food prices by 20%, quantity will increase 30% generating more profit, thus lots of focus on cutting labor costs creating more poverty. Which is then fixed, not by requiring higher wages, but by welfare disguised as tax cuts: EITC.

In 1960, minimum wage workers paid income taxes. Today low wage workers pay no income taxes even at the real 1960 minimum wage which is higher than today's minimum.

The first actions of Republicans in 2001 was to cut taxes to boost gdp growth rates. Those tax cuts were not rolled back by Obama and high income people got a 10% bigger tax bill at best in 2010, so the 21st is a low tax experiment which has failed to boost gdp growth as high as the 60s when tax rates were over 50% for many decision makers.

The thing is, there were and still are the tax dodge of paying workers more. High tax rates means paying more workers costs less out of pocket.

Today, with low tax rates, paying more workers comes almost entirely out of your pocket because the IRS won't "pay" half the wages.

But likewise, of the rate is 9%, cutting to7%, will also in crease quantity by 50%, so revenue increases.

I know this is a forlorn waste of time, but if you do not understand something this badly, you probably should not comment on it.

Today, with low tax rates, paying more workers comes almost entirely out of your pocket because the IRS won’t “pay” half the wages.


That already happened in 2013.

8. If Chinese capital flows slow down significantly, Canadian banks fail. Where else is vulnerable?

I think this year is going to be about hedging for the new world. Not that Trump is going to bring anything about, it is simply reality that will intrude, and the smart people will make sure they aren't vulnerable. Every economic vulnerability that the US has will be pushed and probed. After Obama the US has no friends.

Sorry, I meant to respond to your comment on #5. I'll re-post on that thread.

I read that half of the Chinese upper middle class wants to get their children (and presumably their money) out of China.

We are probably facing a long period of capital flight from China.

It might affect the timing of the housing bust, but could hardly be the cause of conditions which enable it to happen.

But if you compare the new housing starts with incoming populations, that bust might just not come for a long time.

No derek, after 2003 and the Iraq invasion the US has had no friends

Coalition of the willing!

5. It's quite funny. China exploded into economic activity and growth when they simply let go. India is tied up in knots with a socialist constitution and an extraordinarily corrupt and intrusive bureaucracy, and Modi figures that he needs to tighten up to awaken the economic prowess of the country. MOAR TAXES!

Oh well. Has anyone estimated the Indian GDP in country vs the Indian expat GDP?

Wrong. China has done a harsh crackdown on non politically favoured forms of corruption.

Now. But 15 years ago it was letting go.

India's taxes are pretty low compared to international norms when you look at how much is actually collected. What negative will result from actually collecting them? Smart Indians flee abroad not because of taxes but because of corruption, inability to compete with corrupt insiders.

So the corrupt insiders should have more money? More power?

The cost of government in all it's guises is the tax rate. Regulation adds costs to doing business even in a low tax jurisdiction; so does corruption.

This is a hard problem, and India has lagged China in growth as a result. Modi was trying to bypass the local corrupt bureaucrats, but who in their right mind would create bank runs to solve anything? I suspect that many of these local functionaries have seen an opportunity to garner local public support by fighting against the central government, entrenching even deeper the dysfunction.

Taxes is how you get growth, man! Don't you read your Krugman (PBUH)? When you tax the rich and spend on social programs, this money automatically recirculates into the economy, doubling or even tripling its effect! By this measure, all taxes should be at 100%, and all citizens should be kept below the poverty line, so they are incentivized to immediately spend any money they get. This is how you power a permanent growth engine.

The big issue here isn't raising taxes, urea combating corruption. When people hide money, it's not just to hide it from the tax man, it's also because the money might be stolen.

Let me spell it out.

Even the most committed free marketer will recognize that India has woeful infrastructure and the state of essential services to citizens (including education) is pitiable. However friendly to business and entrepreneurship India becomes (and I hope it becomes very), only government will ever have the will and wherewithal to provide these services. To provide for such services, the government needs revenue, and in a country the size of India, lots of it. Tariffs revenues have a natural (and very low) ceiling in a country like India that is not the most attractive investment destination, so the bulk of such revenue will have to come from taxes. And in India today, very little tax gets paid, thereby creating the black economy. This cycle has to get broken somewhere, and the government in its wisdom decided to break it at this link.

I am willing to be corrected on this, but I suspect the Chinese government has never had so much difficulty in extracting taxes as the Indian government has.

You are making the same mistake as Modi. If we break the black market cycle, we can fix the problems.

The black market cycle is a result of government policies and structures. It is a response to socialist government structures which always result in accumulation of power and riches in the hands of the least constrained. People are already paying dearly for the government they have; the problem is that they get next to nothing in return, or worse.

This policy is akin to Prohibition. Stupid short sighted people thinking that by edict they can structure a society differently.

Again, who in their right mind would engineer massive bank runs to implement a policy, and who in their right mind would think that was a good idea?

I don't think city-level industrial specialization is "letting go" (the township and village enterprises weren't "free enterprise" in the normal sense, no matter that they were highly geared towards achieving market success).

For example, an entire city of a million people specialized in ceramics, which make it possible to buy plates for a dollar a piece.

However, around the same time, there was the origin of the "household responsibility system", which was a major shift from the "iron rice bowl" approach.

You are not aware of clustering in the free market?????!!!!

Look st high point NC or regions that make socks in Alabama or glass product in buffalo or tires in Ohio or cars in Detroit.

At least it is highly reflective of his own selfish concerns about his own and preferred groups status.

2. All the Nigerians need is a committee of US economics school grads in a room down the hall from the president's office and everything will be great.

4. Give every African family a large flat-panel TV and cable access and the reproductive rate will take a nose dive.

6. All Bangladesh needs is a jump start to its tourist industry to get to the next level. Maybe a new Guggenheim museum in Chittagong would do it.

8. The state-sponsored capitalists of China aren't any different than any other capitalists. They want to keep what they've somehow managed to accrue.

8. it is the magnitude that is staggering. Balding figures it is somewhere around the size of the Chinese trade surplus. And it isn't necessarily what they accrued. The Chinese government sued someone in BC for unpaid loans when they borrowed money (which is being shovelled out the door by government policy) from a chinese bank and took it out of the country to buy property in Vancouver.

According to most economists, capital flight from China would thus be a good thing, since so much of it is being invested in primo real estate like Vancouver, boosting the "value" of it. We all know that the higher the price of property, the better it is for the economy and mankind in general. The Chinese need to do something with their wealth, what could be better than enriching Canadian landowners? After all, they can't tow Victoria Island back across the Pacific. Japanese interests bought much of Hawaii, to the dismay of everyone but the sellers, back in the '80s but the islands are still there.

Sure. I am taking their money as we speak.

I've started asking anyone in the housing industry how many people are paying their mortgages with equity loans. The response has been rather interesting. It is one thing to be the beneficiary of vast amounts of money flooding into your economy, it is another thing to borrow against it expecting it to continue for the 40 year mortgage term.

No one learned anything from 2008.

"Balding figures it is somewhere around the size of the Chinese trade surplus"

Of course it is. The trade surplus has to equal the capital account deficit. Right now capital flight in all its forms is a big part of the capital account.

Hola? Venezuela?

Who cares but the Venezuelans?

My boss is a Venezuelan. I like him.

"real elections — sort of "

There is no "sort of" allowed. Its like pregnancy, either the elections are real or not.

Iran has Potemkin elections. Better optics than most such shams [no 99% for the winner] but a sham nonetheless.

Rouhani is just playing the Good Cop to the "hardliners" Bad Cop in any event so his survival is meaningless.

"Its like pregnancy, either the elections are real or not."

-Not the case. There are degrees of reality. Was the 1796 election "real or not"?

What was wrong with the 1796 election, US I presume?

Limited franchise, various methods used, state legislatures involved in some states, popular vote in others, unbound electors deciding outcome.

Trump-like populist in Mexico? His name is Vicente Fox and he was president from 2000 to 2006.

Sorry, but Vicente Fox has very little in common with Trump, other than a business background. By the time he was elected he had been a a Federal Representative and a successful state governor. Fox is a instinctive conservative with no taste for challenging the existing order and his administration reflected that it was basically a continuation of the previous two regimes in bringing more market oriented policies, but with less of the crooks hat had plagued those administrations.

The one thing that Fox did that could be considered Trumpesque, was that during the campaign he called his rival all sorts of names including "chaparrito" (shorty), "mariquita" (sissy) and "mandilon" (hen-pecked husband). But once elected he did put an end to insulting or divisive comments.

9. Trump Derangement Syndrome needs a psychiatrist, not a lawyer like me, to write a response.

I have not noticed the courts bending knee to Trump, but "derangement" as a catch all ward against daily incompetence is already old.

Trump issues a strange, tweetlike, official statement without any subject .. cry derangement, and as Trump says "move on."

The full statement, that is full and complete, with no missing words or paragraphs:

"It’s time for our country to move on to bigger and better things. Nevertheless, in the interest of our country and its great people, I will meet with leaders of the intelligence community next week in order to be updated on the facts of this situation."

Which situation, Don?

I dunno, what is (or was) moveon.org moving on from? Shouldn't it have had a more explicit name and slogan?

"Moveon" was never President, but I think they actually knew how to write better statements, with a subject, introduction, background information, working logic, and conclusion.

Basic communication skills are IMHO, part of being a competent President.

Derangement means obsessing over everything Trump does, says or tweets. Or, if you prefer, assuming that the world is coming to and end because Trump was elected.

You seem to be saying "don't worry, anyone can be President, and nothing he says matters." We will test your theory.

NO im saying that nothing he says matters, what im saying is that not everything he says is worth spazzing out over. In a month no one will remember this tweet.

That is not a tweet. That is a full and complete letter head communication.


Not everything he says is worth spazzing out over. In a month no one will remember this full and complete letter head communication.


Im glad there is someone on twitter that agrees with you.


Truly a President for our time.

Maybe he is referring to Carrier, and dealmaking over law?

"Will the United States Congress and courts continue to secure some version of rule of law in this country?"

"Trump as dictator" is already tiresome and he has not even taken office.

Obama is rushing thru all sorts of midnight regulations and land seizures [pardon, monument designations and drilling bans] and trying to control future policy towards Russia and Israel. So Trump may be an improvement in the rule of law business.

It's always comical when the Professor does political analysis.

Not the professor, the Bloomberg commentator. The ex mayor is angry and he has his staff writing insane articles about trump 24/7.

Hopefully, the government will 'investigate' they ex mayor's business and 'tax' them appropriately.

Anyway, yes, the TDS is getting tiresome.

The established pattern is for everyone to run from Trump's actions, to offer no defense, and to cry derangement anyway.

How long do you think that can hold?

What you think of a President "nevertheless," grudgingly, agreeing to meet, in a week, with his own intelligence services?

I think George Bush should have met with his intelligence services a little less often. The less he met with them, the more he would have known about Iraq.

Did you miss the links on that one? It is understood from postmortems, in the Congressional Record, that Bush bypassed intelligence services that did not give him the answers he wanted. They were not sure about the WMDs.


The supreme irony here is that Trump, knowing that or not, uses this to repeat the pattern of avoiding intelligence, and you parrot that line.

I think that's good. Better yet if he disbanded them entirely, but you know people would freak out. The CIA has been responsible for a hugely disproportionate amount of the world's woes for many decades.

But think of all the major world events they saw coming in advance, like, say, uh, i dont know. Ill think of something.

I would love for you guys to point me to any old comment where you said, before 2016, disband the intelligence services.

That is, if you can show me that you have not gained a "situational belief."

I dont post much so you will have to take my word for it, the CIA is not the most effective intellgence agency in the world. Im not saying we should disband them, but lets not pretend they are some kind of unfallable oracle either

I have said for years that the US does need a professional and competent intelligence agency, but instead we have the CIA.

The covert op part has done some good work [though inconsistently--see Castro plots] but the analysis divisions have been wrong nearly all the time over the decades. [Look at their economic forecasts for the Soviet Union over the years if you like mediocre fantasy fiction.] Its too bureaucratic and too large frankly.

We have 16! different intelligence agencies in the formal "Intelligence Community" not to mention groups like the Special Operations Command and NCIS which perform some intelligence or counter-terrorism functions. We have both a National Security Council staff and a Office of Director of National Intelligence to filter and co-ordinate intelligence advice to the president. Meeting with the Intelligence Community would be a full time job for a president so they write up "presidential daily briefings" and "National Intelligence Estimates" which are like horses designed by a committee.

We have 16! different intelligence agencies in the formal “Intelligence Community” not to mention groups like the Special Operations Command and NCIS which perform some intelligence or counter-terrorism functions. We have both a National Security Council staff and a Office of Director of National Intelligence to filter and co-ordinate intelligence advice to the president. Meeting with the Intelligence Community would be a full time job for a president so they write up “presidential daily briefings” and “National Intelligence Estimates” which are like horses designed by a committee.

Waal, which of the 16 agencies would you like to dissolve? Who would perform those functions?

Your "pardon" is actually the difference between rule of law, and none.

Monument designations and drilling bans are legal.

Do you think the law as the same as tyranny already? Arbitrary? Oh oh, you are building Tyler's case.

Im sure you will feel the same way when Trump does it.

I never claimed that GWB's actions were illegal, just that I didn't like them.

I understand the difference.

As for Obama's liberal barrage as the clock strikes midnight, Trump should issue a tweet saying: "No fears, the 20th is fast approaching. None of these orders will be around on the 21st."

You missed the Dutch elections in March. Wilders could turn out to be the wild (sorry) card in the survival of the Eurozone/EU.

Belongs to the "business as usual" category.

Check out Wilders pic. This guy is by no means "business as usual"

I was referring to the elections of course. The center parties will form the government as they will in Germany/France. Wilders' hair is of no particular interest to me.

Are you a betting man?
You seem to have such overwhelming confidence in the ability of the center to hold. Will you offer me odds against Wilders being the next Dutch PM?
I fancy my luck.

That's what Dutch people look like.

#9 : "Will the United States Congress and courts continue to secure some version of rule of law in this country? And will we agree on what that means? "

Wow ... what lurks behind those loaded questions?

Our Congress/Courts are dysfunctional and grossly unreliable. Yes, we're getting "some version of rule of law" -- but that's true of every government in history. We would kinda prefer honest, productive, non-intrusive and just government here, but it is no where to be found in the U.S.

And forget all that contrived worry about the politics of nations in distant continents-- we have plenty of huge problems at home to solve.

In 2017, I'm watching for: lower capital gains, corporate and personal income tax rates; fewer regulations; repatriation (no taxation) of foreign profits dollars; higher interest rates; shrinking Fed balance sheet; 4% real GDP growth; cancellation of a raft of unconstitutional executive orders; Federal and Supreme Court nominees that will make rulings based on the Constitution/its contents rather than some ideological superstition or something some what French court did; etc.

Then, in 2018, the GOP will add to its majorities in the Congress and state house.

In 2020, President Trump carries all 57 states (Obama's count).

Its you-Turd Blossom!

You seem to miss the most obvious question in 2017. How does Donald Trump govern? Really, Andrew Kaczynski is right that he changed position a bunch in the campaign, made lots of promises and yet very little was consistent. (Monitor his positions on immigration from October 2015 to today.) Does pursue lots of small endeavors (say Carrirer) on twitter and takes lots of credit for it? The country economy is in the best shape since 2004 so Ross Douthat is probably right this would be the best avenue. Or does pursue big changes? Medicare, quick repeal of Obamacare, China hawk, any military endeavor in the Middle East? Note Trump could impact the Iranian election with heavy 'trolling' against the deal.

Don't forget India's demonetisation is forcing capital to Bitcoin also, with the new Bitcoin.com mining pool reporting the largest growth from India.

"Economic and institutional recovery in Ukraine combined with sabotage potential from you-know-where."

Let me guess from where. From the Ukrainian oligarchs (including the president) who are busy stealing whatever is not nailed down? From ultra-nationalist thugs who terrorize the streets, murder opponents, and burn TV studios? From Eurocrats who caused Ukrainian government to sign bait-and-switch deals on Euro "association"? From crazed NATO neocons who are ready to fight Donbass until the last Ukrainian?

No, of course not. It can only be eeevil Poootin.

+1. Exactly my thoughts.

We seem to be missing some of the usual suspects. Don't most new presidents get handed a foreign policy crisis almost immediately? I wouldn't be surprised if Russia, China, or someone in the Middle East decides to test no-briefings Trump. I'm not optimistic about the results.

#1. Egad, it's as if January 2009 never happened. There is no, none, zero democracy in Iran, or in its Lebanon, Syria, Yemen or Iraqi colonial enclaves. Khameni's picture hangs in all those places.

considering our entire economic pundit class seems to be echoing the same thought vis-a-vis chinese economics and politics, isn't that itself a sign that this is probably overblown? when was the last time these people were right on something like this

Interested in why Nigeria is the one country that can have a commercial break through in Africa. I've been several times and find the people fantastic but institutions dysfunctional. In the tech space, there have been a few innovations but impact is nearly always outside of Nigeria. Internal focus is mainly copying existing products found elsewhere around the world with a small tweak for Nigeria and with limited local impact. Education is a disaster. Energy is a disaster. Is it purely the size of the population that makes it so attractive? Why is Nigeria so much better than other countries in Africa like South Africa or Kenya for commercial break throughs?

#9 "... continue...rule of law..."

Lol! Surely you are joking Mr. Cowen! Yeah, the IRS will selectively review applications for left-wing NHOs, the EPA will dump heavy metals into a river on a massive scale and no one pays, everyone in the cabinet, heck every federal employee , gets their own bathroom email server and phony email account and freedom from Freedom of Information Act (a law) requests because we are a freedom loving people. Also, the POTUS gets to choose drone targets ( does extra legal mean more legal) at will as long as they are outside the US. The POTUS can decide to not deport any Slovenian models or Elbonian coders without Congressional involvement because that Constitution is actually living and those words don't mean what they meant when they were written. Oh yeah, we can have all the rule of law we've had for the last 8 years!

Slovenian women are kinda hot so that one is ok, maybe that east meets west thing is good for the jeans ( jeanetics?).

The Elbonian coders gotta go - they are driving down wages in the SW industry, elbowing their way up to the table.

China weakened its currency basket at the end of the year (blatant currency manipulation if anyone wants to charge them), it will weaken faster in 2017. In 2016, the yuan tracked with the euro. If you believe the upside targets for the U.S. Dollar Index (or Deutsche Bank's analysis of the currency effects of a full Trump economic policy package), then the target for yuan based on the 2016 basket is below 8 at the dollar peak (which might be in 2018/19 based on historic cycles). It's fair to say depreciation expectations haven't even really set in yet. Outflows have been driven by portfolio diversification and demand for foreign assets (which were very hard to buy only a few years ago).

Comments for this post are closed