Twelve Lessons for 2015

Jan 3, 2015 by

To all the regular (and irregular) readers of this column, and best wishes for 2015. In lieu of a list of predictions, try here are twelve geoeconomic and geopolitical lessons that we learned in 2014, and that will shape the new year. Some of the lessons are real: others are likely to prove illusory. Which are which? I’ll offer my own guesses at the end

1. The American economic model is back. Repent, all ye declinists and secular stagnationists: the U.S. economy is growing at an annual rate of more than four per cent, leaving other advanced economies, and also many developing ones, in its wake. Hiring is accelerating, corporate capital spending is rising, and the long-awaited escape velocity required to emerge from recession has been achieved. Although productivity and wage growth have been disappointing, these indicators may pick up in 2015, as the unemployment rate falls toward five per cent.

2. Monetary policy works. If a central bank keeps the cost of lending low enough, for long enough, a depressed capitalist economy will eventually regain its strength—especially if the authorities supplement rock-bottom interest rates with direct injections of money into the financial markets via quantitative easing. Several years ago, this would have been a controversial claim. Even today, some economists dispute it. But the Bernanke-Yellen recovery in the United States, which has already lasted five and a half years, has surely settled the issue.

3. The markets aren’t experiencing a bubble. On March 9, 2009, the Dow closed at 6,547.05. It closed out 2014 at 17,983.07. The market has risen for six years in a row, and there hasn’t been a significant correction (a fall of at least ten per cent) in more than three years. On the Nasdaq, technology I.P.O.s are coming thick and fast following the September début of Alibaba, which was the biggest Internet I.P.O. yet. However, this doesn’t all amount to a bubble. Many of the newcomers generate real profits, and, on the broader market, share prices relative to earnings are much lower than they were in the late nineties.

4. Cheap gasoline is here to stay. Thanks to the shale-oil boom, the days when oil traded at a hundred dollars a barrel are gone for good. OPEC can no longer control the output of its own members, let alone that of other big producers, such as the United States and Brazil. By the time the cartel regains the power to control the world’s oil supply and set prices, technological changes, such as the development of electric cars, may well have fatally undermined its power. The age of OPEC is at an end.

5. The European Union remains a tragedy in the making. Thanks to an outmoded rulebook and a lack of leadership, about all that stands between the nineteen-member currency zone and ruin is Mario Draghi, the president of the European Central Bank. But with Greece once again in crisis and the German government seemingly determined to prevent Draghi from following the example of the Federal Reserve and start buying government bonds in large quantities, it’s far from clear that the urbane Italian will be able to save the euro zone. The optimistic scenario is for continued stagnation and another lost half decade; a disorderly breakup remains a serious possibility.

6. Abenomics is a bust. Despite the reëlection last month of Shinzo Abe, the reformist Prime Minister, Japan’s bold experiment in Keynesian economics has failed to halt two decades of economic stagnation. Abe has already fired two of the three arrows in his quiver: a fiscal stimulus and large-scale monetary expansion. The third element of his policy strategy, structural reform of Japan’s moribund economy, remains an aspiration rather than a reality. While Abe’s decision to postpone another increase in the national sales tax may enable G.D.P. growth to pick up a bit—the first increase, last spring, knocked the economy back into recession—hopes of a U.S.-style rebound are fast dissipating.

7. Russia is Saudi Arabia with nukes and snow. The imposition of Western sanctions, which followed Vladimir Putin’s annexation of Crimea, hobbled the Russian economy, which had previously enjoyed a decade of strong growth. But it was the collapse in the oil price that illuminated Moscow’s real weakness. For all his bluster, Putin still presides over an economy that is dangerously dependent on oil and other commodities. Talk of diversifying into manufacturing and services proved to be just that. Now that the commodity boom has turned into a bust, the Russian economy is heading for a deep recession, or, possibly, a depression.

8. Multilateralism can still be effective. In Iraq and Syria, Americans, Iranians, and personnel from many other countries are coöperating in a military campaign that has arrested the advance of the Islamic State in Iraq and al-Sham (ISIS). This year, at some point, the allies will probably go on the attack, in support of a counter-offensive by the forces of the Iraqi government and the Kurds. In West Africa, meanwhile, a long overdue international effort to tackle the Ebola outbreak is having some success. According to the latest update from the Word Health Organization, incidences of the disease are declining in Liberia and Sierra Leone. And Western countries, the United States included, have so far experienced only isolated cases, despite shunning the draconian measures favored by some politicians.

9. In the general election slated for May in Britain, the anti-immigrant United Kingdom Independence Party (UKIP) will inadvertently enable the opposition Labour Party to regain power. Under the leadership of Nigel Farage, a privately educated former commodities trader who portrays himself as a beer-supping everyman, UKIP is taking votes from both major parties. But the Conservative Party, which, with its junior coalition partner, the Liberal Democrats, currently holds power, stands to lose the most from a right-wing populist revolt. And that will allow Ed Miliband, Labour’s low-key and lowly rated leader, to become the head of the largest party in the House of Commons, and to replace David Cameron at 10 Downing Street.

10. The G.O.P. is ascendant. In politics, demography may well be destiny, but the Republican Party, which, only a couple of years ago, was being written off as too white, too reactionary, and too old, is defying reports of its imminent demise. Following November’s midterm elections, the Republicans control both houses of Congress, thirty-one governors’ mansions (including those in Maryland and Massachusetts), and sixty-seven of ninety-eight state legislative chambers (a record). And although the G.O.P. still faces a formidable task in winning the Presidency in 2016, when high turnout will favor the Democrats, the Republican candidate Democrats fear most, Jeb Bush, has already all but entered the race.

11. Obamacare is working. This time last year, the federal health-care exchange was busted, and gloom surrounded the long-awaited rollout of federally subsidized private health care. Today, things look very different. According to the latest official figures, about 6.7 million people had signed up for new plans by the middle of October, which is pretty close to the Obama Administration’s target figure. The proportion of Americans who are uninsured has fallen sharply—by close to five percentage points, according to Gallup. Meanwhile, predictions that the Affordable Care Act would destroy jobs and/or bankrupt the federal budget have proved to be off the mark.

12. President Obama is far from a lame duck. After being humiliated in November’s elections, he exploited the power of the Oval Office to introduce his own version of immigration reform, to reach an unexpected climate-change agreement with the Chinese, and to take a big step toward the normalization of relations between the United States and Cuba. In his year-end press conference, he promised more of the same in 2015. Doubtless, he will spend a lot of time tussling with the Republicans and vetoing some of their loonier pieces of legislation. But the fact that the Republicans know that he is willing and able to defy them will strengthen his bargaining position and enable him to push through one or two of his own legislative priorities.

How many of these lessons are accurate? My guess is about half. I have a lot of trouble believing the ones about the stock markets, the price of oil, Abenomics, and the rise of Labour in the U.K. I’m also skeptical about the decline of the euro zone and the strength of the G.O.P. Despite all the euro zone’s problems, I think the political will is there to safeguard its survival. As for the Republicans’ prospects: never underestimate their capacity to mess up a promising situation.

1 Comment

  1. Brett Courtenay

    Well written and well said, I think your own views on some of the “Truisms” being proffered for 2015 are
    healthily skeptical as should they be.Complacency is our dangerous “preferred cop out” at the best of times and for most , these are not nor has there ever been the best of times.

    Which in itself , presents us with greater problems that 2015 will only lay bare more so, for those who care to look, versus those that look because they care.

    Inequality and Climate Change I see are not mentioned above., which is interesting as both have become even more pressing/evident in 2014 and sure to be even more so in 2015.

    I find it hard to hear about The American Economic model being back…as it has not created wealth and prosperity for MOST Americans these last 25 years and by all accounts and measures , any Economic Improvements are only benefiting a tiny elite group of super Rich.

    I will leave you with one last dose of Realist Skepticism…Given the Dire state of economic Inequality, a “booming” Economy where nobody but uber rich are making money, and the rights , benefits of most in the U.S are dropping as the influence, control and power of the few is becoming not only more obvious , but written into law, whilst the Government spies on everyone and torture is given impunity, Wall street rolling back controls and Politicians allowing greater influence peddling…Its interesting that apart from the Booming Economy and GOP dominance, nothing and no issues are resonating about the “State of the Union” (PARLOUS…WITH LITTLE UNITY) which I guess goes to show , the direction we are expected to look, which is away from anything that may be of concern to Americans but somehow isn’t , so good a white wash job done against so many of them, not to mention the growing fear and distrust held by each to the other.

    But there is the beacon of light that is Obama-care and perhaps in 10 years the coverage, inclusion and safety-nets for Americans will match those of the 1970’s or earlier, met by Australia, Most of Europe and Canada.

    Whatever the trends, outcomes, realities and consequences that occur and resonate through 2015, I truly hope they are as best as could be and an improvement to all of us than previous and trend ever forward to ALL our benefit.

    Happy New Year to one and All.

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