Closer To The Ideal

Rich and Happy has some predictions for 2009.  I’ve some predictions too, which I will record here. I put these things down in writing, mostly for myself. I’d like to be able to look back, years from now, and see what I believed at the end of 2008. It will be interesting to learn what I am wrong about. I am certain that by 2019 some of these predictions will seem embarrassing.

At some point (and I wish I could find the quote), Joseph Schumpeter said that people tend to view the early phase of a depression as a temporary blip, yet by the end of the depression people’s views have changed dramatically. What had been the fastest growing city is now among the slowest growing cities. What had been the most profitable industry is now the industry trying to recover from a glut of over-supply. Embryonic industries that had been growing rapidly in a small niche finally burst upon the main scene with a vigor that takes everyone by surprise. Regions and countries are surprised to realize that they have passed through an inflection point and cannot continue doing what they did before. Recall the universal surprise when the unstoppable Japanese economy of the 1980s became the no-growth economy of the 1990s. I think culture, religion, entertainment and politics are also transformed by depressions, in keeping with Schumpeter’s line “The social process is really one indivisible whole.” Yet out of that mix, he said, an economist must pluck certain phenomena and call them “economic”, and I will do the same here.

Predictions:

1.) At some point in the next 10 years, China will see enormous civil unrest. Every advanced economy on Earth has adopted some kind of free-speech-plus-elections model as the main method through which different factions work out their antagonism toward each other. If one industry is in decline, and another rising, the shift in power can either be registered at the polls, or it can be registered through violence. There is no third way. If factions need to turn to violence to work out their differences, then economic growth will slow.

2.) At some point in the next 15 years, India will replace China as the fastest growing large nation on Earth. India already has in place most of the civil rights that are necessary for sustained economic growth.

3.) In the USA, new jobless claims will reach a peak in the 3rd quarter of 2009. Unemployment will remain above 7% till 2011.

4.) During the period 2009 to 2014 the dollar will fall in value, relative to other currencies. The dollar fell from 2005 to 2008. It was heading toward a sustainable market level. The financial crisis drove the dollar back up because traders had made enormous bets denominated in dollars, and they had to buy dollars to unwind those positions. When the unwinding is finished (that is, when the financial crisis is finished) the dollar will return to the 2005-2008 trend. But the true value of the dollar is lower than even its lowest value of 2008. America, after all, now has both a huge trade deficit and a huge external debt.

5.) A falling dollar will help exporters. Exports will be one of the main sources of growth in 2010 and 2011. Exports will help end the depression.

6.) Private, foreign investment in America has stopped cold, but will resume when the dollar falls in 2010. After that, for 5 or 6 years, private foreign non-financial investment will be at an all time peak. Foreign investment in purely financial vehicles will be muted compared to the past.

7.) At the beginning of 2013, the Dow Jones Average will still be beneath 11,500. For the last 30 years, foreign money has been a factor in the upward trend of the market, but foreign money will be averse to re-entering the market when the dollar is perceived as needing to adjust downward. Also, the Obama administration will push through new regulations aimed toward reigning in financial speculation of all kinds, so the kind of leverage that was common during the last 30 years will be very slow to return. (I say this assuming that the USA won’t engage in deliberate high inflation, though deliberate high inflation is a viable solution that some liberal economists are thinking about. I think it is possible, but unlikely, that the Obama administration will follow this path.)

8.) During the period 2009 to 2019 we will not see 12 consecutive months where oil is above an inflation adjusted $150 a barrel. I have friends who think that oil supplies will soon run out and therefore, because oil is so important, the price of oil is going to skyrocket. I think the experience of 2008 offers a different model – oil is so important that the world economy can not grow when oil is expensive. Therefore, whenever oil gets expensive, the world economy will lapse into a recession, and the recession will bring down the price of oil.

9.) Conversely, from 2009 to 2019, any time America sees more than 4% annual real growth, oil will rise above an inflation adjusted $100 a barrel. I have friends who, earlier this year, believed that the era of cheap oil was over. I believe in something slightly different – the era of cheap oil during an economic boom is over. From now on, in the USA, we will only see cheap oil during economic slow downs.

10.) During the period 2009 to 2019 the medical industry will make slow, incremental progress toward understanding cancer. There will be no major breakthroughs during this period, though the possibility of a major breakthrough may come into view by the end of this period. When I say “major breakthroughs” I’m thinking especially of a silver-bullet, that is, a single process or drug that works against all types of cancer. I do expect to see more drugs like Herceptin that are useful against a particular type of cancer (thus, “incremental progress”). Is a single, silver-bullet type of treatment against all types of cancer even possible? By 2019 we should know whether cell processes (such as those activated by sirtuins) will allow for this approach.

11.) During the period 2009 to 2019 we are due for the emergence of new, deadly epidemic. Like the Pandemic of 1918 or the AIDs epidemic of the last 30 years, it will be something unexpected when it occurs. I don’t believe the next epidemic will be caused by avian flu, simply because the dangers that people make preparations for are rarely the dangers they are killed by. There is a reason why flying is safer than driving, and it’s not because strapping 200 people into a metal tube and hurling them at 500mph through the air at 40,000 feet is an inherently safe activity.

12.) During the period 2009 to 2014 the news industry will reach a critical tipping point. Online ad revenues will grow dramatically while print ad revenues will continue their decline. The kids who were 25 in 1996 will soon turn 40. Getting one’s news from the web will no longer seem hip, modern, cool or youthful. It will simply be the way that people get their news. Many older organizations will fail to adapt. Fortunes will continue to be made by the entrepreneurs who build media empires online. (I tried to say this before, but I said it poorly.)

13.) 2008 is later viewed as the beginning of a long era of Democratic dominance in the USA. Much like 1932 began a 36 year era for the Democrats and 1968 began a 40 year era for the Republicans, 2008 begins another Democratic era.

14.) 2008 is later viewed as the beginning of the end of the long era of party stability that began in the USA in 1868. Popular discontent with the 2 party system leads to experimentation that either allows 3rd parties to become viable over the long term, or simply allows the replacement of one of the existing parties with a new, dominant party.

15.) During the period 2009 to 2019 universities in the USA become the center of a new industrial policy. Universities are one of the USA’s few remaining strong points and so must be utilized to launch the next wave of sustained economic growth. Whereas the industrial policy that grew out of the 1930s largely focused on subsidizing agriculture and defense, the new industrial policy will focus on subsidizing high-tech innovation through what supporters will describe as mutually beneficial public/private partnerships (critics will describe these programs as giveaways of taxpayer money to private firms). Universities will become major exporters, though mostly they will be exporting technology and expertise, a fact which will make many US citizens uncomfortable. The extra money implied by this new industrial policy will at first enhance and enrich universities, though over the course of 20 years the universities will increasingly become the slaves of the private partners who put up matching funds, and this reorientation toward goals quite divorced from teaching young people must eventually bring an end to the university system that the USA built during the last 100 years. I can not guess if the replacement system (after 2029) will be good or bad.

16.) The Obama administration makes efforts to ameliorate the concentration of wealth that has taken place in America since the mid-1970s. However, in 2016, inequality in American wealth remains at higher levels than in 1970.

17.) The children of The Great Demographic Trough (I mean the low point of birth rates in the late 1970s and early 1980s, “U.S. fertility hit its low of 1.7 in 1976“) are now ready to have children themselves, but they face an economic downturn. The birth rate in the USA is already at an all time low. If you look at these numbers from the Census Bureau, you’ll see that the birth rate is now at the same level it was in the 1970s, a fraction over 14 per 1,000. This actually represents an uptick, given the aging of the population. The number will go down from here. The high birthrates of recent immigrants will be offset by the aging of the Baby Boom and the trepidation of the young who are facing economic uncertainty. (Certainly, it takes money to raise children nowadays. From the same article as above, written in 2006: “We do know that birthrates ticked up quite a bit among the most affluent,” says Stephanie Coontz, director of research and public education at the Council on Contemporary Families. “Kids are luxury goods.”) In the medium term (2009 to 2019) the only thing that could offset this trend would be much greater immigration.

18.) The fertility rate will revive to high levels when strong, sustained economic growth returns – 2013 at the earliest. Articles that cheer “Fertility rate in USA on upswing” will disappear for the duration of the depression. Please note that the above mentioned birth rate and this fertility rate measure two different things: the first is a  per-capita measure, and the second is a per-woman measure. The first is declining but the second has been rising. The first has implications for society-wide institutions such as Social Security whereas the second has implications for the personal happiness of women and their partners. Because of the old age and large size of the Baby Boom, there is very little chance of the birth rate picking up any time soon. The fertility rate, on the other hand, is at a relatively high level right now and will go even higher when economic growth resumes. The USA’s civil rights tradition, and its flexible use of part-time and informal work, both contribute to an environment that enables US women to have more children than the women in other advanced economies feel comfortable having. 

19.) During the period 2009 to 2019 falling birth rates cause no harm to the economy. We read with humor these doomsday words from 1902: “A saving is effected in inconvenience and expense in rearing seven children instead of nine in an equal population, by which means the prosperity of recent years has no doubt been augmented, but the family and the country are eventually impoverished by their absence, though their loss may be partially remedied by a larger influx of aliens or a check to emigration. When the birth-rate falls to 28, the limit of public danger is approached.” The social/political system in the USA is flexible and will adjust. Having an old population is a new experience for the human race. The USA’s culture of innovation will allow it to make this transition gracefully. Also, expect “a larger influx of aliens.”

20.) During the period 2009 to 2019 fundamentalist Christians will face new political challenges. In particular, church leaders who claim that the USA is a Christian nation will be directly challenged by atheists, secularists and New Age spiritualists, who will be feeling energized by what they perceive as a positive change in the political and social milieu.

21.) Nationalization of industry was pioneered in 2008 and will become much more common. What was introduced as an emergency measure will become normalized. The public will become comfortable with a modest amount of socialism, so long as it is not called socialism. By 2019, even normal, annual disasters such as hurricanes will be followed by nationalizations and recapitalizations of affected regional firms. This will open the door to enormous corruption, which must eventually provoke a backlash, but I do not expect the backlash to come till some time after 2019.

22.) 2008 is later seen as the beginning of the end of the middle class suburbs. The death of the suburbs is triggered in part by #9, the lack of cheap oil during economic expansions. The death of the suburbs is not noticed for decades, in the same way that the decline of urban centers after 1929 wasn’t noticed till the end of the 1950s (when newspapers began to run articles about “the urban crisis”). Only the middle class suburbs die. The wealthy continue to live in the suburbs, just as they have for several centuries (for instance, during the Black Plague of 1347, wealthy citizens of Pisa left the city and retired to their estates just outside the city).

23.) At some point during the period 2009 to 2029 the ice masses of Greenland melt, with the same horrifying suddenness as the Larsen Ice Shelf melt of 2002. More than most other events, this causes public opinion in most advanced nations (and all island nations) to focus on global warming as an imminent threat to their standard of living. Those people who have previously questioned the urgency of global warming are dealt a dramatic political setback by this event.

24.) During the period 2009 to 2029 various nations make various responses to the environmental changes that occur. Because so many of the changes are in response to events that cross national borders, legal precedents begin to accumulate that erode the sovereignty of nations. The precedents first arise from ad-hoc arrangements that nations stumble into on a per-crisis basis, but later harden into a general set of principles. The ideal of national sovereignty undergoes its biggest change since the Peace of Westphalia established the current system in 1648.

25.) During the period 2009 to 2019 the US Federal government takes over the financing of much economic activity that had previously been held in state and local hands. In some sense, this represents the completion of a process that began in the 1930s. The American political right-wing, which resisted the trend toward centralization, is now too exhausted and fractured to fight back. Policies that would have lead to the impeachment of FDR are now passed without any significant resistance. Liberal economists argue that the federalization of funding saves taxpayer’s money, and state and local officials, both conservative and liberal, will go along with the new policy, since they will feel they lack other funding options. No backlash will form till the Federal government uses its expanded funding power to push policies that are locally hated.

26.) During the period 2009 to 2019, and despite the continuing success of Silicon Valley, California loses its status as the Gold Coast of America. Newly progressive states, such as New Mexico and North Carolina, become the economic leaders. They are helped by the investments they’ve made to their university systems, and by the lack of hype (and over investment) they’ve experienced in the past (which leaves them with relatively low rents for houses and office space).

27.) During the period 2009 to 2019 greater government regulation is extended over types of work that  previously enjoyed some informality. Certificates will now be demanded for many jobs, such as auto mechanic and computer programmer, where previously nothing formal was required. During the 1930s, when the economy was in a bad spot, work relations were increasingly formalized, but during the boom years of the 50s and 60s the emphasis was on informality. Since the economy is again in a bad spot, it is reasonable to imagine another era of formalization is upon us. This may close some doors for the type of male who was only comfortable with informal arrangements, though it may be a boon to women, who may have benefited from formalized work arrangements (at least at the top tier of the economy).

28.) During the period 2009 to 2019 small farms will revive in the USA. I’m speaking here of commercial farms that have 20 acres or less. This is a category of farm that has been extinct in the USA for some time. The trend is lead by the CSAs. I have a friend who runs a successful CSA, and I asked her why she could survive when small farms disappeared a long time ago. Her answer: “The Internet”. It is the Internet that allows her to connect to her subscribers. The subscribers provide a 0% interest loan to the farm, since the they pay for the whole year up front, in the spring. The subscribers also provide free labor, as they occasionally volunteer on the farm. It is also the Internet that allows her to freely communicate with her non-subscriber customers, telling them what days she’ll be in what cities, what farmer’s markets. And it is the Internet that gives her all the information she needs about what crops can be grown next to each other, what each crop needs, and what plants repel birds or insects, thus allowing organic farming. Over the last 30 years the price of information and communication have fallen dramatically, and the effects of cheap information keep appearing in surprising places.

29.) Most societies have some hated outsider who is economically important, tolerance of whom is an important indicator of the possibility for economic growth. In the 1700s, in Europe, it was the Jew. (”Enter the London stock exchange, that place more respectable than many a court… There the Jew, the Mohammedan, and the Christian deal with each other as if they were of the same religion, and give the name of infidel only to those who go bankrupt.”). In the current era, according to Richard Florida, a tolerance of gays and lesbians is an indicator of the kind of cultural openness that allows economic growth. This will continue to be true for the next 10 years, though gays and lesbians are rapidly losing their status as the hated outsider. By 2019 they will be replaced by some newer hated outsider, tolerance of whom is again an important indicator of the possibility of economic growth. Who will the new hated outsider be? Probably an old hated outsider: as immigration increases, resentment toward immigrants will also increase.

30.) During the period 2009 to 2019 an increasing number of jobs will become mobile. I’ve never gone alone with the hype that the Internet eliminates the importance of geography. I’m not sure if anyone ever  really believed that. I just did multiple searches on the two magazines most associated with the ultra-hype of the 90s, and with both magazines, the only references I could find were negative. Wired has been generally negative toward the idea of telecommuting (in 1994: “most employees still believe that physical visibility is necessary for promotions, and this will keep telecommuting from catching on” and in 2008: “As a columnist, I ought to personify the conventional wisdom that distance is dead… but if that’s true, why do I still live in London, the second-most expensive city in the world?”). And FastCompany took the idea that “Geography is disappearing” and called it a myth: “Geography still matters, because in a global economy, business clusters are important. Relationships also matter, as do shipping times.” All the same, Peter Drucker was certainly right when he suggested knowledge has no geography: “Knowledge is becoming the one critical factor of production… Knowledge has become the central, key resource that knows no geography.” At least in the USA, knowledge will continue to be the main driver of productivity gains and economic growth, and knowledge workers will continue to see an increase in their mobility, due at least in part to the Internet. The Internet is no longer new, but companies, and society, are still adapting to it.

31.) During the period 2009 to 2019 the trend toward home schooling will continue in the USA. Home schooling will become organized, with parents renting out buildings where their children can meet for regular classes. In other words, “home” schooling will evolve into an alternate, parent-run school system. The political backlash from the educational establishment will be a vicious, ugly thing to behold.

32.) During the period 2009 to 2019 the trend toward continuous, lifetime learning will accelerate. It will become more common to meet high school drop outs who build fantastic careers during their 30s because of the education they got during the late 20s. Supporters of this trend will celebrate the fact that “Continuous learning is still an American innovation; it is still considered absolutely unimaginable in Japan or in Germany.” Critics of the trend will complain that Americans are remaining immature and undeveloped till later and later ages. This particular criticism of Americans has been around for a long time. It is similar to what  Ernest Hemingway expressed in “The Short Happy Life of Francis Macomber“: “It’s that some of them stay little boys so long, Wilson thought. Sometimes all their lives… The great American boy-men.” The criticism is valid when directed at someone who has, implicitly or explicitly, agreed to a responsibility which they then shirk, but it is not valid when directed at someone making a rational calculation about their economic future. The working class kid who drops out of high school to learn the skill of tatooing at a local shop might be making a valid decision based on the economy: all the high paying industrial jobs are gone, so why not train for one of the post-industrial jobs?

33.) New mental illnesses will emerge as people fail to adapt to the new abundance of information. Between 1870 and 1920 the abundance of food increased dramatically and so during the 1920s psychologists were able to diagnose a new mental illness, which they called anorexia nervosa. What had been historically scarce had become abundant, leading to a cultural disruption, and the first to manifest negative symptoms were America’s young girls. Likewise, over the last 30 years we’ve seen a very dramatic increase in the abundance of information. No doubt this increase, too, will cause some vulnerable young people to be overwhelmed in unhealthy ways.

34.) During the period from 2009 to 2019 economic growth in the USA will average higher than it did during the period 1998 to 2008. A pro-growth political coalition will make needed investments in basic infrastructure, raising productivity. Also, an increase in immigration and a falling dollar will lead to more total employment.

35.) During the period from 2009 to 2019 the debate over school choice is altered by the arrival of a new group: parents of children who’ve been bullied at school. A few incidents of brutal bullying will cause the American public to treat this issue more seriously than before. The politics surrounding the school choice issue change greatly as the issue becomes less about religious freedom and more the safety of the children.

36.) In the field of computer programming, the trend toward light-weight, high productivity scripting languages will continue. By 2019, all of the scripting languages that burst upon the scene this decade (Ruby, PHP, Python, etc) will be facing pressure from a new generation of easy to learn languages that will empower non-programmers to do a wide range of things that currently only programmers can do.

This entry was posted on Thursday, January 1st, 2009 at 5:15 am and is filed under business, predictions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.