2018 Predictions

I usually post my predictions for the coming year in November, but I held off this year to see whether the tax reform legislation would pass, because of the huge impact it would have on the economy for 2018, whether it passed or failed.  It did pass and, because of that, it’s difficult to see anything that could derail the economy this year.  For corporations, earnings comparisons to the same periods in the previous year now become extremely easy, which will definitely power the stock market even higher, fueling more consumer confidence.  Add to that the boost consumers will see in their paychecks.  It’s shaping up to be a banner year, economically.

With a year of the Trump presidency in the history books, how events may unfold from this point forward seem just a little less unpredictable.  Aside from the off-the-wall, cringe-worthy “tweets” and public pronouncements, his underlying administration is beginning to look not so unconventional as feared after all.  Though I still hold out hope that he may yet come through with his campaign promises to exit trade deals and impose tariffs, he’s beginning to look like a toothless tiger on that issue.  There’s been more follow-through on his promise to rein in illegal immigration, but the border wall is beginning to look like a campaign gimmick.  Will he really “Make America Great Again,” or just claim victory if he makes it a little better?

All along, my predictions have been based on the inverse relationship between population growth and per capita consumption which I presented in Five Short Blasts.  Briefly stated:

As our population (both the U.S. and the world as a whole) continues to grow beyond its optimum level, forcing people to crowd together, per capita consumption will inevitably decline as a lack of space constrains our ability to store and use many products, especially larger products (like homes and cars, among others). As per capita consumption declines, especially in the face of ever-rising productivity, rising unemployment and poverty are inescapable. This same effect occurs when we attempt to trade freely in manufactured goods with nations that are already overpopulated. The more overpopulated our trading “partner,” the worse the effect.

Only actions to stabilize our population (especially reducing immigration) and action to restore a balance of trade through a sensible return to the use of tariffs have any hope of mitigating these effects.  Given how well the economy performed in 2017 (and will likely repeat in 2018), it may seem that the above theory doesn’t hold water.  But the effects of the theory have merely been papered over with more deficit spending.  There are still deep and growing problems in the underlying economy – unemployment that, in real terms, is still above 7%, stagnant wages, a national debt that’s growing exponentially, a health care crisis, a crumbling infrastructure, etc.  The list can go on and on.

With all that said, here’s my predictions for 2018.

1.  This isn’t the year that the negative consequences of population growth come home to roost.  Fueled by deficit-busting tax reform, the economy will boom in 2018.  It’s difficult to see anything that will change that with one possible exception – a war with North Korea.  But that’s unlikely.
2. Inflation will remain low, thanks to an ever-worsening over-supply of labor.
3. GDP will top 4% by the end of the year.
4. Trump and the Republicans will extract major concessions on immigration policy, including drastic cuts in family-based chain migration, funding for the border wall and an end to diversity visas, in exchange for granting DACA kids (children of illegal aliens who were brought here by their parents) a path to citizenship.
5. NAFTA (the North American Free Trade Agreement) will be revised slightly to bring some manufacturing – not a lot – back to the U.S.
6. Aside from that, there will be little change in America’s trade policy and the deficit in manufactured goods – already at a record level under Trump – will actually grow worse as the booming economy provides a major boost to imports.  Exports will remain stuck at the 2011 level.
7. Democrats will make major gains in the 2018 interim elections in November as disappointment with Trump’s trade inaction dampens enthusiasm among Republican voters and as Democrats stoke anger over “obscene” corporate profits and the exploding national debt.

On the other hand, I could be completely wrong on the trade issue.  Trump could capitalize on concern over the growing debt and deficit to stir up support for the use of tariffs as a major new source of revenue and jobs.  While that would, over several years, fuel an economic boom the likes of which the U.S. hasn’t seen in nearly a century, in the short term it could actually trigger a mild recession as concerns about rising inflation make the change in trade policy look like a bad move.  But because politicians are so short-term focused, not wanting to risk anything that might jeopardize their chances in the next election, I have my doubts that we’ll see any improvement in trade policy.

2018 could be a wild ride.  With Trump as president, almost anything could happen.  Time will soon tell.