What Will 2018 Be Like?

Michael Kurth Thursday, January 18, 2018 Comments Off on What Will 2018 Be Like?
What Will 2018 Be Like?

Once again it’s time to dust off the ol’ crystal ball and take a look at what the new year may bring. Many significant events are likely to unfold in 2018. Will our nuclear confrontation with North Korea spiral out of control? Will the Republican tax reform prove to be “rocket fuel” for our economy? Will the investigation into the 2016 presidential election — plus the investigations of the investigators, and potentially investigations of those investigating the investigators — finally come to a conclusion? Will a Supreme Court justice leave the bench in 2018? Will the Democrats gain control of the House and Senate? Will President Trump get to build his wall? Will the DACA children get to stay in the U.S.? Will we get to see Trump’s tax returns? Will we find out what was behind the mass shooting in Las Vegas? Who will be the next big name accused of sexual harassment? And, most important, will the Saints play in the Super Bowl?

Let’s start with the economy. I think the big issues in 2018 will be inflation and interest rates. Since 2009, inflation has averaged 1.66 percent a year, while the Federal Reserve has kept the yield on Treasury bonds around 2 percent, making the effective interest rate (the difference between inflation and the nominal yield on bonds) essentially zero. The FED did this to stimulate investment and boost the economy after the housing bubble burst in 2008. Its action doubled the rate of private sector savings from $1.6 trillion to $3.2 trillion and sent stock prices soaring 500 percent, but did little to create jobs, as labor force participation declined 5 percent.

It’s no secret the FED is poised to raise interest rates at the first sign of inflation, and there is a good chance that could happen in 2018, especially if the recent tax cuts do as advertised and put more disposable income in the hands of consumers. (More consumer spending generally results in inflation unless it is matched by increased production of consumer goods.) Higher interest rates are likely to mean, among other things, lower stock prices and fewer investment towards the end of the year.

If Trump’s trillion-dollar infrastructure bill makes it to Congress, I expect Democrats will clamor to get on board, but for the wrong reasons. Remember President Obama’s big infrastructure bill in 2009 to fund “shovel-ready jobs”? That was little more than a big pork barrel, and did little to stimulate the economy or modernize our infrastructure. We don’t need to repair crumbling infrastructure from the last century; we need to replace it with modern infrastructure for the 21st century. We need transport systems for driverless vehicles and delivery containers; we need to replace our centralized power plants with distributed power generation that draws from a variety of energy sources and transmits power on a grid similar to that of the internet that malicious hackers can’t shut down; we need mass transit systems that will compete with air travel — not more 20th century airports; and we need a nationwide wireless communication system that will merge all forms of communications.

But you won’t get such innovations from government monopolies and vested interests; you need to unleash the creativity of entrepreneurs in the free market.

I expect foreign affairs will be dominated by North Korea’s development of missiles capable of delivering nuclear, chemical and biological weapons. Kim Jong-un is not likely be talked out of the weapons he already has; the best we can hope for from negotiation is that he refrains from developing more such weapons. That leaves two options: a preemptive strike or regime change. Regime change is most likely to happen if China, in order to avoid a nuclear war on its border, decides to depose Kim and put in place a puppet it can control.

The Middle East remains a powder keg. The removal of ISIS left a vacuum that a number of incompatible nations with competing goals want to fill: Turkey and Russia; the Saudis and Jordan, the Kurds and the Iranians. Who wins is anyone’s guess. Fortunately, the U.S. is now largely energy independent, and can sit in the bleachers to watch the fight … if we can restrain ourselves from getting involved.

ISIS may have been “de-landed” but it appears to be morphing into a cyber-caliphate, and we will continue to see more low-tech terrorist attacks from them in the future. People bred to hate are difficult to reform.

The Supreme Court could return to the news in 2018 if one or more of the nine seats on the court become vacant.  Next year, there will be three octogenarians on the court: Ruth Bader Ginsburg will be 85 and Steven Breyer 80 (both liberals), and Anthony Kennedy (a moderate conservative) will be 82. (By the way, someone in their nineties is called a nonagenarian … get used to it.) A vacancy on the court could have a huge impact on the congressional elections.

The Republicans currently control both houses of Congress: they have a slim 51 to 49 margin in the Senate and a 239/193 margin in the House. Traditionally, the party out of power (the Democrats) picks up seats in the midterm election. And President Trump’s low popularity ratings suggest his coattails may not be very long. Neither of these situations bodes well for Republicans. If the election were held next week, I would say the Democrats would have an excellent chance to take control of both houses of Congress. But a lot of water will pass over the dam before November.

The most important factor for party politics may be what comes from Robert Mueller’s investigation into possible collusion between Russia and persons in Trump’s 2016 campaign. My crystal ball goes haywire when I ask it questions about this; I think it may have been hacked. Some Democrats will make noise about impeaching Trump, but unless something significant comes from the Mueller probe, this will be nothing but grandstanding. The most important issues in the 2018 elections are likely to be “pocketbook” issues, such as the economy, healthcare, and jobs. If Democrats try to make Trump the issue without putting forth their own programs for dealing with the pocketbook issues, they could lose “bigly.” As James Carville once told Bill Clinton: “It’s the economy, stupid.”

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