Prediction: The great unraveling of 2014

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Prediction: The great unraveling of 2014

(Centennial Fellow) It is the most daunting task to speak truth to a culture hostile to absolutes. It is equally daunting to make an annual prediction when an abundance of caution is required of us due to the uncertainty of our times. It is with such caution that this essay purports to predict plausible outcomes in the year to come.

It is clear that 2013 gave us much of what we expected, e.g., contests over gun control, privacy, calamities, red state-blue state divisions and performance disparities, a decreased labor participation rate, etc. The stock market performance was clearly a surprise as the market had its best year (+29%) in well over a decade while the bond market had its worst year in almost 20 years. It is unlikely that either will replicate their performance of 2013 in 2014.

2014 is likely to be a year of unraveling for the nation’s executive leadership. The unraveling relates to the ongoing troubles with Obamacare, the political travails of a second term president, increased international disorder resulting from passive withdrawal, and suppressed economic growth due to failed ideology. This is an easy call given the role of history in the off year elections of a second term president. Absent major campaign flaws, the math tells us that the Republicans should retain control of the House of Representatives and stand a very good chance of taking control of the Senate.

This means we can look forward to more government gridlock as the current president has consistently demonstrated a reluctance to compromise his ideology for the good of the country. His lack of economic acumen will continue to be on display whether it concerns an increase in the minimum wage, an ongoing assault on increasing taxes in pursuit of redistributionist policies, or a desire to influence the economy through irrational regulation. His interventionist and redistributionist domestic policies have caused great distrust in the electorate. His laissez-faire international policies have caused great distrust with our allies and increased disrespect from our foes. His credibility will continue to diminish in the eyes of the perspicacious.

The Economy The economy will continue to under perform relative to its potential due to the “output gap.” An output gap has negative consequences for the US labor market, the US economic potential, and US public finances. The labor market will continue to underperform with the current labor participation rate at 62.8%, the lowest since the Carter administration and job growth is the lowest in three years. Only three states have grown their private sector payrolls since President Obama took office. This trend will continue as private sector concerns about Obamacare, regulations, suppressed demand due to troubled labor markets, and an unfavorable environment for investment continue to plague growth prospects.

The number of working age Americans without a job has risen almost 10 million since Obama took office.

[1] The administration would like you to believe that these people have retired to the country club for golf and mint juleps. However, the reality is that the US economy actually created fewer jobs in 2013 than it did in 2012.[2] For many people, 2016 will not come soon enough.

The output gap indicates that workers who would like to work are instead idled because the economy is not producing to capacity. The United States’ labor market slack is evident in an 4Q13 unemployment rate of 7.3 percent, compared with an average annual rate of 4.6 percent in 2007, before the brunt of the recession. The federal government is still too heavily involved in housing. Twenty-two percent of mortgage borrowers are making down-payments of less than 10% (owing to the FHA), while Fannie/Freddie have long-term attractive rates that continue to encourage over-investment in the housing sector.

We are unlikely to see significant business investment or job growth in a muted 2014. It is likely that red states will continue to outperform blue states primarily due to differences in policy governance. Red states tend to favor the individual, the market, and the Judeo-Christian worldview. Blue states tend to favor the size of the state, the reach of government, pro-environmentalism, labor unions, and the secular worldview. Red state over-performance and ongoing success in the energy sector hold much promise in 2014. Should red state philosophy gain contagion, 2014 could hold some surprises to the upside.

It is likely that the problems of Obamacare progress from technical incompetency issues to the ominous actuarial and structural defects that invite discussions of bailouts for the insurance industry. As of early 2014, we have approximately six million insurance cancellations and two million Obamacare enrollees, a large portion of which are for Medicaid (which will challenge state budgets.)

We are likely to hear more calls for a single payer system to save us from the disaster of Obamacare. This is analogous to setting a fire in the front of a store while selling fire insurance to those in the back of the store (knowing full well that the fire gets put out at the signing of the contract.) It is clear that states and insurance companies will begin to share in the widespread disappointment called Obamacare. Some of the great legacies of this president include responsibility-shifting, celebration of division, and lowered expectations for the future.

Consensus estimates peg GDP growth at 2.5+%, a substantial decline in comparison to recession recovery growth rates. The post war average recovery (seven recessions) is 4.2%, the worst post war recession recovery (’81-’82) was 5.8%, and this recovery is approximately 2.3%. All in all, we should expect to see a widening in the wealth gap with a continued emphasis on identity politics that divides groups based upon race, gender, and income. The reality is that current policies actually promote intergenerational inequity despite assertions to the contrary (while blaming past administrations.)

The US taxes income and property more than the Organization for Economic Co-operation and Development (OECD) does. It is likely that France (the world’s fifth largest economy) and Italy (the world’s tenth largest economy) are headed south in the 2014 global economy while America continues to suffer with underperformance due to its own economic ignorance at the executive level.

International crises We should expect to see temperatures rising on the international level. 2014 has been declared “The Year for Middle East Peace” by the Socialist International (SI), a large and influential association of socialist political parties, many of which form the governments of nations, provinces and cities. As is the case with most socialist planning efforts, the opposite result of their intent is more likely to eventuate. Not surprisingly, Socialism 2014 will be held June 26-29 in Chicago with approximately 90 branches in attendance from throughout the US to bolster activism, strengthen the ranks, and pursue the goal of Marxism – domestically and abroad.

Middle East peace is not likely to occur when we examine the state of affairs in Syria, the resurgence of Al Qaeda, ongoing issues in Egypt and North Africa while Iraq, Afghanistan, and Pakistan are three of the most unstable countries on the planet.[3] We can’t forget Iran which has approximately 19,000 centrifuges, more than seven tons of 3.5% to 5% enriched uranium, a smaller stock of 20%-enriched uranium, and a partially built heavy-water reactor that could soon produce plutonium-all in violation of IAEA and Security Council resolutions. It has also developed a sizable nuclear infrastructure while amassing a stockpile of enriched uranium that exceeds any reasonable need for a civilian energy-production program.

The US president’s tacit assent or “nuclear containment” policy postpones the inevitable and carries significant risk. Unlike North Korea’s earlier acquisition of nuclear capabilities, Iran has emphatically stated their desire to eliminate another country (Israel) from existence. 2014 will likely see renewed interest in a nuclear arms race in the most volatile and bitter region of the world. It is likely that we will see increased international disorder in the world, in no small part due to the insouciance and incompetence of the Obama administration. Obama’s strategy of redistribution at home and retreat internationally will bring about another year of unraveling for the president. People don’t believe him at home and they don’t trust him abroad.

A recent Gallup poll said that 72% of Americans believe that big government is the greatest danger to America’s future, followed by 21% that believe it is big business that threatens the future of the country, and 5% who believe that big labor is the biggest threat to America. These statistic point to an increased libertarian bent that will hurt the Democrats in the 2014 elections.

Conclusion It is likely that we will see continued moral decay that will accompany domestic and international uncertainty.. There is growing support for legalizing pot in America.[4] As the Detroit bankruptcy wends its way through the courts, other municipalities watch closely to see if they too can abdicate on excessive pension (and other) obligations. At the same time, governments of all sizes welcome new revenue streams that arise from legalizing heretofore illegal behavior. The moral decay of America shows no sign of remission. 2014 should be a year of promise and opportunity, filled with the abundance of a recovering economy. Sadly, progressive ideology is more likely to constrain our potential. The biggest wild card is likely to come from international disorder arising from the inattentive and uninvolved leader of the free world who likes to “lead from behind.” Leading from behind is an abdication of responsibility and is a statist phenomenon rooted in elitist philosophy. It borrows capital from the productive and successful so as to enrich and empower the elites who have no earned success of their own. 2014 is likely to manifest the start of the unraveling. As Herb Stein once proffered “things that can’t go on forever, don’t.” The unraveling in 2014 should be a stark reminder of this truth.



[2] Ibid.



One Comment

  1. Jeff Acord January 14, 2014 at 8:20 pm - Reply

    I always enjoy reading Brad Hughes’ work; his penetrating and thoughtful words and inciteful commentary are a breath of fresh air amid the stench of America’s decaying carcass–courtesy of the Democrat party and their throng of mind-numbed followers.

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