What are the big questions that 2014 might answer?

Summary:  December brings forth a crop of retrospective analysis about the past year and confident forecasts about the next. The FM website has posted almost daily doses of the former, and I lack the confidence to do the latter. Instead let’s ask about questions. What issues might dominate 2014, and influence the years beyond? Finding the right questions can help us open our minds to the unexpected, and perhaps even prepare for it. Post your questions in the comments.

“Uncertainty … is painful, but must be endured if we wish to live without the support of comforting fairy tales.”
— From the introduction to A History of Western Philosophy by Bertrand Russell (1945)

Questions

1. Effects of the taper?
2. Results from Abenomics?
3. The War on Terror?
4. The global warming campaign?
5. For More Information

(1)  The taper

What effect will normalizing monetary policy (slowing QE3 being the first step) have on the economy? Will it slow the economy? Will it depress asset prices? Will it boost interest rates, perhaps ruinously? If it ends badly, will it decrease public confidence in the Federal Reserve, perhaps in economists?

Also, how strong are the deflationary forces at work? Inflation has fallen during QE3, despite credit and GDP growth, with little change in the value of the US dollar. That’s an anomaly (much of my forecasting success comes from attention to anomalies ignored by the consensus). What happens to inflation as QE3 ends? Do we get the widely predicted inflationary hangover, or lapse into deflation?

Click here to see posts about the taper.

(2)  Abenomics

There were to be three arrows:

• double the money supply in two years,
• boost the fiscal stimulus (borrow and spend even more),
• structural reform.

So far the government has fired the first two arrows, but not the third and most important one. The arrows were to produce:

• increased real wages,
• increased inflation (specifically, core inflation; not just increased cost of imports) with flattish interest rates,
• increased volume of exports (using the lower value of the Yen to gain market share, not just increase profits),
• a more efficient Japan (from the combination of faster growth, more investment, and reform).

The results to date are zero out of four. Wages are falling; real wages are falling even faster. Import prices are rising, but not other prices. Export volumes are not up strongly (+4.4% YoY in October). Reforms so far remain only talk.

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As a result, public support has fallen, making implementing painful structural change even more difficult. Worse, interest rates are appearing to stir themselves; a large rise would be catastrophic (but logical, given the government’s efforts to stimulate inflation).

Abenomics has not yet failed, but does not yet appear successful. I do not understand how it can work.

Its government will fire the third arrow in 2014. Will they dare deep reforms? Will the three arrows change the course of Japan, leading it out of the quarter-century slump?

If not, if structural inertia and an aging population prove stronger than Abenomics, what then for Japan? Might Japan be a bellwether, foreshadowing outcomes in America and perhaps Europe — as it has been so far? Are we following Japan into an era of slow growth, even stagnation?

(3)  The War on Terror

Our War on Terror looks like an open-ended war on fundamentalist Islam, waged without reason or goals. We have failed to gain anything from our expeditions to Iraq and Afghanistan, and have doubled down on failure by expanding the war to Pakistan, Yemen, Africa, and elsewhere.

As the latest set of civilian deaths show (Reuters), waging a war of assassination and indefinite detention, supporting corrupt often tyrannical governments, makes enemies faster than we can kill them (Reuters). Despite its obvious madness, the war remains popular in America and continues, generating prestige for the military and profits for the defense contractors — with most of the dead just far-away foreigners.

Without rational goals, how can we win?

But we can suffer losses. If we kill enough women and children, eventually someone will seek revenge on the “homeland”. If we try long and hard enough, we can make our fears come true — perhaps getting an even more devastating example of high-tech terrorism. Our warmongers, whose exaggerations and lies have done so much to fuel this war, might rejoice in its resulting expansion.

How long will this continue? What will happen first:  we come to our senses or suffer the consequences?

Click here to see all posts about terrorism.

(4)  The global warming campaign?

Global surface temperatures stabilized after aprox 1998 following two centuries of increase (the rise after ~1950 due largely to our CO2 emissions). Despite that the fear campaign continues, ever more outlandishly (in defiance of the IPCC’s work), labeling normal weather as “extreme” and attributing it to the CO2 we released.

How long can this program continue? Eventually warming will resume, or public concern will crash. Which will happen first? If the latter, might the public lose confidence in science?

Click here to see all posts about the pause in warming of the world’s surface temperature.

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