Last week, I shared my thoughts on trends I consider important for technology in 2016. This week: political and economic issues to look out for.
It just looks like Jerry Springer. This presidential election cycle will continue to amaze and delight — if your idea of entertainment is watching two political parties drive their constituencies into ever greater frenzy. Low-brow media and less-than-healthy political awareness have coalesced into a toxic brew where voters must be engaged at any cost and ratings must be won. “Engaging the base” used to mean getting a party’s strongest supporters to come out and vote, but this time around, “engaging base instincts“ is more descriptive. Look for this 2016 election to be more expensive and more polarizing than any before.
Don’t lose interest. The Federal Reserve will valiantly attempt to continue to hike interest rates throughout 2016. It will ultimately fail. What will become apparent is that the Federal Reserve is the central bank for the world, and rising interest rates and a strengthening dollar will touch off one or more financial crises in the developing or industrialized world as obligations incurred in U.S. dollars become ever more burdensome. The Federal Reserve Board will again have to decide whether its primary role is to protect the world financial system, or to prevent U.S. inflation and promote U.S. employment. I don’t envy Janet Yellen; she will have a tough year.
China syndrome. China has a significant problem on its hands. It has engaged in a debt-fueled construction and infrastructure sprint for modernization that relied upon international demand for its ever-expanding productive capacity. This cycle is becoming unsustainable, and economic data suggest that Chinese growth is slowing and what happens next will be significant. Expect more wealth from China as the beneficiaries look to diversify. Also: a Chinese government challenged by slowing growth will assert more political control.
Cheap oil. As the United States has become an internationally relevant producer of oil, Saudi Arabia has led an attempt to drive down the commodity’s market price. Putting aside the somewhat nonsensical and circular reasoning behind this policy (if prices go up, U.S. production would ramp up again), market observers are currently focused on the negative effect on U.S. economic activity if American producers are forced to leave the market or fail. The reality is that for many U.S. producers, marginal costs are much lower than originally believed, and even for those who do fail, our financial markets can handle the fallout. In fact, the possibility of U.S. gas and oil production at various ranges of world prices will place a long-term cap on world energy prices. Cheaper oil will become the new normal. In an economy that is 70 percent consumption, cheaper oil will help consumers. Bottom line: cheap oil will be better for our economy than ever expected.
Beware the bear. As Saudi Arabians attempt to drive the U.S. oil industry out of business, an unanticipated side effect will be the continued deterioration of the Russian economy. Vladimir Putin’s government has been using international tensions and the military to deflect and reassure his citizens that Russia remains a world power. Calls for a reinvigorated nuclear force and military interventions in Syria and Crimea are not coincidental. While we are not yet headed back to the Cold War, Russian assertions of military force are not likely to abate.
Austerity is dead. Long live austerity. In December, the United States government officially abandoned its embrace of austerity. There was no official announcement, but sequestration limits were scrapped and $800 billion in tax cuts were made permanent. Meanwhile, Europe remains squarely behind austerity as an economic principle — at least for non-Germans. The U.S. market will look even more attractive compared to Europe. Expect to see greater investment inflows from Europe this year. And, expect another European Union austerity crisis — most likely Portugal.
My net viewpoint is that 2016 will ultimately be a better year for the U.S. economy than many currently believe. They say in the land of the blind, the one-eyed man is king… In a world of uncertainty, the U.S. economy will rise. Bet on Uncle Sam.
Jonathan Aberman is a business owner, entrepreneur and founder of Tandem NSI, an Arlington-based organization that seeks to connect innovators to government agencies. He is co-host of “Forward Thinking Radio” on SiriusXM, a business and policy program, and lectures at the University of Maryland’s Robert H. Smith School of Business.