As I write this January 1st 2015, I am truly optimistic about this year’s economic outlook and unlike many experts and analysts, I am bullish America is poised for steady growth in 2015. Many economists cite a slowing economy due to low energy prices. It is probable that energy companies will suffer, but since when did we care so much about paying more at the gas pump? Other economists cite as the economy grows, the Federal Reserve will start raising interest rates which will hurt the financial sector. Since when did we start caring for cheap money given to Wall Street? In the last decade our currency has been devalued but recent events point to the dollar making a strong rebound despite the last two administration’s fiscal policies. Economist Larry Kudlow calls it the rebirth of “King Dollar” which will strengthen our currency and create more bang for the buck on all goods, services, and aids for the middle class who have not seen wealth gains in nearly a decade. With a new pro-growth 114th Congress, American politics will shift from creating welfare incentives towards creating private sector jobs, which will drive more money back into the economy though repatriation of capital, hiring, and stronger revenues. A consistent and durable US job growth will increase hours worked, job mobility, raises, and better paying jobs. I predict the US will strengthen and the economy will grow a steady 3.3% because of low energy, a new political climate, a growing job market, and the rebirth of “King Dollar”.
Let’s start with lower gas prices which began their dramatic descent in the second half of 2014. The American innovative fracking revolution has led to a worldwide oil supply shock. The oversupply of oil will continue in 2015 because the International Energy Agency projects that the US, now the world’s largest oil producer, will produce an additional 680,000 barrels next year. However, the “bears” on Wall Street see the sky falling as lower energy prices will also kill America’s heavily leveraged energy industry and the financial firms that have loaned to them. Yet most energy corporations are secured in fixed long term contracts and also have hedged against lower energy prices through the futures market. Economist Larry Kudlow is emphatic that “lower oil prices are unambiguously good for the US economy.” The extra discretionary income leads to more business saving and consumer spending, quite possibly $1500 in every working person’s pocket at the gas pump.
A second good indicator for me is the strengthening of the US dollar. We have seen this before in the 1980s and 1990s leading to lower commodity prices such as gold. The increase in the value of the dollar combined with steady U.S. economic growth as compared to the sluggish economies in the European Union, Japan and China makes the US attractive to foreign investors. According to Cliff Droke of Kitco, the 1980s and 1990s was a “time the U.S. economy was white hot, stock prices were on a relentless upward march, energy prices were low and the U.S. was the undisputed leader in attracting foreign capital inflows.” For the American middle class, a strong dollar couldn’t be more welcomed because a strong dollar is one of the best forms of stimulus. According to David Howden of the Von Mises Institute, “Consumers can continue to enjoy cheap access to foreign-made goods, and export-based industries can maintain their stature by shifting their cost base to take advantage of cheaper foreign inputs.”
With the 114th Congress, a new era of pro-growth legislation will be brought. President Obama can choose the same route as President Clinton did and work with a Republican Congress with the same economic results seen in the 1990s. As the majority party, the Republicans will first pass the long awaited Keystone XL pipeline bringing an influx of oil from Canada and the North Dakota’s Bakken oil fields. Congress will also bring tax cuts to both the individual tax code and the corporate tax code, which will help to create more jobs as well as repeal the odious tax on money earned outside of the US which will could repatriate $2 trillion dollars so that capital is invested here in the US instead of abroad. Congress will also try to severely weaken the negative effects of the Dodd-Frank bill which has crippled our small community banks and small business lending. Legislation will try to clip parts of the Affordable Care Act (Obamacare) which is stifling job creation like a wet blanket does to a fire. The intent of the new bills will be to push back deadlines and change the definition of a full time worker from 30 hours a week defined by the ACA to the traditional 40 hours. As it stands right now, many companies have simply cut part time jobs or outsourced work so that they avoid benefits they cannot afford.
My only disappointment for 2015 is that I believe our economy could be growing at 5.5% to 7.5% as witnessed in the 1920s, 1960s, 1980s and 1990s. However, we lack the key ingredients characterized by those decades such as pro-growth-political executive leadership, a strong suspicion of large institutions, deregulation, a tax code driven by incentives to work- save- risk, and an electorate with a strong reverence for liberty, individualism, and with a slight hostility towards taxation.
Possibly 2014 was just a 1979 redux and a very strong economy and political resolve is still just a few years away. It is my sincere hope in 2015 America can do even better than my baseline economic recovery predictions of 3.3% growth. Our nation has the power to break this 1970s style economic malaise and the crisis of confidence we find our exceptional country in once again. Every January 1st, we make New Year’s resolutions because we believe we can change ourselves. As a nation, our economic and political resolution should reflect the sentiments of Thomas Paine that, “we all have the power to begin the world again.” May you have a healthy and prosperous New Year.