The Chicago session prognosticators were Michael Mussa and Randall Kroszner for the macro side.
- The basic message: next year will look exactly like this year.
- Short term indicators are mildly positive, with little long term effect on the economy due to energy price shocks, hurricane Katrina, and the continued war in Iraq.
- Consumer confidence is down, which is not in line with other indicators, but which may be due to the fact that real median income has been flat to declining over the next few years.
On the major indicators (GDP growth, inflation, unemployment, etc.) both were in close agreement with real growth in the 3-3.5% range, inflation at 2.5-3% and unemplyment at 5.1%. All of these are close to both our standard national levels and also close to our current situation.
In general, Mussa's predictions are more believable wherever the two had a disagreement, where, for example Kroszner forecast that the trade deficit would essentially remain flat or shrink in real terms, Mussa predicts a move from ($624.1B) to ($640.0B) or about 5% growth, which seems plausible in light of current trends and continued growth. Mussa also sees the US economy coolling down slightly from this year--and no other economies worldwide heating up more to pick up the slack.
Marvin Zonis provided political risk insight. Key points:
- India represents a great foreign investment opportunity, with blockbuster growth, relative political stability, an English speaking population, heavy investment in education, and a rapidly growing middle class.
- China has pinned a lot on the 2008 Olympics. The government views this as their announcement of superpower status on par with the US. So, at least in the near term, they will continue to put a premium on political stability. Due to the large component of the Chinese economy that relies on exports to the US, it is unlikely that they will try to restrict debt financing the US deficit. The two countries are in an economic embrace.
- Iran is a country which is undergoing titanic internal stresses. The current hard-line president is viewed as a nutcase even by his fellow clerics. Dissent is widespread, and Persian is the second most common language for blogs (tied with French) worldwide.
- Russia's vast oil wealth is being used to finance the country's transformation, and can be used to buy off internal dissent through social programs and other methods.
- Brazil has so far failed to gain traction on its internal economic problems but has immense potential for growth--just not in the near term.
- Positive signs in the Middle East: Sharon has shifted Israeli policy from "maximizing territory held" to "defensible position". Prediction: he will abandon all but the largest West Bank settlements, consolidate his hold on all of Jerusalem, and throw a fence around all of Israeli territory. The Palestinians are unhappy because this is going on unilaterally.
- Postive sign #2: Muslim revulsion at violence carried out in the name of Jihad against other Muslims. Jordan being the latest example.
- US presence in Iraq is generating terrorists faster than we can kill them. Bush will find a way to declare victory and 40K-60K troops will be pulled from Iraq "before the 2006 elections".
In the roundtable discussion that followed, rising healthcare costs alarmed the panel the most. With Social Security and Medicare rising from 5-6% of GDP now to ~20% over the next 15-20 years, this will put enormous pressure on the economy as a whole. No near-term solutions exist, at least none that anyone is prepared to accept.
So to sum up:
- Near term: fairly rosy. Maybe a little slower.
- Long term: uncertain as always.
Elsewhere: US Economy's slow growth still getting 'no respect'. Contains full transcripts of remarks by all three presenters.