2024 not pivotal for United States
Forecasting national behavior is built on continuums. One continuum is a nation’s history. Another is our analytic method. Simply looking at nations will not provide a systematic forecast. The method, no matter how tested in the past, cannot produce one. Only a grasp of history, filtered through a forecasting method tested consistently and repeatedly, will yield a realistic forecast. We don’t look at a nation’s every issue; we focus on the issues that reveal patterns and indicate change. Thus, our forecasts will look at the past before they look at the future.
Historical Context
The United States is defined by two cycles. One is a socioeconomic cycle, the other an institutional cycle. The former changes every 50 years, the shift invariably concurrent with a new president. The change is triggered by a social and economic system that has become untenable. The new president is frequently celebrated for the change and the old president condemned, though they merely signal the shift. The institutional cycle changes every 80 years, normally linked to a war.
What we have this decade is an important and unprecedented event in which the institutional cycle and the socio-economic cycle are changing at the same time. They may neutralize or intensify each other, or they may transpire indifferent to each other.
We believe that the latter is more likely because the two involve different processes.
The core of the socio-economic cycle entails changes in social visions and economics. The last shift culminated in the election of Ronald Reagan. The era leading up to the Reagan presidency contained deep racial divisions in the country, so deep that the National Guard and Army paratrooper units were deployed to Detroit to deal with riots, arson, looting and sniper fire. There were many deaths.
The president, Richard Nixon, was forced from office for (unrelated) criminal actions. People fought over profound differences in views of sexuality. And the war in Vietnam seemed endless – and endlessly polarizing.
There was also plenty of economic dysfunction. In cities, deindustrialization aggravated racial issues as job losses affected those already struggling to maintain a semblance of lower-middle-class life, throwing them into extreme poverty. Nationally, unemployment was at times above 10 percent, but among Black Americans in Detroit, for example, it was closer to 20 percent. Inflation – already high – climbed to about 14 percent by the end of the 1970s. To fight inflation, Nixon took the U.S. off the gold standard and froze all prices in the United States.
The greatest problem was a shortage of capital, which stifled the development and modernization of new technologies. Meanwhile, Japanese automakers began to dominate the U.S. market. The previous model put forth by Franklin Roosevelt that focused on increasing demand had done its job but was now obsolete, and took the tax code with it.
Institutional structures shift every 80 years, the last one coming after World War II when subject matter experts of the class that had won the war made expertise the foundation of our institutions. This replaced the structure that emerged after the Civil War, which had replaced the founding structure. Again, fundamental institutional shifts are linked to major wars. The current wars the U.S. is involved in are not major conflicts and thus will not transform the internal structure of the United States.
This does not mean marginal changes won’t happen, particularly when the idea of institutions extends beyond the federal government. One important shift underway is in the function of universities. University education is a vast and expensive industry whose economic and even intellectual viability is being questioned.
We have seen the first round of this crisis in the government’s attempt to reduce pressure on graduates by absorbing loans and building support politically.
Such pyramided liability is not uncommon in government and normally holds its ground until it fails. We would not expect a climax until the next major banking crisis, which we do not think will come very soon. A major banking crisis involves a general breakdown, not a small number of failures. Broad failures are infrequent, but they happen, and the vast financial structure of universities and student loans will compound the problems.
Another example is the loss of faith in experts, which was put on full display during the COVID-19 pandemic. After World War II, experts were empowered not just to advise but also to act. The system worked but became increasingly less useful. Then, during the pandemic, medical experts were making decisions far beyond the scope of medicine. The experts were experts only in their fields, and their decisions had consequences for everything ranging from supply chains to childhood education.
We would expect an institutional crisis to become pronounced over this next year, even absent a disruptive major war, as routine political rage might materialize into something deeper.
Currently, the economy has few imbalances and is likely to stabilize at a relatively strong level this year. Compared with previous economic performances, especially those of the pre-Reagan era, today’s economy is more robust, with predictable imbalances that can be institutionally imposed, including by the Federal Reserve. The current sentiment in the political system and financial communities is actually positive. Distrust has not yet forced the economy into recession.
Based on precedent, a breakdown would be unlikely. However, the usual pessimism that is generated during an election year is at play. The challenger to the incumbent tends to magnify the problems at hand. The supporters can spread the pessimism, on which they may have little influence and try to turn it into a self-generating force. But the length of the campaign period from selection of candidates to the actual vote places severe limits on this strategy.
Even so, institutions of the United States are ripe for disruption. We are 80 years removed from the last institutional shift, so the moment is here, albeit with some flexibility.
We would be more confident in a looming crisis if the U.S. were involved in a larger war involving U.S. casualties. However, we expect the Ukraine war to reach a negotiated end in the next year and do not see the Israel-Hamas conflict significantly impacting the U.S.
We are of similar mind on social and economic matters. The economy is much stronger than it was in the 1970s and the 1930s, which were the last moments of economic breakdown in our model. We do not see a major breakdown in the next year.
Nor do we believe that the 2024 election will be the pivotal moment for the socio-economic crisis to come to a head. That won’t happen until the election of 2028, almost 50 years after the previous marker, Ronald Reagan’s election. We do not know who will be the next president, but we do not see the president as a very powerful figure. Aside from their symbolic role, presidents are trapped by any number of constraints outside their control.
It will be a noisy year, and there will be rage, but our model shows that this will not be the year of major shifts. The obvious caveat is if a much larger war breaks out. If that occurs, we obviously will have a different forecast and red faces, common in our craft.