As an end-of-year type post, here is a list of economic stories that I think will be worth following next year. Note that all of them are long-term stories, which won't be resolved in 2006 alone.
The first issue I mentioned was labor productivity growth--if it exceeds 3 percent, a lot of long-term budget problems could be alleviated. As this chart shows, productivity growth has been between 2 and 2.5 percent, which is better than some conservative long-term estimates, but not better by enough to help the budget.
The second issue is cognitive neuroscience. I think that we continue to see progress there, and I still would be happy to own shares in the human capital of anyone going into the field, but I don't see any world-changing results over the past five years.
The third issue is solar power, which at the time the Department of Energy thought was 10 years away from being competitive with traditional energy sources. That seems optimistic, no?
The fourth issue is cancer therapy. I think the progress there has been pretty decent. Maybe that reflects availability bias on my part, because I have a friend who had a cancer that I figured was incurable and he is doing fine. If nothing else, The Emperor of All Maladies is one of the best books of the year.
The fifth issue I called "mainstream media meltdown." The way I look at it, that one is proceeding on schedule.
Overall, I would say that the last five years have been disappointing. Today, if I were putting down a list of important issues to follow, I definitely would include sovereign debt. You've got problems in Europe, problems with state and local governments here, and a looming problem at the federal level here. Certainly a big issue. I would take "mainstream media meltdown" off the list, because that is pretty much a done deal.
I would keep the other issues on for now, but I would say that with the possible exception of cancer therapy, the progress has been less than what I would have expected five years ago on all of them.
So it's a more pessimistic outlook than I would have had in 2005. On a more cheerful note, I continue to believe that the economy will stage a fast recovery some time in 2011 (a year ago, I would have predicted this for 2010). Once the three-month moving average of job growth passes 200,000 jobs per month, I expect to see a very vigorous boom. But it's like the old metaphor of a train--it takes a while to build up momentum.
Possibly related links, from Tyler Cowen: nGram showing a declining interest in the future; Felix Salmon on the prospects for many municipal bond defaults. My guess is that we will have either fewer than 5 or more than 150 cities default--nothing in between. Once default stops being unthinkable, it will be widespread.