What’s Going To Matter In 2013

What are the stories that will really matter in 2013? My guess is these:

India: Zero expertise here from me, but it’s clear from the rape protests over the past couple of weeks that the country is primed for some political upheaval. Its economic slowdown over the past year is a bigger deal than China’s, coming from a lower level of prosperity and a lower previous growth rate, and yet along with China this is where everyone lives. Will things get better?

Coalition politics in Europe: Germany and Italy, facing very difficult political and economic circumstances, both look set to deliver indecisive election outcomes. Angela Merkel’s Christian Democrats will triumph in Germany, but her right-wing coalition partners are going to falter forcing her to forge either a grand coalition with the Social Democrats or a never-seen-before-federally black-green coalition. In Italy meanwhile, the center-left Democratic Party is going to win against an Italian right that’s fragmenting into three or four factions. There are a lot of different possibilites here, some of which make constructive action much more likely (grand coalition in Germany, plus Bersani-led coalition in Italy that relies on Mario Monti for support and ditches the furthest-left elements of the Italian left) and others that make it much less likely.

Debt ceiling: It used to be the case that “divided government” produced just as much constructive legislating as unfied party control in the United States. But with today’s more ideological parties, that seems to clearly no longer hold. Still, divided government could mean an era of domestic policy stasis rather than a period of repeated domestic policy crisis. The coming 2013 standoff over the federal debt ceiling is probably the biggest indication of which way we’re going. If Obama blinks, welcome to the era of permanent political crisis. If the GOP blinks, we’ll be fine. If nobody blinks, well, now we’ve got another kind of crisis on our hands.

Japan: If Shinzo Abe can bring Rooseveltian resolve to Japan and break the back of deflation, it’ll be important not just for the world’s #3 economy but as an example to the rest of the developed world. Noah Smith, who knows Japan much better than I do, says we shouldn’t put our faith in Abe who’s really just an ugly nationalist and not any kind of monetary policy wonk. I would say there’s no contradiction there. The ugly nationalists running Japan in the 1930s were the first to ditch gold and beat the recession. Adolf Hitler ran a very intelligent and forward-thinking monetary policy regime. Sometimes it takes a national security hawk to beat the inflation hawks. That said, if the upshot is an invasion of Manchuria and a sneak attack on Hawaii we may end up missing the good old days of prolonged Japanese economic stagnation.

Global fracking: Natural gas and oil extraction via hydraulic fracturing (“fracking”) has had a transformative impact on select regions of the United States, is a partial driver of a manufacturing recovery, and is giving us what looks like a painfully earnest Matt Damon movie. But right now the impact has been to a large extent confined to the USA. But the spread of the technique to China seems inevitable and it’ll presumably head elsewhere as well. Worldwide fracking will have a bigger worldwide influence, obviously, but should also mute the America-specific impacts like advantaging US manufacturing.

That’s what I’ll be keeping my eyes on.