Economists Predict a Prosperous 2025 – Should  We Be Worried?

At the beginning of 2023, 65% of economists according to Goldman Sachs predicted that there would be a recession within the calendar year. The results are in. Inflation has come down from 9% to 2.2%. GDP growth for the year is predicted to come in 3%. Unemployment which had remained below 4%. for two years has creeped up slightly.

For the last forty years with a slight exception during the Clinton years economic and public policy has been based on a top down/Supply Side approach. What we have had over the last three years is a bottom-up demand side approach. It appears that the metrics designed to predict the economic future are highly biased towards a supply side economy. For that reason, they reflexively assumed that inflation and higher interest rates would result in stalled economic growth, higher unemployment, which would result in lower inflation.

They totally missed a very simple fact about an economy that in our President’s words is built “for the bottom up and the middle out”. The average American citizen does not participate in the investment economy. While 58% of Americans own some stocks 50% of stocks are owned by the top 1% in terms of net worth. The investment elites have huge reserves of cash and corporate equity. Their value is deeply affected by inflation and interest rate increases. The average American has relatively little cash saved and an insignificant amount of corporate equity. What they do have in abundance are productive hours. They have 40 to 60 this week, 40 to 60 the next week as far as time goes forward.

Due to several factors the value of that productive hour rose significantly over the last two years.  In a top-down economy increased cash flow such as tax incentives  are used to buyback stocks, invest overseas or add to the incremental wealth of an individual. The average American with more money in their pocket has no such inclination. Yes, inflation hurts the value of the money they earn, but inflation numbers assume that the buying choices of the average American are static. If the price of a bag of groceries goes up, they will continue to put the same groceries in that bag and purchase them from the same source. The average American isn’t that stupid. They will use their buying power to reward those who offer them the greatest value thus preserving the buying power of their increased salaries. They take the additional cash they earn and go out to eat, go to a movie, buy something for their kids and yes pay for the increased price of groceries.

So as profit margins declined for the investment elites the consumer’s available free cash increased. Their spending lifted the economy. GDP numbers do a very poor job of measuring small business activity but the sure sign that small businesses were thriving was the abundance of “now hiring” signs which often listed a higher hourly wage and offered signing bonuses to new employees. Ironically this increase in demand was one of the contributing factors to inflation. The consumer bought more goods, supply was slow to catch up.  Demand goes up supply doesn’t you have inflation. As we come to the end of 2024 it appears those imbalances are settling. Gas Prices are down the latest inflation numbers came in at an annual rate of 2.2%. Given these developments economists now predict a robust economy for 2025. Given their track record, should we be worried?