Birmingham Business Journal Forecast Panel 2025 Thoughts

This morning, I'm participating in an Economic Forecast Panel for the Birmingham Business Journal. Here are my preliminary thoughts based on some of the questions they shared with me beforehand.

What Can We Expect From the New Administration?

The Good: Trump, like most Republicans, talks a good game about government spending, so I’m cautiously optimistic we might at least be able to pump the brakes on fiscal recklessness even if we don’t return to complete sanity. His administration–or some administration–will have to tackle spending because that’s the government’s real burden. Cutting taxes today might be nice and might even raise revenue depending on where we are on the Laffer curve, but large and persistent deficits mean we’re facing some combination of higher taxes and lower benefits in the future. Trump’s repeated flouting of democratic and constitutional norms aside, he probably has as good a chance as any president in my lifetime to make progress on this front.

With respect to how we are taxed, I refer you to this old episode of NPR’s Planet Money, which assembles economists from across the ideological spectrum to construct a “no brainer” economic platform that economists from across the ideological spectrum would support (and that, of course, would immediately doom the electoral prospects of anyone who tried it). In short, we need to move away from taxing people for working and investing and toward taxing them for consuming. I was impressed that he was able to get rid of the SALT deduction and push back a bit on the mortgage interest dedication during his first term, and maybe we will get more of the same this time around.

I’m mildly bullish on the regulatory front. Casey Mulligan is a great pick for the Small Business Administration and has pushed back on bureaucratic tendencies to try to micromanage people’s affairs.

The Bad: Trump’s claims about immigration and international trade are based on fallacies Adam Smith dispensed with about 250 years ago and that generations of economics researchers have found wanting. Immigrants bring net economic, social, and cultural gains, and free trade is one area where there is broad agreement among economists of all ideological stripes. Protectionism is flat-earth anti-economics, and every time we exhume its rotting corpse, we discover that it’s still dead.

The Opportunity: At the national level, I hope we can make progress toward greater fiscal discipline and regulatory restraint. Maybe Trump can take the Feds’ foot off the neck of the goose that lays the golden eggs.

What is the biggest challenge and biggest opportunity facing Birmingham right now?

Here’s a Data Dashboard with various macro indicators for the Birmingham-Hoover metro area.

The Challenge: Birmingham has a terrible regulatory environment, and it’s a hard place to do business. It took our church eight months to get approval to put up a sign. We also keep falling for boosterish claims that stadiums, arenas, and event venues create economic growth. They don’t, but we keep indulging in the Broken Window Fallacy.

The Opportunity: We can stop wasting money in a vain effort to imitate cities around us. I keep hearing that if we don’t build stadiums or give development incentives, Nashville, Atlanta, Charlotte, and Memphis will and “win” the economic recruiting race. Imagine piles of money on fire in each of those cities, though: just because they have money fires doesn’t mean we need one.

Perhaps more realistically, we can get rid of some of the zoning restrictions (like requiring that so much of the city be single-family detached housing), parking requirements, and other obstacles to new construction and urban growth. This might require more people to recognize that their neighbor's backyard is not their backyard, but the case for liberalizing the housing market is pretty strong.

If you want to put it on a bumper sticker, the opportunity is to "avoid nice-sounding mistakes." Get out of the industrial recruiting game, quit thinking venues and mega-events are "game changers," and stop setting money on fire just because everyone around us is.

What economic trends do you anticipate in 2025?

Past performance is a pretty good predictor of future performance, and I don't see a compelling reason to think GDP growth will be much higher or much lower than 3%. I'm not changing my portfolio based on anything because I'm not confident enough in precise predictions to deviate. Here's the Atlanta Fed's GDPNow forecast. Living standards will continue to rise in ways that are fully capitalized into market expectations, though not as rapidly as they would if more governments would get out of the way.

What about the Birmingham Labor Market?

It’s tight, just like the state labor market, but once again, we should be looking for regulatory barriers that are squashing labor force participation. I don’t think we need to do much more for people as much as we need to quit doing to them.

Industries in the city and state primed to grow or struggle?

I don’t know enough to be confident enough to change my investment strategy, which relies on diversified index funds.

There’s a simple way to test anyone who is prognosticating: if they say that industry X is going to grow and industry Y is going to shrink, ask if they’re going long on X and shorting Y. If not, discount their predicitons heavily.

What should we be reading?

In addition to my books, you should read Bryan Caplan’s Substack, buy his books, and find him on YouTube and in podcasts. I want to be Thomas Sowell when I grow up, so you should be reading his books, too.