The Economic Year in Review
Say goodbye to 2010.
11:00 AM, Dec 24, 2010 • By IRWIN M. STELZER
As we look back on the year that is limping to an end, there is little—not nothing, just little—to cheer about. The year opened with the headline unemployment rate at 9.7 percent, and the rate including workers too discouraged to look for work or involuntarily on short-time (the U-6 rate, in the jargon of the trade) at 16.5 percent of the work force. It is closing with the headline rate close to 10 percent and the U-6 rate at 17 percent. The number of workers unemployed for 27 weeks or longer has jumped during the year from about 6 million to 6.3 million. All of this despite the expenditure of about $1 trillion on an economic stimulus.
John Maynard Keynes
Republicans and conservatives take these numbers as final proof that the reputation of John Maynard Keynes should remain in the graveyard of fallen economists, while President Obama and his team claim that without the heavy dose of Keynes’s medicine, a demand-side stimulus, the jobs situation would be much worse. Only the federal government has survived job cuts—the number of employees on the federal government payroll has increased a bit. And these are what liberals call “good paying jobs”: the average annual salary of federal workers is close to $118,000, and in comparable jobs is about 10 percent higher than private-sector pay.
One thing is beyond dispute. The year saw what must be the most rapid peace-time deterioration in the nation’s financial position. Under Bush, a budget surplus running at 2.37 percent of GDP in 2000 turned into a deficit of 3.18 percent in 2008. Under Obama, the deficit rose to a staggering 9.91 percent last year. This year it will be closer to 11 percent than to 10 percent. Yes, some of this is the natural effect of the recession. But some comes from the president’s decision to allow congressional Democrats to dust off spending plans long gathering dust. For them, Santa Claus came early this year, and stayed right through the latest deal agreed by Republicans: taxes on the so-called wealthy will not go up, a big win say conservatives who argue that the $100 million increase in taxes on the wealthy would have thrown us back into recession. But the price for that concession was agreement to spend another $1 trillion on some favorite Obama programs, increasing the deficit—something conservatives say will throw us back into recession!
The U.S. government now owes its creditors almost $14 trillion, up from less than $6 trillion when George W. Bush was packing to return to Texas. And the total is headed up, and will rise even faster if the recent increase in interest rates proves to be only the first round of rate rises.
Despite a pick-up in mood as a result of the demonstration that the president could forge a working relationship with Republicans—the tax deal was followed by passage of his START treaty and his bill to end Don’t Ask, Don’t Tell—Gallup pollsters find Americans troubled about the economy. The four most troubling issues are the economy (mentioned by 30 percent of respondents), unemployment (24 percent), dissatisfaction with government (13 percent), and the deficit (10 percent). Add the following from poll-takers at the Pew Research Center: only 35 percent of Americans rate their personal financial situation as either excellent (5 percent) or good (30 percent), 65 percent say jobs are difficult to find, and well over half (67 percent) feel we are losing ground in the fights to reduce the budget deficit, to close the rich-poor gap (58 percent), to compete internationally (55 percent), and to fix social security and Medicare (64 percent and 51 percent, respectively). These worries are exacerbated by weak house prices, rising foreclosures, and the unavailability of credit for the few prospective home buyers who believe the market has hit bottom.
All of which explains two important developments—the rise in the price of gold, and the sweeping gains by Republicans in the congressional elections. Gold opened the year at under $1,100 per ounce and is closing it at close to $1,400 per ounce. Despite substantial slack in production capacity, inflation expectations rose, and investors became worried about the long-term value of the dollar. Indeed, some economists are talking about the end of the era of fiat money and a return to the gold standard. The Federal Reserve Board is again printing money, and promises to print more if needed. With unemployment high, and the printing presses running at a rate that just might result in inflation down the road, talk of a return to the bad old days of Jimmy Carter and stagflation, or of a double dip recession, was heard in some boardrooms.
Nervousness about the economy also resulted in what might be the most consequential event of 2010—a political upheaval. According to the Rasmussen, Congress’s approval rating dropped from a skimpy 23 percent in the middle of last year to 11 percent, about as close to zero as you can get in a poll such as this. No surprise that the much-misunderstood Tea Party, consisting of a turn-the-rascals-out contingent upset with the rising deficit and size of government, proved to have such impact in 2010. Republicans regained control of the House of Representatives, and increased their minority in the Senate sufficiently to raise their party’s contingent from impotence to a force to be dealt with. Many of the old Republican war horses who were complicit in the explosion of spending, and in giving government so much larger a role in the health care industry, have been returned to the private sector, where they will be reduced to spending only money they personally can earn, many of them by lobbying former colleagues rather than, as promised, returning home to spend more time with their families.
Lest we forget that 2010 saw more than economic developments, let’s record that it was the year in which Iran moved closer to obtaining a nuclear weapon; in which China continued to acquire Western technology to reduce its reliance on American, British, French and German companies; in which all the talk about electric cars had no discernible effect on oil consumption; and in which serial financial crises in the eurozone exposed the weakness of a single currency trading in an area in which individual nations controlled their own fiscal policies. Oh, yes, there seems to have also been an oil spill in the Gulf of Mexico.
There’s more, but you get the idea, economic gloom for most, political gloom for Democrats. Only investors, who saw the equities market move up some 13 percent during the year, are smiling, albeit nervously. Everyone else, say goodbye to 2010 without a nostalgic tear in your eye.
The next report will be in the new year, containing guesses as to what is in store for us in 2011. I cannot conclude this year’s reporting without thanking all of you who share your views with me, and acknowledging the invaluable assistance of my Hudson Institute colleague Diana Furchtgott-Roth, who provides much of the data that lend these pieces any authority they might command.
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