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The Economic Year in Review

Say goodbye to 2010.

11:00 AM, Dec 24, 2010 • By IRWIN M. STELZER
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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.

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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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