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Morning Jay: Farewell 2011, You Will Not Be Missed

6:00 AM, Dec 28, 2011 • By JAY COST
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Clouds so swift, rain won't lift.
Gates won't close, railings froze.
Get your mind off winter time.
You ain't going nowhere.

And so begins “You Ain’t Going Nowhere,” the opening track of the Byrds’ classic album Sweetheart of the Rodeo, and an apt description of the year that was 2011. 

What a waste of a year. What a year for doing nothing and going nowhere. 

Expectations for 2011 were extremely bullish last December. Buoyed by the tax cut deal and the second round of quantitative easing, the forecasters were in a jaunty mood one year ago: The consensus forecast from the Wall Street Journal called for economic growth in the third quarter of this year to be a healthy 3.1 percent. It printed at a sick 1.8 percent. And that was the story for the whole year, with macro performance coming in well behind what the experts had expected.

An economy growing at such a weak rate meant, in turn, that the recession effectively continued for the average American. To appreciate this, consider the following chart. We might say that there are three major sources of wealth for the typical family: the purchasing power of the money in their pocket, the value of their home, and the performance of their 401(k). All of these were flat over the last year, as the following demonstrates by taking an indexed version of all three (100 = the level of each in December 2007, i.e. right before the start of the current depression).

This graph merely illustrates what we have all felt, which is that the economic recovery – such as it was – lost steam more than a year ago. The average American’s position has been flat for about the last 18 months, especially throughout 2011.

The next graph really drills this down by looking at income, the S&P, and housing over the last year, with the index reset so that 100 equals the value in January 2011.

If Webster’s Dictionary was looking for a picture to illustrate “stagnation,” they might consider this one.

This is why I was so bemused by some liberals high-fiving over Obama’s “victory” on the payroll tax holiday. Talk about rearranging the deckchairs on the Titanic! This was a political battle over a two-month extension for a payroll tax cut that obviously did not work in the first place and that will produce no marginal benefit for 2012. Woopty-doo.

For me, the payroll tax battle is yet another indication of just how dysfunctional our political process remains. Let’s keep in mind, of course, that this year’s economic stagnation was bankrolled by a $1.3 trillion budget deficit, the continuation of the Federal Reserve’s zero-interest policy, as well as a Fed balance sheet that now amounts to an incredible $2.3 trillion. (As a point of comparison, non-residential, private sector investment as measured by gross domestic product will print at roughly $1.9 trillion this year.) Put simply, our political class still lacks the capacity to do anything about the structural problems in our economy, beyond the same old stuff that has not worked so far.

This is why I say: Good for President Obama that his job approval numbers have ticked up from just-plain-awful to not-awful-but-still-pretty-bad, but this does not change the fact that, if more politicians are going to lose their jobs because of this mess, he will be the next one kicked off the island. That’s just the way these things go. You don’t run a huge deficit, produce nothing for it, and get to keep your job.

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