Morning Jay: Farewell 2011, You Will Not Be Missed
6:00 AM, Dec 28, 2011 • By JAY COST
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.
This year also suggested that President Obama suffers from a lack of what George H.W. Bush once called, “the vision thing.” This is the president, after all, who was reduced to astro-turfing Twitter outrage over the tax payroll impasse – not exactly what Teddy Roosevelt had in mind when he coined the phrase, “the bully pulpit.”
Beyond these sorts of pathetic PR stunts by the commander in chief, there were actual bipartisan solutions suggested to solve our problems – the Simpson-Bowles plan and the Wyden-Ryan proposal – but they went nowhere because this president refused to get behind them. Most precious to him is the fiction that the Republican party is now so extreme that he cannot work with it, despite his promises during the campaign of 2008 to do just that. Obama's bottom line: crafting some grand entitlement/deficit/tax bargain just will not help his reelection; accordingly, there was no grand bargain in 2011, and there will not be one in 2012.
In fact, I think I have been a little unjust on this page over the last year. In previous entries, I had noted that Obama was re-running the Harry Truman ’48 campaign, but that is not very fair to President Truman. After all, while Truman was demagoguing the Republicans on domestic policies, he was hammering out a bipartisan, anti-Communist/internationalist foreign policy that would hold more or less for the next half century. Obama clearly lacks the ingenuity to craft such a nuanced position.
Thanks to 2011, we can now paint a fairly clear picture of what a second Obama term would look like. If the country should grant him a Democratic majority, akin to the 2009-2010 Congress, we can expect the old Obama-Pelosi-Reid gang to reunite for another round of liberal policymaking, replete with generous payoffs to key Democratic clients, onerous new regulations, and crippling new taxes – economic stagnation be damned! If, on the other hand, Obama receives a Republican Congress, we should expect 2013 to be a repeat of 2011 – nothing gets done, the partisan demagoguery ratchets up, and the economy is left to limp along on its own. "Strap yourself to a tree with roots / you ain't going nowhere..."
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