It’s us against them—an American economy on the upswing vs. a global economy that definitely is not. Last year the U.S. economy added almost 3 million jobs, the largest number in fifteen years. The headline unemployment rate is down to 5.6 percent, and the so-called U-6 unemployment rate, which includes workers involuntarily working short hours and those too discouraged to look for work, although still too high at 11.2 percent, is at its lowest level since 2008.
While we generate tailwinds, the rest of the world seems to specialize in headwinds. The EU is inching closer to a deflationary recession, and the European Central Bank can’t do very much until Angela Merkel gets over her country’s historic fear of inflation. Greece is close to withdrawing from the euro, which in the end might be good for Greece but unsettling for other EU countries. Venezuela is close to default as oil prices remain at levels that make it impossible for the regime to cover the cost of carrying and repaying its debt, and if we learned anything from Lehman Bros. it is that the ripples from a seemingly small financial problem can drown the world economy. Vladimir Putin is willing to have Russia bear the economic pain inflicted by sanctions in order to pursue his goal of creating a New Russia, meanwhile damaging several European exporters with retaliatory import restrictions. Iran remains so determined to become a nuclear power that its supreme leader has urged it to become self-sufficient, with no economic interaction with the West. Japan is having difficulty waking from a decades-long nightmare despite the efforts of Prime Minister Abe. ISIS remains in control of large swathes of Iraq, and Islamic terrorists’ slaughter of French cartoonists makes clear that France’s moribund economy is only one, and perhaps not its most important, problem.
Despite the much better picture here in America, “We’ve got troubles of our own,” to borrow a line addressed to Officer Krupke in Stephen Sondheim’s “West Side Story.” The labor force participation rate continues to edge down, hourly wages seem stuck, and the inflation rate is well below the target the Federal Reserve Board’s monetary policy gurus deem healthy. The Christmas truce between President Obama and the Republicans who now control both houses of Congress has given way to renewed hostilities. The president has reminded Republicans that they do not have large enough majorities to over-ride his vetoes. Obama unchained -- from the electoral cycle -- is now free to be true to his inner-left self.
Even before any bills hit his desk he has announced, to applause from his green constituency, that he will veto congressional authorization of the Keystone pipeline that would bring more oil down from Canada, despite the fact that Canadian oil would further displace imports from unstable, hostile nations. He also plans to veto a change in Obamacare that would reduce health-care costs to employers by putting the length of the work week that entitles employees to coverage at 40 rather than 30 hours, reducing the number of workers eligible for coverage. And he is keeping his veto pen handy should Congress vote to re-institute and tighten sanctions on Iran if its centrifuges continue to produce fuel for a nuclear bomb.
The president and Congress do agree on two things, that tax reform and freer trade are good ideas. But Obama’s idea of tax reform includes “revenue enhancements” to fund infrastructure -- known to most people as tax increases -- and the Republican version does not. No deal likely. The president would be willing to sign a bill giving him broader authority to negotiate trade deals, but it is not certain that he can overcome opposition in his own party to such trade-openers with the EU and Pacific Rim countries.
Nor is it certain that Republican congressional leaders can deliver on their promise to govern responsibly. The Tea Party, which would rather be right than president, is energized by its fear of another Bush in the White House, this one Jeb, a moderate on education and immigration and, even worse, brother of the president who expanded the welfare state by adding a prescription drug entitlement to Medicare, and son of the man who raised taxes in 1990. The Republican right is organizing to deny Jeb his party’s nomination, a battle that will pit the Tea Party’s Main Street advocates against the Republican establishment’s Wall Street and corporate sponsors.