There is an old political saying: "When the economy is bad, the economy is the issue; when the economy is good, something else is the issue." Right now the economy is the issue.
But that might not be the case by the end of 2010. We appear to be moving to a second consecutive quarter of positive growth, marking the formal end of recession. It will take a while, however, before ordinary citizens will be able to feel it. The present 10 percent unemployment rate is unlikely to recede to even the 8 percent level until mid-2010. Even as bank lending and business expansion pick up, employment will be slow to grow. There is a lag of several months, after recession's formal end, before unemployment begins to drop appreciably. The depth of the economic crises has made managers risk averse; they will not rebuild their work forces until they are sure stable growth lies ahead.
Beyond normal indicators, there is an overlay of populist rage over actions taken in 2009 which will not disappear as employment begins to pick up and bankruptcies and mortgage foreclosures slow down. The billions in taxpayer dollars allocated to big banks, the auto industry, the mortgage industry, and politically favored entities in stimulus, health-care and defense legislation will not be forgiven easily by voters and taxpayers. The "tea-party" movement, derided by mainstream media as a convocation of kooks, has its share of political oddballs but it also consists of ordinary people of all political persuasions who are just plain fed up with what they see as the unfairness of policies directed to the well being of big shots and high riders. Even as the economy recovers, this economic anger will linger.
Looking overseas, keep in mind that the war in Afghanistan already is the longest in American history. American troops will not begin withdrawal anywhere near the mid-2011 target set by President Obama at the end of his recent policy review. Over 2009, Taliban strength has grown in both Afghanistan and Pakistan. The only saving element in all of this is that strong majorities in both countries are opposed to Taliban takeovers.
Every U.S. troop in Afghanistan costs approximately $1 million in taxpayer funds. The buildup planned in 2010 will keep costs and casualties rising. The building of effective Afghan military and police forces will not be easily done. One of our basic problems is that Pashtun tribal members are notably missing from military command. The parallels are not direct but one could compare present Pashtun grievances and outright rebellion in Afghanistan to Sunni unrest in Iraq at a time when it was perceived that the U.S. was favoring Shiite governance there.
In Pakistan, by far the more important of the two countries, there is a strong strain of anti-Americanism and weak governance. Military and intelligence elements continue to consort and even finance Islamic fundamentalist movements. We should not misguidedly believe fresh billions in foreign assistance for Pakistan will change either popular or official opinion.
How, then, can we ever leave? It is not as if either a Hanoi or even a Baghdad central government were prepared to restore stability and fight the fundamentalists. Only a dramatic event — such as the apprehension or killing of Osama bin Laden and his principal lieutenants, and of Taliban leaders in both Afghanistan and Pakistan — would provide a backdrop for gradual withdrawal. In the end, we may have to accept some form of Taliban power-sharing in Afghanistan as the price of our exit.
Obama surely will face another agonizing review before mid-2011. Meantime domestic discontent is certain to rise as casualties and spending mount in a war that has no apparent end. If in 2009 the economy was the issue, in 2010 Afghanistan will be the issue.
As for health-care and other domestic business, I have some major concern. I felt great elation in 1965 when the Johnson-Humphrey administration enacted Medicare and Medicaid, and I was heartened when President George W. Bush and Sen. Ted Kennedy led a bipartisan effort to enact a Medicare prescription-drug benefit. I feel no emotion whatever — except a vague foreboding — as the Obama health-sector makeover is on the verge of congressional enactment.
The history of major domestic reforms is that they cannot be sustained unless passed on a bipartisan basis. The pending health-care package was a Democrats-only exercise that got the necessary 60 Senate votes only at the cost of outrageous payoffs extended to favored states and industries by Majority Leader Harry Reid.
The legislation lacks coherence. The new taxes and fees associated with it will begin in 2010; most of its benefits will not kick in until 2014. It is "deficit neutral" only if hundreds of millions of unspecified cuts in Medicare, and big new taxes on higher-income individuals and on business, actually are enacted. The Medicare cuts, in particular, are unlikely ever to happen. The expansions of coverage will help help millions of Americans now without it. But they also will dump huge new obligations on state governments mandated to pay a greater share of ever-rising Medicaid costs.
Final legislation will not embody the "single-payer" model long sought by liberals. It is unlikely to contain the "public option" (a public entity to compete with private insurers) sought as a fallback. There is no catastrophic (or major-medical) coverage. There is no tort reform. There are, rather, dozens of separate provisions which (impossibly) are promised both to expand coverge and reduce costs simultaneously.
Will we be better off if and when Obama signs such legislation? Possibly. In meantime, we should recognize that this is not the historic, 200-years-sought breakthrough which the legislation's advocates claim that it is. It is far less significant, for instance, than either Medicare or Medicaid. Obama and Reid deserve credit for tactical skill in driving Senate Democrats (and two independents) to vote for the legislation. But now Senate Democrats and their House counterparts with 2010 reelection campaigns must face an electorate which, at this moment, one-sidedly says it does not want the legislation.
Cap-and-trade legislation presently is stalled in the Senate. House and Senate financial-reform legislation is moving slowly. Chances of both are no better than 50-50 in the coming year.
Thus the electoral backdrop in 2010, for political candidates of all persuasions, will be a gradually improving economy, an increasingly frustrating war, and populist discontent over what is seen as unresponsive governance by both the executive and legislative branches. At this early stage, Republicans seem likely to gain a near majority in the House and to reduce the present Democratic majority in the Senate. If this is what actually takes place next November, then the second half of the Obama term will make the first half seem politically pleasant.
And what about here at home? State, county, and local governments will be forced in 2010 to get their financial and economic houses in order. Big public-works projects, fresh tax subsidies, and ambitious new programs cannot be launched in the present environment. Yet in Seattle and in King County the two candidates most identified in November elections with sober financial management, Joe Mallahan and Susan Hutchison, were defeated for Seattle mayor and King County executive, respectively, by candidates not identified with such approaches. Will Mike McGinn and Dow Constantine get it?
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Comments:
Posted Wed, Dec 23, 8:25 a.m. Inappropriate
Clearly, arithmetics is not a Van Dyk strength. The Fed estimates 100,000 jobs need to be created monthly simply to keep pace with demographics. The Fed currently forecast unemployment to range from 6.1% to 7.6% by 2012. To hit the lower mark, the economy would need to generate 260,000 jobs EVERY MONTH for 2010,2011, AND 2012. It would require 200,000 jobs a month, every month, to hit the higher end. On average, the internet bubble generated 264,000 jobs a month, while the housing bubble 212,000 jobs a month.
Mr. Van Dyk, you have no grounds to suggest 8% unemployment by 2010.
Posted Wed, Dec 23, 11:34 a.m. Inappropriate
Re Ted's "The history of major domestic reforms is that they cannot be sustained unless passed on a bipartisan basis. The pending health-care package was a Democrats-only exercise that got the necessary 60 Senate votes only at the cost of outrageous payoffs extended to favored states and industries..."
The key thing to remember about current Republicans is that, above all, they want Obama to be a failed president. So working with him to develop bi-partisan legislation, the way Tip O'Neil did with Pres. Reagan, just won't happen. Such bi-partisanship would be considered an Obama success, and they don't want the guy to have any successes anywhere.
Republicans would rather have the country fail than for Obama to succeed.
Posted Thu, Dec 24, 12:07 p.m. Inappropriate
R on Beacon:
Republicans strongly believe in America, in its success, and the freedom America stands for around the world. We don't want Obama taking away that freedom. We'd love to see him succeed in reinforcing our Constitutional freedoms, and increasing government transparency, particularly since he is a constitutional professor. Alas, we believe his view of the Constitution is wildly different from the one conservatives believe in, particularly those of us veterans. Obama has admitted that he thinks the Constitution identifies "negative rights". And he is in favor of making all sorts of promises to people about guarentees, which I would equate to putting people in a well cared for zoo.
$106 Trillion in debt and unfunded obligations is what America has. Not only is this not sustainable, but it will inhibit job formation, at least, private sector jobs. Congress continues to beg China for money to fund projects. That is a failed recipe for the future. As China loans us more, their government will enact a terrible revenge upon us - they will force Congress to relinquish control over some of our natural resources, company ownership, and foreign policy. They've already exhibited this by recently demanding Congress withdraw the sale of advanced weaponry to Taiwan.
Because Congress has given China so much power, many more jobs will be created there than here. China has a near monopoly on rare earth elements (REE) that are essential ingredients to many of the high tech equipment, weapons, and "green" energy devices. China uses their money to buy up any REE resources that come onto the market so as to maintain their control. By 2012 China no longer will export most REE raw material, instead they will sell finished components. Congress knows this reality but pretends that green manufacturing will be rooted in America. Congress has set the stage for China to get the jobs, not America.
Posted Thu, Dec 24, 12:15 p.m. Inappropriate
Government run health care will tax society for 5 years before any services are rendered.
Jobs will be LOST because labor expenses will rise. It's absurd to think we'll be at 8% next year. Health care will have double the costs for the first 5 years. This 5-year period will likely be called the Health Care Recession. And what of the taxes and fees the government collects during the first 5 years? Where will it go? Will it be in a lock-box, or spent by Congress on pork projects?
How much debt will America incur before our currency collapses?
And since Progressives want to legalize the 10+ million illegals next Spring before the 2010 census, how much more will the unemployment rate climb with the addition to the labor force? And how many more million of illegals will be lured to America to fill the under the table labor jobs, the previous illegals did?
Posted Sat, Dec 26, 10:30 a.m. Inappropriate
FlyintheOintment: Your computations are correct and I am guilty of having
looked at past post-recession numbers which were far too optimistic in the current environment. Among private forecasters, I trust Macroeconomic Advisors (with which, disclosure requires, I once had a several-year consulting relationship). It has a strong track record of accurate projections. That firm predicts that, given current trends, unemployment will be at 9.6 percent by the end of 2010. You are quite right that an 8 percent unemployment rate by mid-year, 2010, would be unrealistic.
Posted Sun, Dec 27, 3:31 p.m. Inappropriate
Failure teaches perspective - our 'too important to fail' leadership does not even have a clue as to the fundamental shifts in the economy of the US that need to take place. Though unemployment is at 10%, the real number is closer to 20% when you count those not collecting benefits - and if you add in the number of folks who are in declining wage professions the number grows yet still larger. Heck, 10% of America is on food stamps right now.
Our housing values, even the value of every business asset, is based on the incomes of American citizens. America will not recover until those asset values reset and those that bid them too high pay the costs for their 'failure'.
Like the Perotistas of not too long ago the Tea Party folks have little of the deep organization it takes to make a national success. I do hope the seeds of reformist alternative local government bloom in at least a few places in 2010, if not 2012 will be rather dark....