Since I once again didn’t get the chance to blog much this week, I’ll take the lazy man’s option and reprise the events.
You gotta start with the State of the Union address. As usual, Obama delivered a masterful speech. He always does. Unfortunately, seventy minutes of great oratory contained little substance. Instead we were given what amounted to the kickoff campaign speech for the mid-term elections. Clearly, he isn’t ready to move rightward. Stay the course was the message I received, though I’m fairly convinced that’s a losing proposition. At the same time, he doesn’t impress me as that foolish a politician so I’m left wondering what sort of rabbit might be pulled out of the hat if things keep trending badly for the Democrats.
I’m not inclined to let pass Obama’s criticism of the Supreme Court’s decision on campaign finance. Let me say categorically that Obama is entitled to his own opinion about the Court’s decisions and, as well, to publicly, express those opinions. The forum in which he chose to air those opinions was inappropriate to say the least. In fact, he took a cheap shot at the six justices in attendance and should apologize for it. The fact that the substance of his criticism was faulty (link here) only serves to compound the error. The nine men and women justices and a few pieces of paper are all that stand in the way of tyrannies that many of those who cheered the President’s slur would likely be willing to visit upon us in furtherance of their own ambitions. It was hardly one of his finer moments.
Enough of politics.
Have you ever seen a more tepid response to a blowout quarterly GDP report? The politicians, pundits and economists all delivered very measured and cautionary commentary on the number. The headline number was a 5.7% increase driven substantially by inventory restocking. Normally, this would be grounds for not insubstantial optimism as it represents a natural evolution from recession to recovery. Apparently not everyone is convinced that’s going to happen.
The WSJ roundup of economists’ opinions on what it all means was decidedly mixed. Most bloggers and the MSM chose to downplay the results or at least temper any enthusiasm with an acknowledgement that key parts of the economy are if not broken then substantially bent. I’m going to be a little bit of a contrarian and suggest that we might be surprised. The sheer inertia of a $13 trillion economy moving however slowly forward is a pretty substantial force to arrest. We might well be in for a period of slow growth, but growth nonetheless for some time.
Please don’t construe those comments as a suggestion that the larger issues, particularly employment or the lack thereof, are going to be ameliorated. There are serious long-term structural issues remaining that anemic growth will not address. But absent some large external shock, I just don’t see another period of declining GDP. Painful muddling through may well be what the next few years have in store for us. Whether that’s politically acceptable is another kettle of fish.
Ben Bernanke managed to eke out a vote of confidence of sorts in the Senate. The question is at what price. Certainly he has been, if not neutered, at least rendered a crippled advocate for independent Fed action. The real test of the price he paid for reappointment will come when the economic interests of the country dictate actions that run counter to the interests of the political class. Probably sooner rather than later we’ll see if he is up to the task of standing up for his beliefs.
I said a week or so ago that 2010 might well be the year we remember for the mass abandonment of housing by underwater borrowers. I still think that’s going to be a story of the year (click over to Calculated Risk for a fascinating podcast from a real estate attorney discussing attitudes towards foreclosure). I’ll add that we might also remember this year as the one in which one or more of the states has to be rescued outright from fiscal collapse. Our own little Greek problem as it were.
Having said that, it seems that the states and city governments are having a go at least at trying to scale back there operations to a level that corresponds to the reality of their ability to raise revenues. In Phoenix, for example, the ax came down this week on city operations in a manner that does bring home the reality of the severity of the crisis. The city has been forced to bite the bullet on first responders. Significant cuts including layoffs and demotions will be imposed on the police and fire departments in an effort to pare their budgets as part of an overall recognition that there simply isn’t enough money to continue business anywhere as usual. The state is still mired in political infighting over how to cope, largely because they can put off the day of reckoning a bit longer than can the municipalities. Sooner or later, however, the realities will impose themselves at that level as well.
Missing from all of this is any semblance of pain assumption on the part of the federal government. There head counts march inexorably forward and no sign of furloughs, layoffs or any other money saving measures have appeared. We will know that the politicians intend to take this entire situation seriously when we see some pain inflicted on the bureaucracy. Until then, watch their lips move and take nothing they say at face value.