2010: An Economic Review (Irwin Stelzer)

The year saw what must be the most rapid

peace-time deterioration in the

nation’s financial position.

By Irwin M. Stelzer
The Weekly Standard
WeeklyStandard
12/24/10

As we look back on the year that is limping to an end, there is little—not nothing, just little—to cheer about. The year opened with the headline unemployment rate at 9.7 percent, and the rate including workers too discouraged to look for work or involuntarily on short-time (the U-6 rate, in the jargon of the trade) at 16.5 percent of the work force. It is closing with the headline rate close to 10 percent and the U-6 rate at 17 percent. The number of workers unemployed for 27 weeks or longer has jumped during the year from about 6 million to 6.3 million. All of this despite the expenditure of about $1 trillion on an economic stimulus.

Republicans and conservatives take these numbers as final proof that the reputation of John Maynard Keynes should remain in the graveyard of fallen economists, while President Obama and his team claim that without the heavy dose of Keynes’s medicine, a demand-side stimulus, the jobs situation would be much worse. Only the federal government has survived job cuts—the number of employees on the federal government payroll has increased a bit. And these are what liberals call “good paying jobs”: the average annual salary of federal workers is close to $118,000, and in comparable jobs is about 10 percent higher than private-sector pay.

One thing is beyond dispute. The year saw what must be the most rapid peace-time deterioration in the nation’s financial position. Under Bush, a budget surplus running at 2.37 percent of GDP in 2000 turned into a deficit of 3.18 percent in 2008. Under Obama, the deficit rose to a staggering 9.91 percent last year. This year it will be closer to 11 percent than to 10 percent. Yes, some of this is the natural effect of the recession. But some comes from the president’s decision to allow congressional Democrats to dust off spending plans long gathering dust.

For them, Santa Claus came early this year, and stayed right through the latest deal agreed by Republicans: taxes on the so-called wealthy will not go up, a big win say conservatives who argue that the $100 million increase in taxes on the wealthy would have thrown us back into recession. But the price for that concession was agreement to spend another $1 trillion on some favorite Obama programs, increasing the deficit—something conservatives say will throw us back into recession!

The U.S. government now owes its creditors almost $14 trillion, up from less than $6 trillion when George W. Bush was packing to return to Texas. And the total is headed up, and will rise even faster if the recent increase in interest rates proves to be only the first round of rate rises. The rest of Mr. Stelzer's Review