Barack Obama's Great Economic Foreboding
For Barack Obama, the Great Foreboding is both an enormous burden and a splendid opportunity. We are suffering from more than depressed retail sales, stock prices and production. Americans have drifted, or been dragged, into a state of collective despair and bewilderment. They don't know what lies ahead and wonder whether anyone does. Americans have lost their sense of mastery over the future, and if Obama can restore that, he will have gone a long way toward reviving the economy and ensuring a successful presidency.
It is not the present economy that most disturbs people. That's bad but not unprecedented. Despite recent increases, the unemployment rate, 7.2 percent in December, remains below the average peak unemployment of 7.6 percent during the previous 10 post-World War II recessions. What unsettles people is the vague notion that we're headed into something new, menacing and enduring. Unemployment, predicted to reach 9 percent or more, will remain high. Expansion will resume grudgingly, if at all. Income gains will be slight or nonexistent.
Precisely this specter explains why the word "depression" is so routinely deployed, even though we're a long way from the bread lines of the 1930s. But the Great Depression also signifies a period when we lost control. For all the New Deal programs, the Depression lasted a decade and ended only with World War II. Even in 1940, unemployment averaged almost 15 percent. It's the worry that government won't triumph over today's economy that justifies, for many people, the bleak analogies.
The pessimism stretches across class and political lines. A December survey by the Pew Research Center asked whether economic conditions would be worse in a year. Among those with incomes under $30,000, 51 percent thought so; for those with incomes exceeding $100,000, the response was almost identical, 53 percent. Another question was whether unemployment would rise in the next year; 57 percent of Democrats, 64 percent of independents and 66 percent of Republicans said yes.
This democratic (with a small "d") despondency has many causes. As more Americans invested in stocks, more became exposed to the market's wild psychological and financial swings. The plunge in home values has made many workers with secure jobs poorer. And, of course, layoffs themselves have become more democratic. Once, the young and blue-collar workers bore the brunt of firings. Now, managers, investment bankers, journalists, scientists -- almost anyone -- can be canned. Age confers little security. In December, almost a third of the jobless were 45 and over.
What offends middle-class Americans, most of us, is economic capriciousness. People crave order, predictability and security. They want to believe that personal virtues of studying, working hard and planning will be rewarded in the marketplace. Even in good times, these ambitions are often frustrated. But in today's economy, the disconnect has widened. Setbacks and losses seem increasingly divorced from personal effort. Our whole values system seems besieged.
Since World War II, Americans have only once before experienced a similar economic trauma: the double-digit inflation of the 1970s (13 percent in 1979). Work and thrift were undermined because inflation threatened the worth of wages, salaries and savings accounts. Then as now, people were terrified; inflation seemed uncontrollable. Starting with Lyndon Johnson, four presidents had failed. No one knew how high it might go. Then as now, we seemed unable to chart our destiny.
What suppressed inflation was the brutal 1981-82 recession undertaken by Federal Reserve Chairman Paul Volcker and supported by the newly elected Ronald Reagan. Unemployment reached a peak of 10.8 percent, but gluts of jobless workers and idle factories broke the wage-price spiral and ushered in two decades of strong economic growth. Reagan won a landslide reelection in 1984; his campaign featured a signature TV spot that boasted, "It's morning again in America."
Up to a point, there are parallels for Obama. Today's misery is a political opportunity. Reagan's popularity soared on the belief that he had reestablished economic order. The country had reasserted control of its future. These gains offset the recession's severity and its hangover. In 1984, unemployment still averaged 7.5 percent.
If Obama can overcome the sense of helplessness, he will surely reap much political credit. There need not be a boom -- the economy must achieve just enough sustained growth to convince most people that it's manageable and that we have not descended into a new dark age.
Here, the parallels break down. Volcker and Reagan embarked on a deliberate effort to quell inflationary psychology; the question was whether the recession could be maintained long enough to do the job. Obama faces a global recession brought on by murky forces barely understood. The effort to counteract them and to prevent further economic damage is a grand and confused experiment. If it fails, Obama's burden will be back-breaking.