The stimulus has worked some, but wasn't big enough. And because it was a rush job, as it had to be, many of the projects the government invested in were not perfectly targeted. Even so, the stimulus saved a bunch of teachers and firefighters jobs and repaired a bunch of roads and suchlike. So much infrastructure to fix. And the Republicans think somehow the fixes will occur by magic. So also, no high speed trains, no smart power grid. Dogma gone wild.
Hyperinflation was not an issue, even if the right keeps waiting and hoping for something scary to happen. In fact, yields on Treasuries are very low, reflecting the fact that US government debt is appealing to investors. It is appealing as a result of the Fed's credibility, especially in a crisis. S&P lowered the US' credit rating and Treasuries immediately increased in price! Whoops. Clearly Ron Paul's theory of how the money supply works doesn't function the way it does in a real economy. I'm not sure why folks don't laugh when he spouts it on the campaign trail, knowing how wrong he has been.
Indeed, by comparison with the European Central Bank, the Federal Reserve has fared well. The lender of last resort function has proved critical, as has having more than inflation-fighting as a raison d'etre. The US dollar has seemed to retain its status as the destination of capital flight in a crisis.
Inflation - as far as it occurred - has taken place amongst the goods traded in international markets - which a single country cannot easily affect.
Domestic prices have been influenced by deflationary forces, as expected during a housing and borrowing crisis. There's no pricing power when folks are out of work and their primary asset has substantially declined in value. The US Fed's issuance of fresh paper (via quantitative easing) restricted the downside of a deflationary environment using monetary tools. When the economy grows on the back end of this downturn, they will have to withdraw the surplus paper to avoid inflation. But Ben Bernanke seems confident of his ability to do so.
While the unemployment rate went a bit higher than expected, it turned out the extent of the downturn was also a bit worse than originally reported during the Bush presidency. At least we are on the path back towards a healthy economy with decent jobs in it.
Even so, even if it is no longer in the emergency ward, the economy is and continues to be under pressure, which means that the growth in GDP is a little slow. Companies are reluctant to invest until they are certain a recovery is in place. Instead, they stay lean, quit hiring, build cash and wait. But relative to many other advanced economies, the UK's say, things look relatively benign in the US. And the path to prosperity is not blocked by harmful policy. Indeed, the jobs reports in the last few months show the emergence of private sector hiring. So perhaps businesses are deciding to sit on their hands no longer. If so, 2012 will be surprisingly strong and the economic analysts will be seeing more upside surprises.
The main risks come from overseas, and particularly from the EU. It sure would be nice to see Germany relieve the rule of austerity it imposes on other Euro-area economies, which seems to work okay for them but not so well for most of the others. It helps the US if Europe is stable, the currencies are viable and consumers and companies can afford to purchase US goods.
The US government deficit is pretty large, even if the interest payments required are manageable due to the low rates of interest. When the economy recovers, this is going to need to be dealt with. So surpluses are going to go towards debt payment rather than increased government expenditure. Medicare costs are going to need to be brought under control. These sorts of things.
Even so, total US indebtedness has declined, reflecting improvements in consumer balance sheets. So in effect there's been a transfer from unsustainably high levels of consumer debt, to sustainable levels of government debt at lower rates of interest. Overall, that's a slight improvement, even if it ain't great.
Mr Romney, of course, hopes to inherit the upside of the equation. But the timing looks like it is going to suit Mr Obama (just) and he will get the credit he deserves for turning around the catastrophe caused by the regulation-free policies of GWB.
Smart government rather than big government or small government. It's a shame it could not have been even smarter, but the structure is deficient and allows Congress to obstruct policy. Of course, the Republicans will do all in their power to hinder the economy's progress. It's all about politics for them and little about the recovery.
This whole conversation would be so easy to have if folks looked at the economic releases. Yet so many people tend to avoid the actual reports and rely on some politically-inclined person's interpretation of them. The narrative is fairly plain when you actually do the work yourself.
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