Watching Barack Obama deliver the State of the Union speech brought to mind the verse by George Leybourne celebrating "this daring young man on the flying trapeze" who "flies through the air with the greatest of ease." How graceful and fluent the president was, how marvelous his delivery, how witty his references to his opponents. And all despite the fact that he had to be thinking about the 15 million-plus people who are unemployed (40 percent for over 27 weeks) and the millions more who are working part time when they would rather work full time. Further, as we learned, he was carrying a huge lead weight: the impending prediction in the budget he was about to release that the federal deficit will reach a record $1.56 trillion or 10.6 percent of the gross domestic product. He could have skipped the soaring oratory and boiled his message down to three words: "We're in trouble."
The president spoke to a country that is in a mood of pessimism and deflation. Gone is much of the hope and enthusiasm that greeted Obama in the early days of his presidency. The nation had come together to derail a threatening Great Depression with strong support for the stimulus package and other measures. But Obama then squandered this political momentum by pursuing agendas inconsistent with the country's focus. The result today is talk of decline and recession and of how countries like China will surpass the United States over time. Everyone who knows somebody out of work can't help speculating if he or she is going to be next; virtually all American families who own a home have lost a huge portion of their equity, on top of their financial losses. Personal net worth, as a multiple of income, fell by almost a third from peak to trough since 2006. Now many are concerned about the ability to afford their retirement years or to fund their children's education. This is the new dismal.
Republicans continue to sit on their hands. As a party, they are singularly lacking in national, as distinct from congressional, leadership. The country needs a coherent and convincing Republican opposition presenting serious alternatives. The GOP should use its Massachusetts Senate seat victory—bequeathed by independents—not to sit back and gloat but to take itself seriously. The GOP has not been very imaginative in just saying "No" to whatever it is the Democrats want to do. Yes, Republicans are entitled to be critical of Obama's first year on the trapeze, and yes, the Democratic congressional leaders must have missed those campaign speeches in which their leader pledged a genuine bipartisan effort. It was the Democratic congressional leaders who shut out the Republicans as they pushed through the first major piece of legislation in the new era, the $787 billion fiscal stimulus bill. Republicans can certainly be incensed that the resulting package—surprise, surprise—has mostly gotten people back to work in the public sector supporting Democratic projects. And by far the worst display of congressional manipulation was the purchase of support from Democratic senators and labor unions, a form of political corruption that the Democrats resorted to in order to ram through a flawed healthcare program.
Everyone is rightly scared of the ravenous big-bad-wolf deficit, but there is little sign the economy will recover without a further boost, and that means deficit spending. History shows that a strong rise in GDP is the most potent deficit-reducer because it produces an accompanying rise in tax revenues. Obama's budget director, Peter Orszag, predicted this by estimating that the growth of the economy and the revenues that generates would reduce the scale of the budget deficit to a more manageable 4.25 percent of GDP by 2013. At the same time, we should not be misled by the 5.7 percent rise in GDP in the fourth quarter. It's worth much less than a full cheer since 60 percent of it came from cyclical factors such as reduced inventory liquidation, rather than an upsurge in consumer spending, investment, and exports—the real engines of growth and jobs. Consumers are clearly not coming back the way they once did. The new normal will be higher savings, fewer credit cards, lower consumption, and, unfortunately, slimmer paychecks.