Both parties are reeling from the shock of an enraged electorate venting in the primaries. There are eccentric results but there is no doubt the votes reflect dismay at what has been happening to America. The supreme confidence, national pride, and sense of achievement that marked the nation through its first 200 years have been transformed into a mood of doubt. The spasm of hope and idealism that greeted Barack Obama's election two years ago has gone up in smoke. Nearly everyone knows someone who has lost a job or home. They can't help worrying whether they are going to be next and whether their dream of a middle-class lifestyle has evaporated.
Even the wealthiest and most highly educated are anxious at the decline of America's competitiveness. We seem unable to produce new generations of qualified leaders in the fields of science and technology. Our government has been incapable of addressing the nation's problems rationally and constructively. We are haunted that the world is catching up with America; the sense of uniqueness and self-esteem that has been a part of our national character since our founding—and has been amplified since World War II—is steadily eroding.
The problems begin with the economy. So many people accumulated so much debt before the balloon burst, we are in what economists call a balance-sheet recession. It's a bleak contrast to the more traditional inventory recession, where the economy bounces back when the inventory excesses are burned off, as we saw in the 1970s, 1980s, and 1990s.
The baby boomers are particularly vulnerable. Their largest equity asset, namely their home, has dramatically eroded; they worry that if they have to move there may be nobody around to buy their home. A staggering 60 percent of those between the ages of 50 and 61 now indicate they will delay their retirement. They know that they will have to work longer, save more, reduce discretionary expenditures, liquidate their debts, and, in particular, reduce their real estate exposure.
Lower home and stock market values have reduced household wealth by an estimated $10 trillion over the last several years. Millions of American families have been forced to do what the banks have had to do: the nasty exercise called deleveraging. Families have had to stop spending; the personal savings rate of 2 percent in 2007 has soared to approximately 6 percent today. The pressure to save more and spend less will weaken consumer spending for years, pushing the national recovery toward the horizon.
For a significant portion of the population, we have been in a long-term recession marked by real unemployment in the high teens, reduced hours and reduced incomes, not to mention a growing contraction in credit. The traditional family breadwinners, namely men between the ages of 25 and 54, are among those with the highest unemployment rates. They see companies more apt to shed than engage labor, thanks to productivity increases that have been made possible through enhancing technologies. That would normally be good news, but not at the moment.
Consequently every measurement of consumer confidence suggests attitudes consistent with an even more prolonged recession as the surge of government spending from the stimulus program and the need for companies to build back some inventory peter out. Various econometric surveys suggest we'd have been much worse off without the bank rescues and the stimulus, but the public feels there is nothing organic or sustainable to show for the pump priming. It has, however, left one legacy: a deficit much bigger than the one FDR accumulated in the Great Depression. Millions of people who had good private sector jobs now depend on the government for life support. The result is a growing backlash against new fiscal largess, as the accumulation of deficits and debts has become one of the top issues for the American public after the economy and jobs.
The fiscal stimulus program was too small to fill the gigantic hole in the economy, too wasteful, and too ill-focused. This was my view in February of 2009 when I called the stimulus an "unsatisfactory response from Washington: a massive piece of legislation that provides some $800 billion worth of spending and tax cuts but too little job stimulus." It was plain that the Obama administration had let the House Democrats build "a Trojan horse for pet projects promoted by special interest groups, as well as those who want to expand government through new social programs." There was, I wrote, "little apparent connection with economic growth. Everything became stimulus," from Head Start to global warming to tax rebates that were in effect welfare programs.