For journalists, pundits and comedians, the end of the year provides an opportunity to look back, fantasize forward and let the creative juices flow. We churn out 10 best and 10 worst lists. We reprise the year’s most memorable moments and worst embarrassments. We reflect on famous people and infamous scallywags, current events and eventful currents, the highest highs and lowest lows.
When I started to think about 2009, it wasn’t events that came to mind but words and phrases: trite, overused words and phrases, such as new normal, unprecedented, and exit strategy. One picture may be worth a thousand words, but one word can unleash a year’s worth of memories.
1. New normal: In May, the folks at Pacific Investment Management Co. Llc emerged from their secular outlook forum to codify their forecast for slower growth, increased regulation and a decreased role for the US in the global economy as the new normal. They weren’t the first. Back in 2001, Warren Buffett and John Bogle warned of a new normal of single-digit stock market returns. A book by that name was published in 2004, spawning a companion website (www.thenewnormal.com). As it turns out, the phrase has applications in almost every field: technology (its transformative power); science (US women are getting fatter); medicine (early puberty for girls); management (constant change is the new normal, according to the Harvard Business Review); and higher education (less financial support from state budgets and endowments).
As a way of describing the US economy, the new normal has merit. ObamaNation is looking at bigger government, more regulation and an ageing population commanding more resources. Unfortunately, overuse has rendered new normal meaningless.
2. Unprecedented: If the events of 2008 and policy response were unprecedented, the post-mortems in 2009 drove the point home—ad nauseum. From the collapse in home prices to the government’s co-option of mortgage finance; from the freezing up of financial markets to the failure of big and small firms; from the efforts by the treasury and Federal Reserve to keep the ship of state afloat to the government’s ownership stake in the private sector: Everything, it seems, was unprecedented. The inauguration of the first black president was unprecedented. Barack Obama, hailed as an agent of change, pledged to change the way Washington operates. Eleven months into Obama’s presidency, Washington is probably the only entity to eschew the new normal (see No. 1 above) for more of the same.
3. Exit strategy: Everyone needs an exit strategy. Just ask Jenny Sanford, wife of the philandering South Carolina governor, and Mrs Tiger Woods. The Fed needs an exit strategy following a period of unprecedented (see No. 2 above) accommodation. Policy makers have enunciated one without a timetable for implementation. The central bank plans to whittle down its balance sheet by natural attrition, terminating emergency lending facilities and selling assets or draining reserves on a temporary basis. It can raise the interest rate it pays on reserves to prevent excess credit expansion, an idea that may work better in theory than in practice.
Unlike the Fed, the US military has a date for leaving Afghanistan and no real exit strategy. President Obama said the US will start the transfer of authority to the Afghans in July 2011. His national security adviser, General James Jones, admitted the US will be in the region for a long time.
Or, in Fed parlance, an extended period.
4. Green shoots: I do see green shoots, Fed chairman Ben Bernanke told CBS’s 60 Minutes last March, a forecast worthy of Chauncey Gardiner, the child-like sage in Jerzy Kosinski’s Being There. (There will be growth in the spring, Chance said.) Pretty soon everyone was going green. The media sent out reconnaissance teams. Economists incorporated green shoots into their forecasts. It was a veritable garden of foliage sightings. The shoots matured and produced blooms in the third quarter. The US economy expanded at a 2.2% annualized rate following four consecutive quarterly declines. All this flora talk was starting to get to a friend of mine. If the leaves would just stop falling, I could see the green shoots, he said.
5. Uncertainty: Uncertainty gained a new cachet in 2009 and in certain circles, especially those responsible for setting policy. The frequency with which the Fed and European Central Bank use uncertainty to qualify the forecast leads one to believe uncertainty is unique to bad times. It isn’t. A little more uncertainty about the degree to which the subprime crisis was contained and a little less irrational exuberance over condo-flipping, and we might not be in the shape we’re in.
6. Historic opportunity: Historic opportunities were a dime a dozen this year. Obama seized some of them (embracing Islam with a speech in Cairo), squandered others (refusing to meet with the Dalai Lama before his visit to Beijing) and had to settle for a photo-op in still others (the Copenhagen climate summit). The biggest historic opportunity still lies ahead: healthcare reform. Obama has been exhorting Senate Democrats to seize this historic opportunity (and cement his legacy) by enacting sweeping legislation that expands healthcare coverage, creates a new entitlement and does little to address misplaced incentives (third-party payers) or control costs. The Senate is expected to pass its healthcare Bill on a 60-40 party line vote. The House and Senate must then reconcile their different versions. The more the American people know, the less they like the idea. This may be one historic opportunity Obama will wish he missed.