Yesterday came the news that the Federal Reserve expects unemployment to hover around 9 percent throughout 2011 and possibly decline to 8 percent by the end of 2012. It’s worth noting that we don’t have much reason to trust that the Federal Reserve knows anything about anything these days. The prognosticative skills of its officials and reports have proved scandalously poor over the past few years, just as its policies have suggested exactly the kind of inconstancy, desperation, and politicization that the Federal Reserve system was designed to avoid.
So with those caveats, which are substantial, we can still be assured of one thing: if unemployment is that high in 2012, Barack Obama will not win a second term. Democrats can intone the words “Sarah Palin” all they want as a desperate hope for salvation from Republican rule. But the simple fact of the matter is that if we enter into a fourth year of unemployment at levels unseen except for periods of a few months since the 1930s — after spending somewhere north of $1 trillion to try to bring the number down and with the Fed printing as much as $2 trillion to pump up growth — any Republican, and I mean any Republican, who can get the nomination will win.
Indeed, if unemployment is higher than the Fed now is expecting at the beginning of 2012, I think it’s entirely possible that Obama would not run for a second term. Continued parlous economic news through 2011 will surely create the condition for a serious primary challenger, as I talk about in my lead article in COMMENTARY’s December issue, as will continued trouble in Afghanistan.
One reason for the depth of the difficulty here is the degree to which the United States remains a consumer-driven economy. If a tenth of the country has little or no disposable income, that limits the possibilities for economic growth and a roaring recovery. Even worse, the psychic effect of years of bad economic news depresses consumer spending in every sector.
And the uncertainty created by the current political-economic climate, in which no one knows what will happen to tax rates and what will happen to health-care plans and what will happen to housing, contributes to the worries of small businesses (traditionally the engines of job growth, especially at the tail end of a downturn) about taking on new workers.
It’s a dangerous loop. So now, having to invest hope in the Fed’s newest round of quantitative easing working in his favor, Obama must simultaneously pray that the Fed is wrong about all that other stuff. Even if it is, he’s going to have a tough road ahead.