The Great Recession Ends with Great Damage, Headwinds and Tailwinds, Is the Stimulus Enough?

The Recession is Over, But What Has it Left Us With?
While the "official" declaration of the start and end of a recession comes months later after economic analysts have poured over reams of data on economic performance, the 3.5% growth in Real Gross Domestic Product in the 3rd quarter of this year is sufficient to declare with a very high probability that the so-called "great recession" has ended in the United States.

As a reminder, Gross Domestic Product is a measure of the value of all goods and services produced in the United States in a given time period. It is the most comprehensive measure of the health of the economy essentially because the value of everything produced equates to the value of goods and services that Americans will receive in that quarter -- in other words, we get something for the value that we generate. You can see the last 3 years of GDP growth in the chart below, with the negative quarters, where the economy was actually shrinking, in red.


With a total economic contraction of 3.8%, this ranks right up there with the worst recessions of the Post-World War II era, trailing only the Great Depression, but trailing it by a massive margin (we are talking greater than a 5:1 ratio.) There is a legitimate debate about whether this recession was worse than the double-dipper in 1981-1982 that saw unemployment surge above 10% and mass inflation to go with the economic stagnation (something that we fortunately do not see today, at least yet.)

So if the recession is over, when do things get back to normal? Depends what normal is and what happens going forward.

Keep in mind that the chart above talks about TOTAL GDP. The wealth-generation that people feel in their wallets relates to PER CAPITA GDP, or the total GDP divided by the number of people in this country.

Our population grows by about 1% per year. Therefore, just to keep the same standard of living, the total GDP has to grow by 1%. Any less and our standard of living is slipping. Any more and it is improving, as it historically has.

Think of it this way: if there were 2 people in the country and we made 2 cars in a year, that's 1 new car per person per year. If the population grows to 3 people, we now have to make 3 cars in a year for those 3 people to maintain the same standard of living that the 2 people previously had.

The recession, with all its quarters of negative growth have driven a significant gap in per capita GDP versus its high in the 4th quarter of 2007, when the recession began. The chart below shows the trend in Per Capita GDP.


If we were to maintain the 3.5% annual GDP growth rate that we had last quarter (which is a tall order in and of itself -- more on that later), it would take until the 3rd quarter of 2011 just for per capita GDP to get back to where it was before the recession.

That's a long time to suffer through high unemployment and declining wages. And there is no assurance that this growth rate will continue. The economy faces significant short-term headwinds, although also some long-term reasons to be optimistic.

Head and Tail Winds
There are many reasons to be concerned in the short-term:

• A large portion of the growth in the third quarter was created by government stimulus. Cash for clunkers is now gone, the first-time home buyer tax credit may or may not get extended and other stimulus spending and tax cuts will end eventually. Essentially we've grown through government leverage, but that can't last forever
• Unemployment is still very high, at 9.8% and predicted to rise further (although it feels like we are nearing the peak.) High unemployment squashes consumer spending, which in terms impacts growth in the near-term.
• Consumer confidence is still sagging. After recovering from downright scary levels in the winter, when it was 20% of the 1985 benchmark it is measured against, it rose throughout the spring, but still now stands at just 47.7% of its 1985 level, having declined each of the past two months. If consumers aren't confident, they aren't likely to spend.

Tailwinds

• Productivity is surging -- worker productivity rose 6.6% in the 2nd quarter of 2009. Productivity is the single best indicator of long-term economic growth, because the more an individual outputs per hour of work, the more that there is to go around, once you get people working.
• Stimulus is not over -- we have a lot of stimulus money left to spend -- more on that later
• History is on our side -- double-dip recessions are actually very rare -- 1981/1982 was the exception not the rule. In the modern era, Americans have shown the capability to buckle down and grow the economy after a recession. Consider the boom that followed the 1990/1991 recession, where we saw some of the best economic growth in the countries history.
• Innovation could be the key -- just as the internet unlocked productivity and output in the past decade, new technology will be the key if we are going to launch into a new era of prosperity. We have still not fully leveraged the internet. Green energy could be a whole new economic boom segment. Upgrading and rebuilding the nation's infrastructure could be a growth industry.

In total, I admit I underestimated the severity and the impact of this recession from the output. I'm still very optimistic about the long-term economic prospects in this country. We still have a highly educated, talented, productive workforce, we still have a spirit of innovation and experimentation and we still have natural resources and infrastructure to benefit us long term.

The short-term is a little more dicey and harder to call. Will the economy sink back down as stimulus pulls out? Will consumer confidence drag on the economy for some time to come? Economists are split. I think we will continue to grow, but the question is how fast -- will it be enough to solve massive unemployment and consumer confidence or just enough to maintain our now-reduced standard of living?

More Stimulus? Too Much Stimulus?
The second quarter growth numbers have ended debate among serious economists about whether the stimulus had an impact on the US economy -- every credible financial news source cites stimulus funding as one of the major factors behind the return to growth in the second quarter. Clearly, programs like Cash for Clunkers and the Home Buyer Credit helped spur spending and growth.

Critics on the right argue that this a short-term bump up and that we will face negative longer-term consequences as government debt rises and the stimulus abates. They say that any benefit from the stimulus is not worth the long-term cost.

Critics on the left, on the other hand, argue that this simply proves that we didn't do enough stimulus, that the original bill should have been larger, that we probably need a second stimulus shot in the arm.

The White House won't dare to propose that we do something called a second "stimulus" bill, but as I noted a few weeks ago, has been quietly moving to make some small moves, such as extending unemployment benefits and the first-time home-buyer credit.

But there is still a lot of juice left in the first stimulus bill too. As of the latest reports:
Spending -- $123.5 billion of the $499 billion allocated has been paid out as of last week or 24.7%
Tax Cuts -- $83.8 billion of the $288 billion in tax cuts have been paid out or 29.1%
In total of the $787 billion stimulus package, about $207.3 billion has been paid out or 26.3% of the bill's total.

While I had argued that the money needed to go out faster to give the economy a quick shot in the arm, the good news in these numbers is that there are a lot of legs left in the existing stimulus package. If we spent about 26.3% of the bill's allocation and we managed to achieve 3.5% GDP growth for a quarter, it stands to reason that if that money is spent appropriately, we should be able to maintain that growth rate for several more quarters as the balance of the funds are paid out of the course of this year and next year.

The risk is that the most "stimulative" programs, such as Cash for Clunkers may have past and whether the bill continues to drive economic progress will depend on the effectiveness of the remaining programs.

All in all, not only would it be political suicide, it would seem to me to be fool-hardy to propose another stimulus when there is so much left to go on the existing bill.

The economy is a complex beast and if anyone understood all the twists and turns that it takes, that person would probably be able to get very wealthy and might not share that information with the rest of us.

However, the recent news is, on balance encouraging. We aren't on the verge of financial collapse anymore, the economy is growing and unemployment will eventually peak. But there will be more pain along the way.

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Sotomayor In, Martinez Out, Health Care Turns Ugly, First 200 Days?, Economic Upturn?

Sotomayor Confirmed
In a vote that held absolutely no drama, the Senate this week voted to confirm Sonia Sotomayor to the Supreme Court by a vote of 68-31. With this vote, she becomes the first ever Latina Supreme Court Justice (and arguably the most powerful Latina in U.S. history) and only the third-ever woman Supreme Court Justice (following Sandra Day O'Connor who was appointed by Reagan and Ruth Bader Ginsberg who was appointed by Clinton.) Her "yea" total of 68 falls short of the 70-75 votes that I had been predicting she would receive and points to a troubling trend in court appointments. Confirmation votes are becoming increasingly partisan, as illustrated by Sotomayor, whose harshest critics would concede is highly qualified to be on the court and whose lower court decisions have been well within the mainstream. When Antonin Scalia, by far the most conservative justice of this generation, was appointed by Reagan, he was confirmed without dissent. Likewise for Ginsberg during the Clinton administration. Sure, Bork was shot down, but he was well outside of the mainstream. Sure, Thomas was only voted in 52-48, but he was very marginally qualified and came with some heavy sexual harrassment baggage. It is really only in the past 10 years that political philosophy alone became a reason to vote against a nominee.

Frankly, it's the fault of the Democrats. Samuel Alito was clearly a strongly qualified nominee whose views, while conservative, were certainly not outside of the mainstream. His confirmation was all but assured. Yet Democrats, including then-Senator Obama, led a stream of "nay" votes to symbolically protest his conservative philosophy. What comes around goes around, as they say.

Not that I forgive members of the GOP, who were somehow outraged by the votes against Alito but had no problem returning the favor to Sotomayor. Shame on you, Sen's Hatch (R-UT), McCain (R-AZ) and Sessions (R-AL). You sold out your principles for cheap political points. At least some members of the GOP showed philosophical consistency on this issue, notably Sen's Lindsay Graham (R-SC), Lamar Alexander (R-TN), Dick Lugar (R-IN) and departing GOP Sen's Martinez, Gregg (at least we think he is departing) and Bond (moderates Snowe and Collins also voted for confirmation, but I suspect they more or less supported Sotomayor's judicial philosophy to begin with.)

Is this all an acadmeic discussion given that Sotomayor got confirmed? With the same party in control of the Presidency and the Senate, it is for now. But it certainly isn't hard to imagine a situation down the road where those powers are split and it creates an unbreakable gridlock where the Senate refuses to confirm qualified candidates becacuse they don't like their judicial philosophies. That is not a healthy state of affairs.

Martinez to Resign
Sen. Mel Martinez (R-FL), who had already announced that he would not seek re-election, has now announced that he will resign his seat early. Some will probably look for a secret plot around this, but I actually think that this is a straight-forward case of a guy tired with his job. His resignation has no real impact on the political situation there -- Gov. Charlie Crist (R) will appoint a "field-filler", a man or woman who will vote Republican but has no designs on running for re-election, maintaining the existing balance of power in the Senate. Crist will still be the overwhelming front-runner to win the seat in 2010. This really has marginal geo-political effect. Good for Sen. Martinez for leaving a job he doesn't like and spending time with his family.

Healthcare Turns Ugly
Town hall meetings crashed by conservative protestors shouting down congressmen, outbursts of violence, nazi imagery? This is all WAY over the top for a debate on the health care system. If conservatives are outraged at greater government involvement in the economy and health care, I'm not sure the best way to convince others is to display violence and hate. GOP leaders need to get out in front of this and condemn the violence. Regrettably, few have and some are attempting to legitimize these strong-arm tactics. My hope is that the public will be smarter and see these people for who they really are -- thoughtless thugs.

We absolutely need to have a debate in this country on the degree of government involvement in health care. This kind of desparate behavior does nothing to advance that debate.

Are we going to have grades every 100 days?
Okay, 100 days has always been a benchmark for a new President. But a set of 200 day report cards? With hostages coming home from North Korea, two wars still going on in Iraq and Afghanistan, a significant and energetic debate over health care and the enviroment going on, do we seriously have time to assign letter grades on every issue, arbitrarily averaged based on whoever happened to be watching CNN and had access to text-messaging during a given 7 minutes? Does this add anything to the discussion?

I refuse to participate. I'll give out grades after President Obama has finished his first year. Giving him a grade on health care or the environment while the crux of his policies are still being debated in congress is just silly.

Okay, I know what you are going to say...I publish a polling update every week or two. I'd love to tell you how that is different, but I have no good explanation.

Signs of Real Recovery?
GDP decline slowed to -1.0% in the second quarter of 2009, unemployment dropped ever-so-slightly in July from 9.5% to 9.4% and Wall Street is surging. I've been saying for a long time that the recession would end this summer, but it's still nice to see some signs it is coming true.
Now is the time that the stimulus bill really needs to get going -- the system is stabilized but unemployment is still high -- getting people back to work needs to be priority #1.

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Sotomayor - Cool Under Fire, What is the GOP Position on the Economy?

Sonia Sotomayor, A Shoe-In
Over the last two days, the Senate Judiciary committee has begun its required confirmation hearings of Supreme Court-Designee Sonia Sotomayor. These hearings lack much drama, since as Senator Lindsay Graham (R-SC) pointed out, the outcome is virtually assured. Sotomayor will be confirmed. The only interesting questions are whether the respective parties score any political points and how large the margin of confirmation will be (something approximating a 75/25 split would appear likely to this observer, with all Democrats voting for confirmation and a sizeable number of Republicans.)

Sotomayor handled complex questions about third-rail issues of law such as abortion, gun ownership, affirmative action and others with a strong command of the law, sound-reasoning and the kind of artful evasion around nailing down specific viewpoints that we have come to expect from candidates in the post-Bork era.

Democrats such as Leahy, Franken and Whitehouse heaped the praise on Sotomayor's resume and tossed up softball questions. Graham, Sessions and company pressed her harder, but were professional and respectful in their questioning.

In the end, I thought Sotomayor was extremely cool under fire. My only criticism is that I believe she was blatantly deceitful in her response to questions around the now-infamous "wise latina woman" remark. Her response to the question was essentially that it had been an inartful attempt to express the same sentiment as Sandra Day O'Connor had expressed when she had said that a wise man and a wise woman would hopefully reach the same conclusion. Um, sorry Judge, but I read the quote in its entire context and it is readily evident to me that you were consciously REBUTTING O'Connor's point of view. And that should be okay. It's okay to think that your Latina heritage provides you a unique perspective that isn't on the court today. It is okay to think it is important to have those diverse perspectives on the court. If Sotomayor feels she needs to lie about these views that she so obviously holds, what a sad day indeed.

The GOP Position on the Economy
To gather form the GOP criticism the last few days of the Obama economic program: we are spending too much money and incurring too much debt, and furthermore the stimulus is a failure because we aren't spending the money fast enough. Huh? Not spending the stimulus fast enough? Shouldn't that criticism be coming from the left? I thought this spending wasn't going to help?

This Admiral Stockdale-like (sorry for those of you under 25, you probably have no idea what I'm referencing) ping-ponging of viewpoints illustrates the central problem for the GOP: they do not have a coherent economic policy today.

The context of the history of GOP economic theories is pretty simple. Pre-1980, the GOP was very focused on the concept of deficit reduction. The belief was that a balanced budget would lead to more stable and effective capital markets and money would be freed up to invest in innovation and growth rather than tied up in government bonds. In 1980, that all changed with the advent of Reagonomics. The theory behind Reagonomics essentially was: taxes are a burden on the economy and by cutting taxes, particularly on the upper-class, you can spur investment and job creation which will ultimately increase wealth for all and increase the tax base. The theory was etched on a napkin when the infamous Laugher curve was born, which expressed the theory that raising tax rates could actually supress tax revenue by supressing growth.

So what is the theory today? It can't be that tax cuts cure all ills. We've cut taxes many times over the past few years (the Bush cuts, which heavily impacted the upper brackets, the Bush Stimulus package and now with the most recent stimulus package) and our economy has been in shambles. It's also hard to go back to the balanced budget theory when you had your hand in taking us from a surplus to an eye-popping $1.5 trillion+ deficit.

So, what is the GOP arguing right now? I'm not exactly sure, other than to say that what Obama is doing isn't working. It seems they are attempting to meld the two classic Republican arguments by arguing on the one hand to cut taxes and not allow upper-income tax breaks to expire while on the other hand argue that our deficit is out of control. It's a two-step that doesn't pass intellectual muster and doesn't make for real good bumper stickers. "Tax cuts for the rich! Because government spending is bad!"

What the GOP SHOULD be arguing right now is for government-guided but market-driven solutions to problems like health care, carbon emissions, etc. They should be proposing that a real stimulus would involve upgrading our electrical grid, not making Medicaid transfer payments to states. They SHOULD be developing and presenting a REAL balanced budget (with actual numbers this time) since President Obama has not shown us anything close to one in the next ten years. They should be doing all these things. But that would require leadership.

Where are Jack Kemp and William F. Buckley when you need them?

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Sarah Palin -- Smart or Crazy?, Some Pause for the Prez, 2nd Stimulus?, Healthcare?

First and foremost, let me apologize for the length of time between recent posts. As I mentioned in my last post, I was out of town for a few days over the holiday and regrettably came down with some ugly flu symptoms. Fortunately, I'm back at least to about 70 or 80% of normal and ready to talk some politics. So let's get to it.

Ex-Governor Sarah Palin (R-AK)
The question around political circles since Sarah Palin's unexpected and seemingly odd resignation has come down to the classic one-word question: why? A cunning political move to free her up to run for President in 2012? An escape from ethics probes that would damn her? Caribou Barbie yielding under the pressure?

Probably more than one of the above. My assessment is that a combination of Presidential ambition and personal finances.

Let's examine the political implications first. Governor Palin could not have effectively run for re-election in 2010. Think about it -- she'd have to campaign hard in Alaska (and frankly, risk losing, with dropping popularity there) all the way through November, be resworn into office in January 2011 if she won and then immediately start campaigning for President. It would look horrible, not to mention the fact that having a home base in Alaska is absolute nomansland for waging a national campaign and would have created a logistical and public relations nightmare. So why she was out in 2010 is easy.

So why not serve out the term? First of all, because only bad things were going to happen in Alaska. Her popularity was diminishing, she was already receiving local scorn for national appearences and doing good things for Alaska doesn't really help you win a Republican Presidential nomination process. Secondly, money. As a sitting Governor, Palin cannot accept fees for public speaking appearences. Also, by Alaska law, she must pay the cost of fighting ethics complaints out of her own pocket. And there have been a ton of ethics complaints. Palin is calling dirty pool on the ethics complaints and she may well be right, but the law makes no stipulation for whether the complaints are fair -- she has to pay out of personal funds. Resign and those ethics complaints go away and she is free to accept $25K a pop speaking engagements.

Make no mistake about it, I absolutely believe Palin is running in 2012 and I don't count her out for a second. A couple of liberal friends of mine couldn't believe I held this point of view as they considered her a lightweight.

But consider this: she drew bigger crowds and more passion than John McCain in 2008 and she is a darling among social conservatives who are the biggest block that shows up to vote in Republican primaries and caucuses. There are few credible 2012 nominees left: Jindal crashed and burned in his first national appearence, Sanford and Ensign are embroiled in nasty affairs and there isn't a single viable candidate that I can see in congress. Palin, Mike Huckabee, Mitt Romney and Minnesota Gov. Tim Pawlenty are the only top-tier candidates that I see. And Huckabee and Romney don't have real day jobs either, so it's no disadvantage against them for Palin to be out of office.

I'm not calling her a favorite yet, but I did take a bet from one of my friends who offered me 10:1 odds against her winning the nomination. I think she is better than a 10:1 shot. But a lot can happen in the 3 years between now and when the nomination will be decided. A white knight (or white elephant) could show up. Palin could be forgotten. Obama could be so popular that no A-listers decide to run. But as I've said many times, don't count the most charismatic, attractive and freshest face on the GOP scene out of this. Not by a long shot.

Presidential Approval -- Storm Clouds Forming?
President Obama continues to slowly slip in public opinion polls. The latest daily tracker is below.


As of today, his approve minus disapprove stands at 20.7%, his lowest score yet (although still 13.5% higher than his vote spread last November.) He has precious few upward ticks in the trend which seems to have been steadily but slowly downward.


Looking at the monthly averages, President Obama finished June down 2.9% from May and is on pace to shed about the same again in July, although he may lose more as the pace of decline has been more rapid in the past week.

The breakdown by poll-type is even more sobering:
Adult Americans: +26%
Registered Voters: +22%
Likely Voters: +5%

According to the one "likely voter" model poll -- the Rasmussen Poll, President Obama is actually slightly behind where he was in November. Now, I have questions about why the Rasmussen numbers are so far off the registered voter numbers from respected firms like Quinnepiac -- a 5 point spread wouuld be more typical than a 17 point spread, but in the absence of another likely voter model, we go with what we've got.

So what's causing this decline? As James Carville said in 1992, it's the economy, stupid. Independents are starting to fear that we are spending a ton of money to little effect. They know we passed a $787 billion stimulus package and that since then unemployment has continued to soar all the way up to 9.5%. The stock market is up from its lows but way off its highs and has a case of the jitters the past couple of weeks. There are whispers about a second stimulus and the Vice President out there saying the administration "misjudged" the economic crisis. Thanks for the brilliant spin, as usual, Joe. I need to amend my column on Obama's cabinet duds to include the Vice Presidency, because he is clearly Dud #1 amongst Obama's staff picks, way ahead of mini-Dud Tim Geithner.

Stimulus Update
The reality is that it is crazy to talk about a second stimulus at this point -- we've barely scratched the surface on the first one. Here's the latest spend updates.



So...we've authorized 35% of the bill's spending ($174.9 billion as of last week) and spent only 12% ($60.4 billion as of last week.) $60.4 billion in spending. The process has been slow, but not unexpectedly so. Leveraging public money to fund private job creation is a compliacted and long process if you want to do it right. This plan needs time to work. It does cause one to question whether the quicker tonic would have been to go the route FDR went -- simply hire people on the government payroll. While it is arguable whether FDR's massive public works programs ultimately helped pull the economy out of the depression, they absolutely did blunt the impact of unemployment. In fact, unemployment dropped every month of FDR's first year in office and never returned to its peak. Would that President Obama could say so now.

Bottom line is -- the President will be judged in both the 2010 mid-terms and his 2012 re-election campaign on two central themes: did he fix the economy? and did he keep his promises?

Economic conditions right now aren't his concern although they may cost him some political capital. We've already highlighted that Presidential approval at this stage is not particularly instructive to re-electability. But if unemployment is still approaching double digits in 2010, prepare for a donkey bloodbath. And if it's still that way in 2012, get comfortable with the idea of a President Palin or Romney.

Hope for Compromise on Health Care Reform?
It's getting dicey as we all knew it would. There is general alignment in the Democratic caucus and among Republican moderates that broadening access to health care is a worthy legislative goal. It's pricey (although not as pricey as it sounds, as covered in a previous post) and no one can agree how to pay for it.

The Democratic leadership would be wise to listen to Sen. Olympia Snowe (R-ME) and take taxing employer-provided healthcare benefits off the table. It would be massively unpopular and make a liar out of President Obama, who has repeatedly claimed that "if you like your health care, you will be able to keep it". Taxing employer benefits would surely lead to large reductions in employer-provided benefits. The purist in me says that might be a good thing as the tax-incentive induced employer-provided system is part of the problem. But the pragmatist in me knows the country isn't ready to completely flip the current model on its head. Let's keep working on Medicare cost cuts, world-class perscription drug prices and look at sin taxes and exemption phase-outs to fill the gaps. But let's get the middle class comfortable with the notion that they will have to bear some of the burden. We simply can't fund this with just taxes on those making over $250K -- there isn't enough money there to get.

Appropriations Rolls On
The house is on a break-neck pace moving through appropriations bills and even the Senate is moving along. At this pace, Congress might actually get all the bills passed before the new fiscal year starts in October, a feat rarely accomplished in the past 12 years. I guess it helps to have one party in power in both the legislative and executive branches.

The House has already passed appropriations for: the Legislative Branch, the Commerce and Justice Departments, the Homeland Security Department, the Defense Department, the Interior Department and is actively debating the bill for the Department of Agriculture and FDA.

The Senate, which has to go second on all the bills and always moves more slowly has passed appropriations for the Legislative Branch and is debating the Homeland Security Department.

The Democrats are, of course, mostly carrying the day in the debates (when you have all the votes, you win most of the votes), but the GOP is winning some small victories, such as an ammendment introduced by Sen. Demint to appropriate money for building a larger border fence with Mexico, which pulled in enough Democratic moderates to pass.

Lots of roll call votes to keep up with -- I'll keep you posted.

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Obama Dips His Toes into Iran, Is This the New Economic Normal?, Things That Annoy Me

President Obama Wades Carefully into Iran Situation
In his press conference today, President Obama declared that he was "appalled and outraged" at violence against protesters in Iran. It was the most direct statement made by the administration to date calling to task the powers that be in Iran. President Obama continued to stop short of directly criticizing the election process or result.

This appears to be par for course for President Obama, whose tendencies on both foreign and domestic issues to date has been to take a measured approach and slowly ramp up rhetoric in response to conditions. We had a glimpse of this in the campaign -- think back to the Jeremiah Wright controversy.

I doubt that his press conference today will appease conservatives who sought much more direct influence from the White House from the get-go. President Obama's measured approach is the polar opposite of former President Bush's. If you are a liberal, he is thoughtful, contemplative and intellectually geared. If you are a conservative, he is wishy-washy, indecisive and lacks courage. PoTAtoes, potTAHtoes.

It's Stopped Getting Worse, but Will it Get Better?
The gains in the stock market has stalled, unemployment is still at a record high and the World Bank just revised its global economic forecast down to a 2.9% contraction in the global economy this year.

It has many thinking -- you call this a recovery?

The problem the markets are experiencing right now is that while we no longer appear on the verge of a global economic meltdown, as we did to many in late Februrary and some of the economic statistics (home sales, retail sales, etc.) have stopped declining, all of the economic indicators have stabilized at a lower level.

It has led many to ask the question -- is this the new norm? Will we be living with 9-10% unemployment, zero growth and hard-to-get credit for generations to come?

I don't think so. The engine that drives long-term economic prospects is productivity growth - and productivity is still growing. The economy is performing under capacity right now -- too many people out of work, too many people working part time, too many people underemployed. But these are transitional, not structural issues. In fact, the history is that recessions often spawn productivity growth as businesses find creative ways to be more efficient out of survival instinct. We certainly saw this in the last 3 recessions. So, rest assured, things WILL get better again.

What may be fundamental changed is credit conditions. The S&P may take years to get back to 1,500 because corporations have realized the risk that massively debt-ridden balance sheets can cause (ask a few casino companies or maybe some banks.) Individuals are saving again because they realize that they can no longer rely on their home value and their 401K always going up. So thrift may be back in, at least for a while. But we grew the economy pretty well in the 1950s and people were relatively a lot more thrifty then. Innovation drives productivity, not spending.

Things That Annoy Me
A new feature -- suggested by my wife -- some short-takes on some things I find very annoying, in the political world and elsewhere. So, here it goes...things that annoy me:

(1) Glenn Beck. You can't like him unless you think Rush Limbaugh is too civil and liberal.
(2) Democrats who say they are feminists but defend David Letterman because the teenage girl he joked about isn't "on our team"
(3) Sarah Palin -- not over the Letterman controversy, but because she can't complete a sentence
(4) People who think that I care who won the U.S. Open
(5) People who call Sonia Sotomayor a racist. Oh, the poor opressed white guy. We just don't ever catch a break.
(6) Drivers who don't use turn signals
(7) Congressional Democrats, especially Harry Reid and Nancy Pelosi -- for never being organized on anything, never being united on anything and never having any backbone on anything

And finally, my annoyance of the week:
(8) Righteous ex-smokers (yes, I'm talking to you, President Obama), who want to legislate that we do what they had a choice about doing.

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