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It began with such promise.
This time a year ago, forecasters were racing to upgrade their outlooks for what 2011 would hold. All the gears seemed to be locking into place for what could finally be the year that an economic recovery began in earnest. Three percent growth seemed like a sure bet; 4 percent seemed more than plausible.
And then, reality set in. The first few pieces of economic data in 2011, the analysts chalked up to bad luck: first some nasty winter snowstorms, then a run-up in gasoline prices amid turmoil in the Middle East, the earthquake and tsunami in Japan, the worsening of Europe’s debt crisis, the divisive debt-ceiling debate in the United States.
But as 2011 ends — growth for the year is on track to be about 1.8 percent, if fourth-quarter forecasts prove accurate — the real economic lesson is that the forces holding back the U.S. economy are bigger than people who make a living forecasting these things understood just 12 months ago.
The real reason 2011 has been such a disappointment isn’t bad luck. It’s that the problems ailing the U.S. economy are so profound that the nation can manage strong growth only when everything goes absolutely right. The confidence of businesses and consumers is more thoroughly shot than forecasters realized. The political system is more dysfunctional, lurching from one invented crisis to the next, unable to make easy decisions, let alone the hard ones. Problems in mortgage finance and an onslaught of foreclosures have prevented a housing rebound, even as demographics suggest one should be near.
The good news: There was no double dip in 2011. The recovery, now 21 / 2 years in, appears well-enough entrenched that the challenges merely slowed growth, rather than prompting a contraction.
At the same time, such slow growth — many forecasters are predicting about the same in 2012, with projections hovering around 2.5 percent — is not enough to push joblessness down over time. It leaves little margin for error.
In other words, given the headwinds, it will take everything going right for the kind of robust expansion that would make this a recovery not just in the technical sense that economists talk about.
The goal for every economic policymaker is (or should be) that the conversations around holiday dinner tables next December are about how a long-unemployed uncle finally found a job, a newly married cousin was able to buy a house, and Grandpa felt comfortable enough with his savings to retire.
Five questions hanging over the economy in 2012 will determine whether that is the case or it is another year of muddling along — or worse.
Will the U.S. political system behave itself?
In 2011, American politics was ugly in ways that undermined confidence and damaged economic prospects. One key to a better economy in 2012 will be a more orderly, confidence-inspiring management of the most powerful government on Earth.
There was the April battle over spending that nearly shut down the government. The December standoff was over whether to continue a cut in the payroll tax that both parties agreed to in principle. But most damaging was the summer brinkmanship when many House Republicans threatened to block an increase in the debt ceiling — which would have meant a default on U.S. debt — unless they got their way on major spending cuts.
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