The Patient Is in Stable Condition

Obama calmed the economy in his first 100 days. Now what should he do?

Read more of Slate’s coverage of Obama’s first 100 days.

The first 100 days of the Obama administration, tumultuous and full of drama, have been dominated by economic issues. In its first few months, the Obama team has attempted to tackle the massive macroeconomic problems we face (with a huge stimulus package and the broad outlines of a budget) and the many microeconomic issues clogging the world’s economic engine (salvaging the car industry and the financial services industry).

Amid the storm, Obama has functioned as a sort of human Valium, a calming influence. Here’s a chart of the VIX index, a measure of how much traders are freaking out. It peaked at 56.65 on Jan. 20, Inauguration Day. While the VIX is still elevated, the trend line shows it has slowly calmed down. The broader stock market, too, has stabilized and stands about where it was when Obama came into office. (I guess the “Obama bear market” that was getting so much play on the Wall Street Journal op-ed page and CNBC is over.) There’s been a sharp turnaround in the “right direction” numbers: According to the Associated Press, 48 percent of Americans now think the country is headed in the right direction, compared with a pathetic 17 percent last October. Consumer confidence, as measured by the Conference Board, seems to have bottomed and is rebounding.

Of course, the positive data points are mostly mood indicators. And government money—cheap credit, Federal guarantees, and stimulus—is functioning as a mood elevator. But what about the underlying situation in the private sector, where a turnaround is so vitally needed? So far, the data don’t seem to support the improvement in confidence. In the first quarter of 2009, we learned today, the economy shrank at a 6.1 percent annual rate, nearly as bad as the economy’s fourth-quarter performance. The nation is still hemorrhaging jobs at an alarming rate. Other metrics, from the volume of global trade to interest-rate spreads (the way the market prices risk) in auto sales to housing prices, are still not providing evidence of green shoots in the shrinking portion of the economy not dependent on the government. And those companies that are reporting rising earnings are doing so largely because they’ve been successful at cutting costs rather than boosting revenues.

The one umambiguously positive sign of the first 100 days is that the combination of market discipline, bailouts, and the return of intelligent management seems to have warded off further systemic crises. There’s still plenty of failure. Banks have been going under at a rate of one or two per week, but they’re mostly smaller institutions and the Federal Deposit Insurance Corporation handles those failures with relative ease. The financial sector has stabilized somewhat, and TARP funds are being paid back. Many bankers are desperate to get out from under government supervision by the end of the year so they can get back to what they do best: paying bonuses. (To that end, Goldman Sachs has even forced bankers to abandon Ritz-Carltons for Embassy Suites.) Plenty of companies are failing, but the Chapter 11 process handles most of them with relative ease.

Of course, there are exceptions to this stabilization, which present Obama with the biggest challenges he’ll face in the next 100 days. We don’t have a banking crisis today as much as we have a Citigroup and AIG crisis. These two institutions are so huge and their mismanagement so complete that the usual methods for dealing with failure don’t work. Similarly, we don’t have a car-company crisis as much as we have a General Motors crisis.

Slate V: The Worst 100 Days

Perhaps Obama’s biggest success thus far has been to redefine what economic progress means. Because of the catastrophic events of the second half of 2008—the mammoth failures and sharp downturn—the nation seems to recognize that even a slowdown in the pace of decline is good news, that we should root not for widespread success but an absence of systemic failure.

Of course, those lowered expectations won’t last forever. “I’m pleased with the progress we’ve made, but I’m not satisfied,” President Obama said Wednesday in a 100-days speech in Missouri. In the next 100 days—and the next 1,000 days—the economy will have to do more than just avoid collapse.