In the comments section of another post (BernardFinel.com » Pessimism and Resignation), my friend Ken Riley argues:

But despite all of these things I’d still argue that Obama’s had a successful first year in office. We got a stimulus package that, while smaller than it should have been, plugged gaps in state budgets that would have resulted in massive cuts to services like education and public transportation across the country. Without that stimulus package we would likely be looking at unemployment in the teens with no sign of relief. It’s also worth mentioning that the scourge of inflation that many, including you, predicted is nowhere to be seen.
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In terms of the presidential politics, I think you are smoking crack. Obama is still a popular President who consistently and dramatically out-polls leading Republican contenders, including Palin, whose popularity dwindles every time she opens her mouth.

This sort of argument scares me.  Four reasons:

(1) A lot of people  have written to me arguing that calling Obama’s first year a failure is a mistake.  After all, he passed the stimulus bill.  First, the bill was nothing to brag about.  It was an ugly mish-mash of pork along with some genuinely important stimulus measures (including aid to states and localities).  But it was also ugly enough that it threw away any chance Obama would have of claiming to be either fiscally prudent or sufficiently attentive to wasteful spending.  Second, I am not sure it is really popular, at least in part because even though it preventing things from getting worse, the economy is still pretty grim.  There is little upside in simply ameliorating a bad situation.  Presidents get credit for fixing things, not stemming the bleeding.  As a consequence of both those things, I’d be really, really surprised if Obama spends any time in 2012 reminding people about the stimulus package.  It just isn’t going to be seen as a political plus in 2012, though I guess it may get a good write up in some economics journal at some point.

(2) The issue for me was not “inflation.”  It was we were going down a path where interest rates were going to spike, blowing a hole out of business investment and the country’s fiscal posture.  And I believed (and continue to believe) that unconstrained deficit spending will lead to a double-dip recession due to the disastrous consequences of a massive increase in our debt, ballooning interest payments (particularly to foreign investors), and a fiscal crunch that will make our current problems look like child’s play.  We’ve been funding our new debt with short-term t-bills, and so we could see massive interest rate moves very rapidly, leading to a rapidly deteriorating fiscal picture.  So, interest, not inflation was — and is — my concern.

(3) This mantra of “Obama is still popular” is insanely dangerous.  It is a faith in one man’s charisma over the consequences of repeated failures.   I don’t happen to think Obama will be quite as Teflon as many hope or expect.  Sooner or later he needs to deliver on something bigger than DADT and the stimulus bill.  I just don’t see how he wins in 2012 without getting any progress of his signatures issues.   And the window is closely fast. 

(4) The reverse that holds that Palin can’t win is also a mistake.  We’ve never actually seen a referendum on her.  Yeah, she hurt McCain, but that was because McCain’s entire campaign was based on him being an old, experienced white guy.  He hurt himself when he turned out to be an erratic kook, and she hurt him by being even less experienced than Obama.  In short, McCain has a created a frame for his campaign that made it impossible for Palin to be a net plus.  But on her own, creating a narrative of an outsider, purveyor of her own brand of homey “common sense,” blending right-wing economic populism with an anti-immigrant flavor and a generalized xenophobia, she could create a consistent message that when wedded to her personal charisma would be quite powerful.  She was a disaster as McCain’s running mate, but would be a much more powerful force within the context of her own campaign narrative.  She is more dangerous than most people can imagine.