World Events or Domestic Policy: What Has a Bigger Impact on Our Economy?

Like this morning's testimony, Ben Bernanke's speeches are the oratory equivalent of watching paint dry in a DMV line. And for good reason! To say something interesting would be to say something surprising, and "market-moving" figures like Bernanke and Tim Geithner don't want to trigger market plunges with whoppers like "Is it just me, or is China's slowdown starting to look really scary?" or "It just dawned on us that the euro situation is pretty much hopeless. Go gold!"

So we're stuck with these lullabies of economic jargon. But if you listen closely enough, you might catch something interesting. For example!

As we had anticipated, overall consumer price inflation moderated considerably over the course of 2011. In the first half of the year, a surge in the prices of gasoline and food--along with some pass-through of these higher prices to other goods and services--had pushed consumer inflation higher. Around the same time, supply disruptions associated with the disaster in Japan put upward pressure on motor vehicle prices. As expected, however, the impetus from these influences faded in the second half of the year, leading inflation to decline from an annual rate of about 3-1/2 percent in the first half of 2011 to about 1-1/2 percent in the second half--close to its average pace in the preceding two years. In an environment of well-anchored inflation expectations, more-stable commodity prices, and substantial slack in labor and product markets, we expect inflation to remain subdued.

This is story about inflation pressures, but it's also a story about learning to live with what we cannot control.

We tend to judge the economic policy of presidents and congresses by what they accomplish domestically and implicitly blame them when overseas events mess with their agenda. This is natural. But it's also not unlike blaming a football coach if his star player breaks his ankle falling down his home staircase. If the team loses the next week, the coach's standing falls in the eyes of fans. But we also understand that a head coach can't keep his players dressed in bubble wrap. The performance of the team is the responsibility of the coach, of course, but complete control of a team's health isn't in his hands.

So it is for U.S. government, the domestic economy, and the global economy. In early 2011, China and India were leading a huge run-up in demand for commodities, and the Middle East experienced the pangs of democratic revolution, making investors fear for supply of oil. So gas and food prices surged. And U.S. growth suffered. What could the president and Congress about this? Besides pray ... not much.

This is a reality we live with: Global recoveries will push up the prices of gas, which will act as a brake on U.S. growth. Global slowdowns should mitigate crude oil inflation, which should act as a tailwind for U.S. growth. We can't keep the world from falling down its own home staircase.

In November, tens of millions of Americans will cast a vote based on whether they feel the current government is doing enough to grow the economy. This is right and good. Governments should be held responsible. But as we cast judgment on leaders in both parties, it's worth remembering that -- per Bernanke's milquetoast speech -- U.S. growth isn't entirely in our hands.