Is August over yet?
At least when it comes to finance and domestic politics, that month’s typical ennui has already set in, and how. Conflicts are erupting or intensifying around the world. But Congress has given up on legislating. The markets have quit gyrating. In the administration and on the Hill, aides are bored and restless. Heck, the president seems bored and restless. Washington, a town that for a few years lived crisis-to-crisis, is now beset by a queasy feeling of paralysis, of steady-statism. Call it the Big Lull.
In part, the quietude emanates from Wall Street, where the markets have been characterized by high, high prices and low, low volatility this year, having calmed during 2013 after a bumpy 2012. The “fear index,” or VIX, a primary measure of market uncertainty, has been hovering near its all-time bottom. That same steadiness is evident in stocks and bonds and foreign-exchange markets, in Europe, the United States, and Japan. The economic data that often moves markets has come in pretty quiet, too.
The markets are calm and expensive, expensive and calm — so calm that they are giving market observers the heebie-jeebies. Gillian Tett of the Financial Times posits that investors might feel “frozen,” unsure what to make of government policies and low interest rates. Other market observers see precisely opposite forces at work: Investors are too confident, taking on too much risk, nudged on by the world’s central banks. One way or another, the lack of normal volatility in the markets is weirding everyone out, from Fed officials on down. “One thing that is clear is that the longer this pattern remains in place, the more wary investors and policy makers should be,” Tett concludes. “The global economy is quiet,” tweeted Kaushik Basu, the chief economist at the World Bank. “That's good but it's a bit like children in the adjacent room being quiet. You wonder what they are up to.”
That market quiet has happened to come — and is in part driven by — a period of extraordinary political gridlock, with a polarized Congress having in essence stopped legislating. Take this excellent Washington Post story on the matter, via a look at the love lost between Harry Reid and Mitch McConnell:
The two men so distrust each other, and each is so determined to deny the other even the smallest political success, that their approach to running the Senate has been reduced to a campaign of mutually assured dysfunction.
“It’s pretty bad, and I don’t think there’s any way to fix it,” said Sen. Sheldon Whitehouse (D-R.I.).
Sen. Christopher A. Coons (D-Del.), who commutes daily from Wilmington to the Capitol by Amtrak, said he keeps working on small issues, hoping to find bipartisan partners and sneak them into law without getting ensnared in the bigger partisan wars. Otherwise, he said, “I have a hard time getting on the train in the morning.”
Things are no better in the House, or between the House and Senate, and as such the illustrious 113th Congress will likely be the least productive in modern history, taking the title from the 112th. The effects ripple. Staffers are bored. Brain drain is evident. Ambition goes nowhere. Politicians seem cranky. The Washington Post ran a "Style" piece asking, “Has Congress gotten so pathetic that even the protesters aren’t bothering to show up?” (Yes.)
Of course, at the same time, the world is crumbling, with a constellation of bloody foreign-policy crises cropping up in Russia, Ukraine, Syria, Iraq, and Gaza. (One gets the feeling that John Kerry is not having an easy month.) But the markets have largely shrugged off the turmoil. The Obama administration has much more latitude to conduct foreign policy without Congressional help. And its foreign policy has been less interventionist than that of past administrations, relying more on shuttle diplomacy and sanctions and drone strikes made by keystroke, rather than, say, ground invasions.
Even with all those foreign-policy crises at hand, Obama has stuck to his schedule — one less and less geared to getting much more done on the domestic front beyond the implementation of the massive initiatives the White House did manage to sign into law, including Obamacare and Dodd-Frank. Popping up on that schedule: more fund-raising, long boozy dinners with European magnates and intellectuals, visits with constituents, and unscripted incidents where Obama ducks his Secret Service detail and gallivants. (He has his own jarring catchphrase for it: “The bear is loose,” likening himself to a circus animal that snaps its chain and wanders off.) He's not hiding his restlessness.
So what accounts for the Big Lull, for the ennui of August hitting early and sticking around for months? For both markets and politics, in part the phenomenon seems to be a relative one. Things seem so quiet now because they were so utterly bananas just a few years ago. On the economic side, there was the burst of the housing bubble, the seizure of the financial markets, the labor-market tailspin, the huge stimulus- and financial-reform bills, the Federal Reserve shifting into overdrive, the long-long-simmering European sovereign-debt crisis, the debt-ceiling debacle, the fiscal cliff, a tax hike, the government shutdown, and on and on. Now markets have much less insanity to assimilate, helping explain much of the calm.
The same goes for Washington. The Great Recession and the brief moment when Democrats controlled the House, Senate, and the White House allowed for an extraordinary burst of legislative activity. But polarization and structural impediments have unsurprisingly led to paralysis. The most interesting political action is happening within the two parties, not between them. That looks unlikely to change much, even with the election of a new Congress. So expect the markets to start acting up again when something prods them to, whether a central bank maneuver or a foreign crisis or a jump in gas prices. The world has a way of getting interesting again. But for domestic politics? The Big Lull will likely be around for a while. As low as the expectations are this Congress, they'll be even lower for the next one.