Emergency spending by the US government in response to financial crisis has received hesitant validation from economists, and supporters of the Obama administration can't understand why they've heard no outburst of praise. They overlook too much.
In July, the White House Council of Economic Advisers issued its fourth quarterly assessment of the $800 billion economic stimulus package enacted in February 2009. In the second quarter of this year, it said, gross domestic product was 2.7-3.2% higher than it would have been in the absence of the package, and employment was higher by 2.5-3.6 million jobs. Last month, the Congressional Budget Office put the second-quarter GDP enhancement at 1.7-4.5% and the increase in number of people employed by 1.4-3.3 million. Private economists generally agree that conditions would be worse without the stimulus.
Popular gloom
An unemployment rate persistently above what the administration initially projected helps explain popular gloom and President Barack Obama's slumping approval ratings. When people suffer, assurance that things could have been worse helps little.
But there's more to the story, the part Obama's supporters ignore. The president didn't just commit the country to unprecedented levels of public spending to stimulate an economy in jeopardy. He also tried to restructure the economy around a vastly expanded role for the federal government. American businesses now must deal with new regulation at the same time they worry about taxes likely to climb as the government tries to claw off the fiscal reef onto which it has crashed. No wonder nobody—other than recipients of federal grants—is hiring.
Energy offers an early illustration of what eventually will haunt the entire economy if this approach doesn't change. Promising "green jobs," the government is subsidizing renewable and other forms of nonfossil energy with tens of billions of dollars of grants and other assistance. Because the money has to come from somewhere, it wants to raise taxes on oil and gas companies by tens of billions of dollars over a comparable period. So money will flow from economically sustainable energy to economically unsustainable energy, which will need further subsidization when stimulus money runs out. This pattern will repeat itself throughout the economy as long as the government acts as though it can create jobs simply by spending public money. And it will act that way until the bills come due—or until stopped by voters who know better.
Aggravating the threat from fiscal irresponsibility is a regulatory rampage that will sap the economy's restorative power. The Environmental Protection Agency provides a troubling example. In areas of concern to energy, the agency is, among other things, proceeding to regulate emissions of greenhouse gases, toughening air-pollution unnecessarily, and usurping state air-permit regulation in ways that threaten refineries and petrochemical plants with new costs. In many of these regulatory incursions, it's testing the limits of its constitutional authority.
But EPA hasn't confined itself to energy. It has, for example, alarmed farmers by moving to regulate dust. It has prohibited use by cotton growers of an effective pesticide that they say poses little environmental threat. And it is pressing a plan to incorporate the gauzy concept of "environmental justice" into permitting in a program that will give do-nothing environmentalists a rich new way to block construction.
Dangerous trajectory
EPA needs to be brought under control. Taken together, its excesses inscribe a dangerous trajectory toward government control of the economy. But the pattern gets lost amid larger and more immediate fears about swelling budget deficits, future taxes, and stubborn joblessness.
Early signs are that the 2009 stimulus package at least limited economic damage from the financial system's near collapse. But the package shouldn't have been incorporated into an activist agenda that is mass producing torpedoes aimed at productive parts of the economy.
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