Digging Deep

A new article in Commentary Magazine by John Steele Gordon points out an inherent contradiction in President Obama's economic plans. Obama partially justified the multi-trillion-dollar deficits created by his stimulus program and multiple corporate bailouts with the claim that economic growth following the recession will provide increased tax revenue to offset the deficits. To this effect, his economic forecasts assume economic growth as soon as 2011 to be more than 4 percent yearly.

Gordon points out the problem with such predictions: "Many of the policies Obama and his team are pursuing, cap-and-trade being the most obvious, are likely to interfere with growth in exactly the sectors in which the United States will need it."

Obama plans for a massive increase in the size and power of government to address global warming, to create a national healthcare system, and to expand classic welfare programs. Add to this the existing problem of funding Social Security and the costly wars in Iraq and Afghanistan, and you have makings of a real crisis.

The problems presented by such a massive increase in the size of government are twofold. First, these programs must be funded with taxes, which automatically makes a large fraction of the American GDP unavailable for fueling economic investment and growth. Second, these regulations and taxes increase the costs of doing business in many vital sectors, significantly slowing growth.

As Gordon observes regarding the planned system to reduce carbon dioxide emissions, "...cap-and-trade is, inescapably, a tax on virtually all economic activity, as fossil fuels are an input in nearly all economic outputs. Even a lawyer, after all, has to use electricity to have the lights on in his office and power his computer. And electricity is mostly generated by fossil fuels, especially coal, the biggest emitter of carbon dioxide."

Larger government will unavoidably drag down economic growth. This economic fact is widely recognized by those on the left and right. The political question has always been whether the programs being instituted are worth the costs, and the Democrats in control of Congress seem to think that national health care, global warming legislation, and other programs are worth the trillions they would cost.

However, the Obama administration is increasing the size of government so greatly and so quickly, we may find ourselves incapable of paying off the deficits we are creating. We already face multi-trillion-dollar deficits for more than a decade, and the foreign creditors who have kept our economy afloat are showing signs of nervousness.

Obama talks a great deal about fiscal responsibility, yet his unprecedented spending is creating a situation that could virtually bankrupt the United States. Hysteria over the financial crisis has the Federal Reserve printing trillions of dollars, driving inflation and weakening the dollar on international markets. As pointed out by Gordon, these programs are not only creating massive deficits but also stifling economic growth, making those deficits harder to pay off.

The only way to save the United States from an unprecedented crisis -- ushered in by crushing debts, rampant inflation and a stagnant economy -- is to immediately and drastically cut government spending and balance the budget. The Obama administration is frantically trying to spend their way out of the recession. In reality, they are digging a hole which the American people will be trying to escape for generations.