The Corner

Krauthammer’s Take

From last night’s Fox News All-Stars.

On economic growth of 3.5 percent in the last quarter and Washington’s part in it:

That’s why it is a fairly artificial number, the 3.5 percent. It [the growth] is an encouraging one. The growth is pretty robust given how low we were before.

But let’s look at one of the factors. About a point and a half of the three and a half is from autos. And a lot of that is from the “Clunkers” program, which, of course, was a one-time gimmick which stole demand from the future into the present.

And we know that because when it [the “Cash for Clunkers” program] ended, September saw a collapse of auto demand. Which means that if you increase it [demand] artificially, as we did — [increase] demand in the summer for autos — it [demand] will be lower in the fall, lower in the winter, lower next year. Which means that the point and a half added to this year is probably going to be zero added in the next year, or even that autos will be a drag on the economy.

So even though it is a healthy number now, it doesn’t tell us if it is going to remain healthy.

The larger issue is that, again, a lot of this [growth] is from the billions sprinkled on the economy out of Washington. Ultimately, it creates debt that ultimately has to end up being repaid — either in higher taxes or in inflation and then higher interest rates — which means we’re going to have a drag on the economy.

And the longer you wait [to reduce the debt], the higher the inflation and the bigger the drag.

And the parallel is the second worst recession since the Great Depression, which was in the early ’80’s in Reagan’s first term where he insisted on huge tax cuts. So even though unemployment hit almost 11 percent, when that [recession] abated, there was a huge spike in employment and in growth, almost 6 percent…

And that’s unlikely to happen because instead of tax cuts and incentive for employment, what we’re doing [today] is sprinkling all kinds of stimuli which are going to expire and dissipate, and I’m not sure what we’re going to have left at the end of it except a huge hole in the federal deficit.

[And] there will be a lot of sprinkling next year, especially as Election Day approaches, you can be sure of that.

On the Pelosi health-care bill:

We’ve always had shamelessness, but we’ve never had it on this galactic scale. This is [the] shamelessness of a quarter-trillion-dollar trick.

And the trick works like this — the bill has in it the assumption (which the CBO has to accept) that they will cut a quarter trillion of Medicare by cutting the fees that doctors and others receive.

We know it’s not going to happen because the House is going to have a separate bill in which it pays the quarter of a trillion — with no offsets — out of the borrowed money. So it is a huge hole in the budget, but it is in a separate bill.

The separate bill ought to be called the “Pinnacle of Cynicism Act,” because that’s exactly what it is. However, in the bill that will be called the National Healthcare Reform Act, it [the payment to doctors of that $250 billion] is not going to appear, and that’s why it [net cost of the health-care bill] ends up under a trillion — when in fact it is over a trillion. And [that is] why it ends up with no deficit whereas it will increase the deficit by about $200 billion.

So that’s the black hole at the center of all this.

Secondly, if you step back and say we’re, in fact, creating an entitlement of $1 trillion dollars, and even if it is offset with raises in taxes, and …cuts in other spending, that is $1 trillion that you can otherwise apply to other parts of the … deficit, which is now going to be $9 trillion over a decade.

So, in other words, you create an entitlement. You steal the possible revenue sources out of other deficit reduction, and in the end you blow a hole in the deficit that is just enormous.

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