Obama's stimulus killers

The president's two big legislative goals for the fall could put new burdens on a weak economy.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Nina Easton, Washington editor

What seven key metrics tell us about the health of the U.S. economy. More
You need Flash 8 to see this.
Has the recession caused you to change your spending and saving habits?
  • Yes, permanently
  • Yes, but only for a short time
  • No

NEW YORK (Fortune) -- Barack Obama promised universal health care and a mass conversion to green energy when he launched his presidential campaign. On that frigid February day in 2007, the economy was growing at a 2.8% clip. Obama stuck to the same promises a year later when he won Iowa, as the housing market was slumping into recession. And energy and health care were the twin pillars of his acceptance speech in Denver, 18 days before Lehman Brothers collapsed.

As one of the most disciplined, on-message politicians of our time, President Obama hasn't wavered from his audacious plans to remake entire business sectors. But when wavering is what the U.S. economy seems to do best these days, the President confronts a new question: Does his own agenda threaten to choke off the economic recovery that he also promises -- and that will define much of his legacy? Both of his legislative campaigns for the fall, health-care reform and the cap-and-trade plan to curb carbon emissions, could put new burdens on a weak economy. Even supporters of the initiatives fear a GDP hit. "It's a big gamble," says Mark Zandi of Moody's Economy.com, a proponent of health-care reform, about that initiative's impact on growth.

Obama is running against the clock on two political realities every new President faces: the need to act while his personal popularity remains high and a midterm election next year that will further politicize an already contentious Capitol Hill. But Obama also proclaims himself a pragmatist, a believer in tuning in to the feedback loop. Right now, it shows an economy that's unlikely to rebound to anywhere near the 3.2% growth rate in 2010 that underpinned the first budget Obama submitted to Congress. Most economists predict a far more anemic recovery and double-digit unemployment even as the economy begins to grow. Into this fragile tableau Obama remains determined to insert health-care reform, likely to be funded by tax increases, and a cap-and-trade law that critics and supporters agree will raise energy prices.

Health-care reform

Obama officials insist we "can't afford not to" fix the health-care system and wean the nation off fossil fuels. "I don't see how anyone can look at the excessive growth rates [in health-care costs] and believe that can be sustained with a healthy economy," says Larry Summers, Obama's top economic adviser. Or as Zandi puts it, "Nothing is more important to the country's long-term fiscal outlook than health-care reform, and he only gets one bite at it. Investors know this, so they'll bid up interest rates" if reform isn't done right.

"Done right," of course, is in the eye of the beholder. Zandi argues that reform needs to be "credibly paid for" -- ideally by limiting the tax deduction for employee-paid plans -- and it needs to contain costs. While the first question remains under debate in Congress, on the second, the nonpartisan Congressional Budget Office warns that evolving legislation could bust the budget.


While the right kind of health-care reform has the potential to boost the economy and lessen the entitlement burden on the budget, the same cannot be said of going green, which economic models are showing will reduce growth and create job losses. The cap-and-trade bill that barely passed the House will reduce the purchasing power of households by an average of $730, rising to $830 by 2030, according to an analysis by the Boston-based consulting firm CRA International. "It's a complete myth that the economy and jobs will grow as a result of making energy 10% to 20% more expensive," says CRA economist Anne E. Smith. "You have to look at this through the lens of an economist, not through the lens of wishful thinking."

Even if Congress passed a cap-and-trade bill, however, the costs wouldn't start kicking in until 2015. Politically that lightens the load for Democrats like Obama who might be worried about reelection. But economically Obama officials had better hope the recovery is strong enough by then to shoulder the bills. If not, the fourfold increase in Google searches for the words "economic depression" that Summers cited as an indicator of last winter's gloomy mentality could turn into a surge in searches for the words "economic stagnation." To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.