Economy: Post Hoc

It's too soon for laymen to say whether that light at the end of the tunnel is daylight or an oncoming freight train. But at least some economists -- including Richmond Fed chairman Jeffrey Lacker -- are coming around to the view that the recession is easing.

If the economy does bounce back quickly, look out. Washington is bound to take the credit -- and to draw dangerous conclusions.

Congress and the Obama administration (and the Bush administration before it) have spent the past few months combining an orgy of spending with an unprecedented level of government intervention in private enterprise. If the recession ends quickly (and mind you, we certainly hope it does) then politicians inside the Beltway will conclude that the stimulus measures and the heavy hand of intervention worked. Post hoc ergo propter hoc remains a popular fallacy.

And maybe Washington's efforts did work -- although a great deal of the stimulus money has not yet trickled down to the level at which it actually will be spent. On the other hand, maybe the economy would have rebounded quickly anyway (and mind you, there's no proof yet that it actually has). Economists in academia may debate the subject for years.

But that probably will not stop big-government types from concluding that the stimulus package worked, no matter when the economy turns around. That is an especially worrisome prospect because of the nature of the stimulus package.

Had Washington wanted to, it could have created a set of stand-alone, ad hoc programs, akin to FDR's Works Progress Administration, to provide jobs and pump money into the economy for the short term. Instead, Congress and the Obama administration injected vast amounts of deficit-financed money into existing government agencies. That will make it much harder to turn off the spigot once the economy recovers. A temporary program with a sunset provision -- the equivalent of a one-time grant -- can die a relatively painless death. It will be much harder for lawmakers to reduce spending for, e.g., Medicaid or the Department of Housing and Urban Development now that they have jacked it up.

Indeed, some pundits have speculated that congressional Democrats and the administration realized that, and pursued such a course deliberately. Just as conservatives cut taxes in order to "starve the beast" -- i.e., to reduce the amount of money available for government programs -- liberals might be trying to stuff the beast in order to create irresistible demand for more revenue -- and higher taxes -- down the line. So it could be the case that there really is light at the end of the tunnel . . . and a freight train just around the bend.