In a move hailed in much of the media as a victory that will reignite the American economy and create millions of jobs, President Obama recently signed the American Recovery and Reinvest-ment Act of 2009, or, the “Stimulus Bill.” Lobbyists, states and various groups now are lining up to claim their piece of the pie and in the meantime the Obama Administration has modified its rhetoric about the impact the bill will have upon the economy.

White House Press Secretary Robert Gibbs stated, “I think it’s safe to say that things have not yet bottomed out... They are probably going to get worse before they improve. But this is a big step forward toward making that improvement and putting people back to work.” Gibbs also hinted at the prospect of another, similar bill should the economy not recover in the near future. 

What remains to be seen are the consequences of the stimulus bill.  Prior to its enactment, the Congres-sional Budget Office, the non-partisan agency that provides economic data to Congress, prepared two separate analyses of the legislation.  In its initial report prepared for the Senate Committee on the Budget, issued February 11, it noted that “the macroeconomic impacts of any economic stimulus program are very uncertain,” particularly for a large fiscal stimulus, which rarely is attempted.  Despite the uncertainty of a precise outcome, the budget office noted that in the short run the stimulus legislation probably would raise the gross domestic product and increase employment. 

Over the coming years, however, the legislation likely will reduce output, primarily because it will result in a dramatic increase in federal government debt. The report notes, “To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt would tend to reduce the stock of productive private capital.”  In other words, this legislation will vastly increase the size of government while reducing the private sector, the fundamental source of economic recovery. 

The budget office report further states, “In principle, the legislation’s long-run impact on output also would depend on whether it permanently changed in-centives to work or save. However, according to the report’s estimates, the legislation would not have any significant permanent ef-fects on those incentives.” The problem is that the stimulus bill as signed into law contains vastly excessive government deficit-spending and too few tax cuts for businesses and individuals. Cuts would encourage both to invest in the economy.

Two days after the initial report, the budget office issued a second report on the stimulus bill. In this report, which was addressed to House Speaker Nancy Pelosi, it estimated that between from 2009 to 2019, the act would cost American taxpayers $787 billion, more than any other single piece of legislation in history. Such debt ultimately will reduce GDP, leading to lower wages for American workers because “…each dollar of additional  debt crowds out about a third of a dollar’s worth of private domestic capital,” as the first report stated to the Senate.

Nor is the stimulus bill the only spending bill Congress will pass this year, as appropriations must be enacted into law to keep government programs and departments functioning. Early estimates suggest that these appropriations may reach $410 billion.  In addition, President Obama has proposed $75 billion for homeowners who cannot pay their mortgages.  Many economists are predicting that the budget deficit for fiscal year 2009 (Oct. 1, 2008-Sept. 30, 2009) alone will reach $1.6 trillion, about three times the size of last year’s federal deficit. Such unprecedented de-ficits undoubtedly will create major problems for the economy. 

We must return to a policy of fiscal restraint and balanced budgets.  Other-wise, our economic recovery could be much smaller and come to fruition in a far distant future. 

Marion Edwyn Harrison is president of, and counsel to, the Free Congress Foundation.