"Stuff the beast": Barack Obama's ultimate goal.

• Author: Boskin, Michael

It is still too soon to gauge the full economic impact of President Barack Obama's implemented and proposed policies, but a preliminary read indicates limited short-term benefit at large long-term cost. The administration is exploiting a crisis atmosphere to enact a vast agenda that would reengineer the American economy, from autos and financial services to health care, energy, and the distribution of income.

Obama outsourced the details of the $787 billion fiscal stimulus to Congress and, no surprise, the old barons of the House stuffed it with pork and social engineering. Several months later, only 4-6 percent of the funds have been spent, and the federal government is brow-beating state governments--for example, demanding that California rescind a small pay cut for some unionized workers or lose $7 billion in stimulus funds. (Intervening in contractual relations ex post to enforce union demands is an emerging characteristic of the administration).

The foreclosure relief plan is off to an even slower start, and is likely to run into numerous problems concerning how to rework delinquent mortgages without inducing a lot more delinquencies.

So score the stimulus a very expensive, largely wasted opportunity. Instead, Obama could, for example, have suspended the payroll tax for a year, getting money directly into people's pockets quickly and decreasing the need for firms to lay off workers.

Obama's long-run budget calls for much higher spending, higher taxes, and an explosion of debt that will crowd out borrowing in capital markets by private companies, state and local governments, and developing countries. Obama would add $6.5 trillion to the United States' national debt, more than all previous presidents, from George Washington to George W. Bush, combined.

That is in addition to explicit tax hikes on income, capital gains, and dividends, the implicit ones on energy via cap-and-trade, and so forth. It appears that the Obama strategy is to "stuff the beast" (the mirror image of the tax-cutting "starve the beast" philosophy attributed to some of President Ronald Reagan's advisers), that is, to initiate massive spending and hide the true cost from citizens. The large deficits will eventually force much higher taxes, such as a national value-added tax similar to those in Europe, or gigantic increases in everyone's income taxes.

The Federal Reserve lowered its target federal funds rate to zero before Obama was inaugurated, and initiated many...