What We Just Did

Congress has just voted - and Barack Obama will soon sign - the most radical transformation of the US government since ... well you pick. 1965? The 1930s? The Civil War? 

In percentage terms, the stimulus package just passed is more than double the size of the cost of the New Deal, 5% of GDP vs. 2%.  

Back in the Bush 41 era, we got worried when federal spending crept north of 20% of GDP. Now it's on the way to 26% - and that figure does not count the costs of Federal Reserve operations to rescue the banks. 

Congress has taken at least three giant steps toward a national single-payer health care program. It has hugely expanded S-Chip, the federal program that offers Medicaid to under-18s at levels up to 4 times the poverty level. 

Congress will subsidize unemployed people to maintain their existing insurance – before this was a cost that unemployed people usually had to pay themselves.

Above all: Congress has hugely expanded the federal role in Medicaid proper, relieving states of a big share of the costs of this rapidly growing program. This is billed as a temporary measure, but it’s hard to imagine that the day will ever come when say California is told to resume paying the Medicaid share it paid back in 2008 – not with Medicaid costs rising as fast as they do.

We’re going to see a huge burst of federal spending on public works, many of them of very dubious validity. Does America really need high-speed rail between Los Angeles and Las Vegas? Need it or not, we’re about to get it, thanks to Senate Majority Leader Harry Reid. (The administration could at least have extracted approval of the Yucca Mountain nuclear waste storage facility in return.)

Perhaps the worst thing included in the bill is the subsidy to green jobs. As the Washington Post reports:

House Speaker Nancy Pelosi (D. – Calif.) said yesterday that money for developing such things as electric cars, clean-coal power plants and bullet trains will be "transformational," even though those funds will be some of the slowest to be spent …

That money will be transformational. It will transform potentially useful dollars into waste. Instead of incentivizing private individuals to make environmentally positive decisions (as pollution taxes would), it puts government into the boondoggling business of directing investment dollars itself. That always ends badly.

But alas in this respect as in so many others: we are going to learn lessons the very hardest possible way.