Only in the hallowed halls of Congress could the notion of spending vastly higher amounts of money convince so many that the net result will be a reduction in spending. But such is the conceit with the new health care bill being hammered out these days.
The new legislation to expand health care insurance will reportedly cost $849 billion. But this massive increase in government spending will, we’re told by Senate Majority Leader Harry Reid, reduce the federal budget deficit by $130 billion.
If $849 billion will get us $130 billion in deficit reduction, will $1.698 trillion bring us a $260 billion decline in red ink? Have we, in other words, stumbled upon a budgetary fountain of youth? Ah, if it were only that easy. But attempts at spending our way to prosperity has a long and discouraging record. We can debate the social merits of expanding health care coverage by way of colossal increases in public expenditures, but promoting it as a deficit reduction measure as well strikes us as, well, unhealthy. Progress, or apparent attempts at such, cost money. There’s just no way to turn that mule into a horse.
Meantime, the last time we check, two plus two still don’t equal 5, or 3. In most cities, at least.

The danger is not the past, but the future.
Today’s update on weekly jobless claims may be the warning sign. New filings for jobless benefits were unchanged last week, hovering at 505,000, matching the previous week’s tally. Although this number is down sharply from it’s recessionary peak of 674,000, set back in late-March, 500k reflects distress in the labor market. In other words, job growth is largely MIA.
It’s too soon to tell if the drop in claims is stalling. But there’s a case to be made that the big, easy reductions are behind us. As we discussed many times this year, there was always a strong case that a snapback on multiple economic and financial levels was in the offing for 2009. Unless the system was truly headed for a collapse, the natural order of the business cycle was righting itself after such a sharp deviation from equilibrium. In short, much of the events in 2009, particularly since the spring, aren’t a huge surprise to students of economic history. But the world is likely to become increasingly nuanced and complicated, and not necessarily for the better.

We’ve commented often in 2009 that the main threat was a stalled rebound in the job market. The risk was less about a double dip recession and another cataclysm and more of meager growth in the all-important labor market. Today’s data point in jobless claims isn’t proof that our forecast is turning into reality, but neither does the latest number do anything to dispel our worry of what may be looming.

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