The Uncertainty Economy

Tim Geithner is not the Democrats' biggest problem.

Preparing to write about yesterday's downward revision in third-quarter GDP, we were tempted to say the Obama Administration has hit a speed-bump on its promised exit out of the recession. But it is the American economy that has hit a speed bump, and on the evidence of the policy mix emerging now from Democratic Washington, the road ahead for the economy is bump, bump, bump, bump, bump. Other than a few lucky banks, few seem be enjoying the ride.

What last month had appeared to be third-quarter growth of 3.5% in gross domestic product turns out to have been a more modest 2.8%. Consumer spending was pared back to 2.9% from 3.4%. The cash-for-clunkers subsidy produced fewer new-vehicle purchases than first estimated. In short, we aren't getting much bang for our $787 billion stimulus bucks. But you already knew that.

The frustrated Congressional Democrats who designed and enacted the stimulus seem more surprised, and they are now circling the wagons and starting to look for someone else to blame.

The Democrat catching most of the bullets is Treasury Secretary Timothy Geithner. Democratic Congressman Peter DeFazio of Oregon last week called on Mr. Geithner to resign. No surprise there. More noteworthy was that not a peep of support emerged for Mr. Geithner from the Obama White House. We've had our differences with the Treasury secretary, but how throwing Mr. Geithner off the wagon train would turn around the unemployment rate is, to put it mildly, far from clear.

The panicked Democrats' biggest problem is that Congress and the President have erected the biggest overhang of economic policy uncertainty that anyone can remember.

One big difference between Washington and private markets is that politicians think everything they do is free-standing. Markets, however, combine all the potential costs of Washington's policies and then decide whether to invest, or not. Consider what private decision-makers see in their future:

A 2,074-page, trillion-dollar health-care bill to redesign 17% of the U.S. economy. A carbon tax—cap and trade—that remains an Obama priority ahead of the Copenhagen climate summit next month. A falling dollar and gyrating commodity prices, with no idea where those prices will go next.

Democratic liberals are talking about an income tax surcharge to pay for any commitment in Afghanistan. Card check, to expand unionization of the private economy, remains a priority. Domestic discretionary spending in fiscal 2010 is set to rise at 12.1%, with inflation near zero.

Nurturing a fragile economic recovery into a durable expansion requires policies that restore public confidence and reassure investors, risk-takers and employers. The Democratic agenda is doing precisely the opposite, which is how you get subpar growth and fewer new jobs.