The myth of the recovery: the White House claims the economy is on the mend. That's a fantasy.

• Author: Randazzo, Anthony
• Position: Cover story - Viewpoint essay

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THE ECONOMIC HEADLINES sure look better than they did a year ago. Gross domestic product (GDP) is finally growing again, rising by 2.2 percent in the third quarter of 2009, with an early estimate of 5.7 percent for the fourth. The fourth quarter number will probably be revised down, but it will still likely mark the fastest growth since 2003. The unemployment rate, after a nosedive, leveled off in the last few months of the year, and the stock market has regained 40 percent of its value after a March 2009 low. Four of the five largest bailed-out banks have either repaid the government or received permission from the Treasury Department to do so in the near future. Inflation slowed to a standstill in November after 10 months of increasing consumer prices. Construction of new homes and apartments increased in 2009 from 2008 levels, the first annual growth in housing starts since 2005.

"The Recovery Act has created jobs and spurred growths," President Barack Obama said in a December speech trumpeting the success of his economic policies. "We are in a very different place today than we were a year ago." Lawrence Summers, director of the White House National Economic Council, concurs. "Everybody agrees that the recession is over," Summers said that same month on ABC's This Week.

But a closer look reveals those appealing numbers sit on a dangerously shaky foundation. Economic growth in 2009 was largely dependent on a historic level of government spending that even the president acknowledges is unsustainable in the long term. The root problem of mortgage delinquencies has yet to be worked out. Bank lending is sparse amid ongoing uncertainties surrounding regulatory reform. As a result, manufacturers and small businesses continue to struggle with limited credit. All that translates into historic job losses and a bleak outlook for meaningful growth in 2010 and 2011.

Worst of all, many of the core problems in the housing, banking, manufacturing, and service sectors are being perpetuated and exacerbated by the very federal programs the president credits with jump-starting economic growth. Instead of confronting the roots of the crisis head on, as Obama has repeatedly boasted of doing, his administration and the Democratic Congress have kicked the can down the road, postponing the day of reckoning for real estate, the auto industry, and the toxic mortgage-backed securities that were at the heart of the economic meltdown. These unsolved problems will keep looming over the economy until they're finally addressed.

Government Domestic Product

The much-noted "jobless recovery" is not just a problem. It's an anomaly. Not since the post-World War n recession in 1945 has unemployment risen this quickly: five percentage points in the 24 months after the downturn began in December 2007.

To put that in perspective, it took 43 months for unemployment to hit its peak during the 1979-82 recession. In 2009 alone the economy shed a staggering 3-9 million jobs. And though the headline unemployment rate stabilized at 10 percent during the final months of the year--17.3 percent if you include part-time workers--initial jobless claims for January 2010 jumped at a rate not seen since the previous August. It's not at all clear the worst is behind us.

The gains on Wall Street have been goosed largely by government spending and guarantees, not the usual private sector-funded growth. And federal spending cannot continue indefinitely without deficits and debt service spiraling out of control. John Silvia, chief economist for Wells Fargo, says, "We have seen a recovery, but it's driven primarily by federal spending and special federal projects. The character of this recovery is very different than we're used to."

Consider that 37 percent of the third-quarter GDP growth was due to motor vehicle purchases, which were stimulated almost entirely by the Cash for Clunkers program. "The third quarter was really just a lot of Cash for Clunkers spending that won't be sustained in the foreseeable future," Silvia says. (Final statistics for fourth quarter spending were not available at press time.)

The car scheme, an attempt to jump-start the bankrupt auto industry, offered consumers a government-funded credit of up to $4,500 if they traded in their gas guzzlers for more eco-friendly vehicles. But since most participants probably were already planning to buy a new car, the program essentially shifted...