Why the Stimulus Won’t Work: A 12-Gauge Tax Hike
Posted February 10th, 2009 at 11:24am in Ongoing Priorities 
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Heritage senior fellow J.D. Foster speaks next at the “Economic Recovery: Free Markets vs. Big Government” conference. He takes on the intellectual foundation of the left’s Keynesian beliefs.
JD explains that the left believes government can jolt the economy back to life by increasing aggregate demand through deficit spending. But in order for deficit spending to be effective, their must be pockets of idle savings out there that will be coaxed back into the system by government borrowing. But the left won’t tell us where these pockets of savings are. People are not storing their money in mattresses. In reality, since there are no pockets of idle savings, government borrowing will necessarily crowd other investments. And since government is doing the spending it is guaranteed to be less efficient.
JD also predicted that President Obama’s Trillion Dollar Debt Plan will only deepen the recession. The CBO has already said so, noting that “in the long run it will lower aggregate output (GDP) by 0.1 percent to 0.3 percent.” Foster believes it will actually be worse. He explains that the unprecedented levels of debt required to fund Obama’s spending binge will drive up interest rates across the board. It well send our debt to GDP ratio soaring by 25%-30%. This will in turn drive up interest rates by a full percentage point by 2010. This debt will be a millstone around our economic necks for years to come.
Finally, responding to a question from the audience, Foster said that it was insane that anyone could think an economy could recover while staring down the barrel of a 12-gauge tax hike … like the ones scheduled for 2010. Not to mention the ones needed to pay for all of Obama’s reckless borrowing.
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4 Responses to “Why the Stimulus Won’t Work: A 12-Gauge Tax Hike”
Mike from IL on February 10th, 2009 at 11:24am said:
It is clear that the federal government at this time is attacking the financial freedoms of all American citizens. Not only is government making the problems larger, I believe that they want to and will continue to take wealth from Americans.
john, Illinois on February 10th, 2009 at 11:24am said:
What does monetary theory say about this? Since the growth in money supply has grown so much and will not apparently be reduced , inflation is not setting in because of the low velocity. If this is so, then the velocity is the key. Will the impending tax hikes keep velocity down or are we inevitably looking at a stagflation period?
Don, Arizona on February 10th, 2009 at 11:24am said:
Well, one way we can protest the ’stimulus’ package is for everyone making less than $250,000 a year simply to quit having our employers taking any taxes from our pay checks, and don’t file on April 15, 2009. If you make over $250,000 per year, BO thinks you’re rich! His ’stimulus’ will ‘only’ tax the top earners, to wit, the ones who employ us, and the top 5% who cover the Government’s income and spending programs. I guess his only alternative move will be to print more paper dollars to cover his spending plans and further reduce the value of the dollar.
What a scary joke!
Steven, Lexington MA on February 10th, 2009 at 11:24am said:
0bama was a professor at a Chicago University (which on matters not) His one and only course he taught, used Saul Alinsky’s “Rules for Radicals” as the sole text. To understand why 0bama is intentionally auguring the nation into bankruptcy, one has to look at the big picture of what his ultimate goal is. If America is to fully embrace Socialism, 0bama has to bring capitalism to it’s knees, to the point where we are so far down, that Socialism, or even Communism for that matter, looks like up from here. The reckless spending (as much as can possibly be shoved down our throats) has a very specific purpose, it is to intentionally cripple the nation. Our future is being sacrificed on the alter of Socialism. The real crime is no one is speaking up about it. Am I wrong?