The Heritage Foundation does not believe in Keynesian economics. We do not believe that massive government spending has a “multiplier effect” which turns the initial amount of money spent by the government into an even greater increase in national income. Economic studies of projects claiming to have a “multiplier effect” have shown that the claimed additional economic benefit from government spending simply never materializes. But the White House does believe in Keynesian economics. And President Barack Obama’s entire economic plan is grounded in the belief that massive new government spending is the key to economic recovery. So the Washington Post reported Saturday:
First as a senator and then as president, Obama has presided over the fastest, largest outlay of federal money since World War II. Over the past 12 months, the government has pumped more than $2 trillion into initiatives to ease the nation’s financial and economic crisis, driving the federal deficit to historic proportions.
But now, all of sudden, President Obama is singing a different tune. In his weekly radio address on Saturday, Obama told the nation: “We can’t generate sustained growth without getting our deficits under control.” His solution? The Washington Post reports:
President Obama is putting the finishing touches on an ambitious first budget that seeks to cut the federal deficit in half over the next four years, primarily by raising taxes on businesses and the wealthy and by slashing spending on the wars in Iraq and Afghanistan, administration officials said.
So while the Federal Reserve is predicting that unemployment from our current recession will remain high through at least 2011, President Obama plans to raise taxes on small businesses, corporations, and all Americans who invest in the stock market. What will this do to our economy in 2011? Uber-Keynesian Paul Krugman offered his explanation of what happened when President Roosevelt enacted the same policies in the middle of the Great Depression:
Roosevelt got the economy moving somewhat. By 1937 things were a lot better than they were in 1933. Then he was persuaded to balance the budget or try to and he raised taxes and cut spending and the economy went back down again and then it took a enormous public works program known as World War II to bring the economy out of the depression.
In other words, unless President Obama is planning to fight World War III, Obama’s own Keynesian supporters believe that his tax raising spending cutting budgets will only make our economy worse.
As we noted at the time, the Congressional Budget Office predicted the Obama Administration’s stimulus plan would only deepen the recession: “in the long run it will lower aggregate output (GDP) by 0.1 percent to 0.3 percent.” Obama’s tax hikes will only make this recession deeper. Economies simply don’t recover while staring down the barrel of a 12-gauge tax hike.
- According to USA Today, members of Congress with substantial financial ties to the banks and other companies getting a piece of the $700 billion financial rescue package voted two-to-one in favor of creating the program.
- President Barack Obama’s climate czar said the Environmental Protection Agency will soon issue rules regulating carbon-dioxide emissions.
- Iran plans to run computer tests on its Bushehr nuclear power plant this week in preparation for starting it up.
- Embracing a key argument of former President Bush, the Obama administration has told a federal judge that military detainees in Afghanistan have no legal right to challenge their imprisonment there.
- More than 90 percent of Bay Area mortgage holders cannot qualify for President Obama’s housing rescue package.