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.