In Pursuit of Failed Theories

J.D. Foster / February 05, 2009

President Barack Obama in an op-ed published in the Washington Post makes several valid points. But the most important is his statement dismissing plans that “echo the failed theories that helped lead us into this crisis.” He’s absolutely right. Failed theories such as:

• Government spending stimulates the economy. Federal spending in 2008 topped $3.3 trillion, up over a trillion dollars since 2003 alone. The federal budget deficit this year is expected to be $1.5 trillion or more, or more than 10 percent of GDP. If federal spending and deficits were stimulative, the economy would be on the verge of a massive overheating right now. Yet President Obama is encouraging Congress to spend almost a trillion dollars more.
• Raising taxes on the most productive in our economy makes sense. Speaker of the House Nancy Pelosi has suggested we do raise taxes even as the economy’s recession deepens.
• More federal intervention in the housing sector is the solution. Foolishness in Washington is bipartisan. Many Senate Republicans are pushing a policy that would vastly increase Washington’s role in financing home mortgages. Fannie Mae and Freddie Mac were not bad enough, we need to put them on steroids?
• More government regulation of financial markets would have prevented the financial crisis. Many countries with far more onerous and often frankly more competent financial regulators than ours failed completely to protect their financial institutions, financial systems, or the investors and customers who relied on them. (more…)