Ryan's Follies: Oy! Taxes, Decline, and Austerity

More on Ryan's follies and the overall quality of thinking we find in this young “guru”! Here's more from his answer [1] to the President's 2011 SOTU.

”On this current path, when my three children – who are now 6, 7, and 8 years old – are raising their own children, the Federal government will double in size, and so will the taxes they pay.”

It will be roughly 19 years until Ryan's children are raising their own children, and guess what? GDP will be between two and three times what it is now, and, as we've already seen there's no reason why taxes should be any higher as a percentage of income for most people, unless of course, people like Ryan keep lowering taxes for the rich and raising them for everyone else in order to achieve a damaging budgetary surplus.

Hopefully, the tax rates for the top 2% of the population will be far higher than they are now, and estate taxes will return to their levels in the 1950s, so that gentlemen like Congressman Ryan can begin to pay their fair share again, and the United States can once again have a wealth distribution that is more equal than the likes of Russia, China, Turkey, and Jordan.

I recently blogged on some Credit Suisse data [2] related to the inequality problem. My analysis showed that the US was 24th in the world on Median wealth per Adult. Our Median Wealth per Adult was about $53,000. The nation that ranked first, Australia, had a Median Wealth per Adult of about $223,000 or 4.2 times ours. Also the ratio of the Mean to the Median Wealth per Adult, an even better measure of inequality, was 4.71 for us, and 1.79 for the Australians. One thing's for sure it won't be very good for most of our grandchildren if Romney/Ryan tax policies, which will make this situation even worse, are inflicted on us in 2013. Four years of that and we could very well see that Median Wealth number go down to $46,000 or so and that ratio up to 6 to 1. The political and social unrest that will cause here is anybody's guess. Here's another folly:

”The next generation will inherit a stagnant economy and a diminished country.”

That depends on Congressman Ryan, the Republicans, President Obama, and other Democrats who think we have a deficit/debt problem, [3] which must be treated with Government austerity and tax cuts for the rich. That's a sure recipe for condemning the United States to a stagnant economy and a diminished country. We're seeing the results [4] of such policies now in Europe and in the UK, which is fast becoming the laboratory case illustrating why austerity isn't the thing to do to a down economy.

How do these exponents of Hooverian crackpot economics expect the economy to grow when they are going to drastically lower the aggregate demand provided by Government deficits? By blowing more private sector debt bubbles leading to a new collapse produced by lack of regulation and corporate account control fraud, he further impoverishment of the American Middle Class, and then more lemon socialist bailout?

That's sarcasm, of course. But that kind of pattern is probably a feature, rather than a bug of the Romney/Ryan plan. Their grand design isn't morning in America. It's the New Serfdom with themselves and others like them as our new feudal lords.

”Unfortunately, instead of restoring the fundamentals of economic growth, he engaged in a stimulus spending spree that not only failed to deliver on its promise to create jobs, but also plunged us even deeper into debt.”

The Democrats have failed to end the recession, at least for most Americans; but Paul Ryan's austerity policies, if followed in 2009, would never have restored “the fundamentals of economic growth.” Balanced budgets at the Federal level would only have depressed demand to such a degree that we'd be in a second Great Hooverian Depression right now. Really, Ryan's version of economic science is at the very least 115 years old. Some whiz kid! Between he and Eric Cantor, they'd have the economy flat on its back for the next 100 years.

”The facts are clear: Since taking office, President Obama has signed into law spending increases of nearly 25% for domestic government agencies – an 84% increase when you include the failed stimulus.”

Much of this “spending” is a result of the operation of the automatic stabilizers in the safety net helping people get through the recession, created by the FIRE sector and its control frauds -- spending over which the Obama Administration had no control that was also necessary. And much of it was due to Homeland Security and its expenditures, “domestic spending,” which I'm quite sure Ryan would be opposed to cutting? In any case, numbers like the ones just above don't mean anything, unless one thinks these expenses increase the solvency risk of the Government. Since we've already seen [5] that they don't, these "facts" of Ryan's are of little or no importance.

”All of this new government spending was sold as “investment.” Yet after two years, the unemployment rate remains above 9% and government has added over $3 trillion to our debt.”

Of course it's now 3.5 years, 8.3%, and more like $5 Trillion in additional debt, otherwise known as world savings of USD in the form of Treasuries. As I said in my last post, [5] the addition to debt doesn't matter. And, again, much of the new Government spending was due to the response of the automatic stabilizers to the crash of 2008, and wasn't “sold as 'investment'” at all.

As for the stimulus package, only a relatively small part of it was justified as “investment,” as Paul Ryan very well knows. By the time the Republicans, the Blue Dogs, and the President got through with the ARRA, the tax cuts in the package and spending geared toward maintaining the States, ate up more than half the stimulus over a two year period, and were in no way "investment."

The stimulus itself was also only one-half as large as it needed to be in volume of spending to end the recession (as many asserted, including myself, at the time), and was less stimulative than it should have been, due to the fact that low-multiplier tax cuts were such an important component of it. So, it wasn't any surprise to many of us that it failed to lower unemployment below 8.3%, or that the deficit remained high, since the primary cause of big deficits was the combination of high unemployment and the operation of the social safety net.

Congressman Ryan is a rising star in the Republican Party, and is often characterized as their foremost policy wonk and budgetary guru. But his performance over the past two years, indicates that if he's their guru, and if the Republicans remain in charge of the House, then we'll all be in trouble; because while Paul Ryan may be better at adding and subtracting than most of his colleagues, there are very important things that he apparently fails to understand, or at least to heed, about Macroeconomics and its relation to fiscal policy.

In particular, Congressman Ryan, seems to have no clue about the sectoral balance model of macroeconomics [6]. One of the things that model implies is that if the US is running a negative trade balance (imports exceed exports), and the private sector needs to save to pay back debt, the Government budget deficit must be equal to the value of the trade deficit plus the value of private sector savings. If the Government tries to work against the dynamic implied by this model, by taking active steps to reduce that deficit, as Paul Ryan and the Republicans so vigorously advocate, then the private sector is going to have to reduce its imports, its savings, or, most likely, both, because a reduced Government deficit will lessen demand in the private sector.

So, Government austerity is not going to create private sector prosperity as Ryan, and sometimes, President Obama and many Democrats, suggest, but private sector privation, instead. Less private sector savings, less real wealth, and a stagnating economy. Paul Ryan may actually want that, and the President may too, so he can say that he left a legacy of hard and courageous decision making, but most of the rest of us don't.

We wish that our political parties and their leaders would leave that legacy of courage and sacrifice that they, their families, their friends, and the wealthy people and corporations they deal with daily, are calling for, to themselves and their families; while leaving us with things like enhancements of the social safety net including Medicare for All, and greatly increased Social Security payments, as well as with a Job Guarantee program. After 30 some-odd years of policies promoting extreme wealth for them, and stagnation for the rest of us; it's time for them to make the sacrifices, and for us to get our share of the productivity gains in the form of a Green New Deal.

So, let's have some really hard decisions from them. Decisions that involve their giving up some of the extreme wealth they've accumulated, very often through political influence and manipulation, and sometimes control frauds, rather than from honest work. Decisions that recognize that an America that is unusually unequal among the world's wealthy nations cannot long stand without civil strife for everyone. Let those who have benefited disproportionately from the past 35 years not continue tempting fate. There must be a peaceful return to social and economic justice and fairness in America now, before we go any further down the road to plutocracy and the new serfdom. The alternative is too terrible to contemplate.

(Cross-posted from Correntewire.com [7].)