Wednesday, April 1, 2009

Paul Ryan on the Borrow-and-Spend Philosophy

If you expected a GOP budget today, Steve Benen says they have played an April’s Fool joke on us as all we seem to have so far is this WSJ op-ed:

The plan works to accomplish four main goals: 1) fulfill the mission of health and retirement security; 2) control our nation's debts; 3) put the economy on a path of growth and leadership in the global economy; and 4) preserve the American legacy of leaving the next generation better off. Under the president's plan, spending will top $4 trillion this year alone, and consume 28.5% of our nation's economy ... Instead of doubling the debt in five years, and tripling it in 10, the Republican budget curbs the explosion in spending called for by the president and his party. Our plan halts the borrow-and-spend philosophy that brought about today's economic problems.

Ryan provides a chart that claims that the spending to GDP ratio will exceed 40% in 50 years under “Democratic Budgets” while this ratio will fall below 20% under the “Republican Alternative”. Steve response to this op-ed included:

In reality, the "borrow-and-spend philosophy" did not create the crisis, so Ryan's prescription is automatically based on a misdiagnosis. But even if we put that aside, the alternative budget reflects a political party that embraced a breathtakingly radical worldview. In a nutshell, Ryan proposes a massive tax cut, totaling, by some estimates, around $4 trillion -- on top of the Bush/Cheney cuts, which would remain place. The Republicans plan would voucherize Medicare, and, best of all, impose a five-year spending freeze on non-defense discretionary spending

In my view, Steve is getting Congressman Ryan and the Republicans too much credit. I say this for a couple of reasons. This so-called borrow-and-spend philosophy was the actual fiscal stance of President Reagan and Bush43. Both of these Administrations promised us permanent tax cuts by claiming that they would reduce the ratio of Federal spending to GDP. Under Reagan, this ratio did not fall. Under Bush43, it rose.

We can also take a look at an analysis from the Center on Budget and Policy Priorities entitled Obama Budget Reduces Deficit by $900 Billion Compared to Current Budget Policies:

Contrary to some claims, President Obama’s 2010 budget would reduce federal deficits by about $900 billion over the next ten years compared to current budget policies. The $900 billion is the difference between deficits over the next decade under the President’s budget, as estimated by the Congressional Budget Office (CBO), and projected deficits under a realistic assessment of current budget policies … Some critics charge that Obama’s budget is fiscally irresponsible, and they cite CBO’s estimate that, under it, deficits would total $9.3 trillion over the next decade. They fail to note, however, that these future deficits result from the existing budget policies that Obama inherited — not those that he is proposing … Budget experts have been saying for a number of years that the official baseline departs sharply from reality.

While CBPP rightfully complains about how the official baseline departs from reality, I suspect it is closer to reality that the numbers that Congressman Ryan is using to draw his graphs. But I guess we’ll need to wait until the GOP actually bother to provide us with some actual numbers for their “budget”.


TheTrucker said...

I'll bite:

If "In reality, the 'borrow-and-spend philosophy' did not create the crisis" then what, pray tell, did?????????????

ProGrowthLiberal said...

Trucker - try (a) lack of aggregate demand after the housing bubble crash, (b) financial institutions going south leading to a credit crunch, etc., etc. Less current fiscal stimulus would make (a) worse and on (b) there is no evidence that people are shortselling Federal bonds as in why they can be floated at very low yields right now.

TheTrucker said...

That would be fine PGL but for the fact that the statement was surrounded by the history of Republican tax cutting and spending. The Housing fiasco, in its entirety, is merely the latest example of the Republican "Free Market" roller coaster. And central to that roller coaster (called "The Business Cycle" by the Republican faithful) is government spending and the lack of any fiscal responsibility concerning the _SHAPE_ of the economy.

As to financial institutions going south I do not think that those institutions should have been allowed to "grow" to the point where they were "too big to fail". And the proper solution now is to create new institutions and let the old ones suck eggs to whatever degree that is still possible. The infusion of $700B in new banks would create credit to the tune of $7T with no real sweat at all. Giving that loan capacity to the crooks that got us here is not a good way to go. How this relates to the current budget projections should be very clear: The T-Bills sold now will have been reduced in future value by the 10 to 1 increase in money that normally occurs in the banking system -- IF THAT MONEY GOES INTO NEW ENTERPRISES OR IS USED TO RESCUE CONSUMERS. It seems to me that current deficit projections are totally dependent on how new money is blown into the economy and on hw well the money can be recaptured with taxation that does not directly hit wages or _real_ capital development (i.e. factories, and hospitals, and schools, and roads and bridges). A tax on truly unearned income does not adversely affect the real economy.

Anonymous said...

"A tax on truly unearned income does not adversely affect the real economy."

A tax on the excess value of foreign labor content on imports would do that.

That is not protectionism it is deficit reduction.

Defict hawks are not protectionists they are American workers first.