05 April, 2011

Ryan’s Path To Prosperity–First Look

Ok, I took my lunch hour and read Congressman Paul Ryan’s (R-WI-01) The Path To Prosperity. Is it perfect? No. In fact, my biggest criticism is that it doesn’t go far enough.
But overall, it’s a great start. Highlights:
Brings government spending to below 20 percent of the economy, a sharp contrast to the President’s budget, in which spending never falls below 23 percent of GDP over the next decade.
This is a necessity. Play all the games with taxes you want. We know from history that we can’t consistently get tax revenue over 20% of GDP for any extended period of time. President Barack Obama (D-USA) and the rest of the Dems ignore the problem. If you never get anywhere near 20%, you’re being criminally irresponsible.
Corporate Tax Reform: Improves incentives for job creators to work, invest, and innovate in the United States by lowering the corporate tax rate from 35 percent, which is the highest in the industrialized world, to a more competitive 25 percent.
Well, if you’ve ever read this blog before, you know how I feel about that. It doesn’t go nearly far enough. Still, if you want to get the economy going and consistently moving forward, this is a necessity. It’s the minimum we can do, and we should do much more, but it’s a good first step.
And the first big chart:

Debt over 100% of GDP is not sustainable. Japan’s debt is right at 200% of GDP and they are on the verge of economic meltdown. Greece was even higher, and they have already collapsed. You’ll notice that under Obama’s current plan, we hit 100% around 2020, and 200% around 2035, and then it really starts climbing. These are conservative and very optimistic projections. We’re likely much closer to these numbers than that. But even accepting them at face value, we have a date. 2035. Game over.
Got that? At that point, we will have no choice but to cut, and cut deep. And it’s going to be painful for every single man, woman and child in America. Dems will tell you that the Ryan plan is “extreme” and complain about all the people that are going to be hurt by it. Well, to respond to the first criticism, it’s not extreme. The President’s own Debt Commission’s plan was far more extreme than Ryan’s.
As for the second criticism, they’re right. A number of people are going to be impacted negatively by his plan. The government will not be giving them the money that they’ve been expecting. Frankly, this probably applies in some way to just about all of us.
But, you know what? Doing nothing is far worse. Sure, we get 20 years (maybe) where we can blissfully ignore the coming collapse and continue giving out free lunches to everyone. And then, we have to stop giving out free lunches to anyone. Ryan’s plan is the choice between getting a bloody nose now, and getting both legs amputated later.
I’ll take the bloody nose, thanks.
At a time when the free-market foundations of the American economy were in desperate need of restoration and repair, the last Congress took actions that further undermined them. The President and his party’s leaders embarked on a stimulus spending spree that added hundreds of billions of dollars to the debt, yet failed to deliver on its promises to create jobs. Acute economic hardship was exploited to enact unprecedented expansions of government power.
This did not sit well with the American people. Citizens stood up and demanded that their leaders reacquaint themselves with America’s founding ideals of liberty, limited government, and equality under the rule of law.
In recent years, both political parties have squandered the public’s trust. The American people ended a unified Republican majority in 2006, just as they ended a unified Democratic majority last fall. Americans reject leaders who focus on the pursuit of power at the expense of principle. They reject empty promises from a government that cannot live within its means. They deserve the truth about the
nation’s fiscal and economic challenges. They deserve – and demand – honest leaders willing to stand for solutions.
Ryan remembers last November. I hope the rest of Congress does also. Yes, I’m talking to you too, GOP.
In the words of Abraham Lincoln, “We cannot escape history. We of this Congress and this Administration will be remembered in spite of ourselves.” Will this be remembered as the Congress that did nothing as the nation slouched toward a preventable debt crisis and irreversible decline? Or will it instead be remembered as the Congress that did the hard work of preventing that crisis – the one that chose the path to prosperity?
Call me skeptical. I still believe that this Congress will be remembered as the Congress that did nothing.
Defense spending as a share of the budget has fallen from around 25 percent thirty years ago to around 20 percent today. Like all categories of government spending, defense spending should be executed with greater efficiency and accountability.
Ryan plays a game with the numbers here. Sorry, but I’m not going to let him get away with it. Defense spending has fallen as a share of the budget, but that doesn’t mean that there have been defense spending cuts. There haven’t. Defense just hasn’t grown as fast as other parts of the budget. He should be comparing defense spending to GDP here, as he does with other things. In terms of GDP, defense spending has grown, so it’s still part of the problem. It’s just not as much a part of the problem as other areas of the budget.
[It is] very clear that, absent action, Social Security, Medicare and Medicaid will soon grow to consume every dollar of revenue that the government raises in taxes. At that point, policymakers would be left with no good options. Making do without any federal government departments, including the military, is not really an option at all, and neither is raising taxes to a level that no free and prospering
economy could sustain.
Of course, if Congress continues to delay, it will lose even the ability to make such choices on its own terms.
Each year that Congress fails to act, the U.S. government gets closer to breaking promises to current retirees while adding to a growing pile of empty promises made to future generations. The government’s unfunded liabilities – promises the
government makes to current workers about their health and retirement security for which it has no means to pay – are growing by trillions of dollars a year.
This isn’t spin. It’s a fact. To deny facts is to stick your head in the sand like an ostrich. Dems today want you to be an ostrich.
The non-partisan Congressional Budget Office has concluded that the tax rates needed to sustain the nation’s current fiscal trajectory into the future would end up sinking the economy. That is one reason that the Commission on Fiscal Responsibility and Reform proposed, as part of an overall effort to fix the nation’s
unsustainable deficits, a fundamental tax reform plan that actually lowered income tax rates to promote growth, while eliminating tax loopholes to broaden the tax base.
Actually, I disagree with part of that too. I don’t want to eliminate loopholes. I want the “loopholes” to apply to everyone. There’s been a lot in the papers recently about GE not paying enough in taxes. The problem isn’t that GE doesn’t pay enough. It’s that everyone else pays too much. But I digress.
The recent sovereign debt crises in Greece and other highly-indebted European countries provide a cautionary tale of the rough justice of the marketplace – lenders cannot and will not finance unsustainable deficits forever, and when they cut up the credit cards of profligate countries, severe economic turmoil ensues.
Over the past few years, Americans have seen just how quickly a  severe financial crisis can create widespread pain and chaos. But the last crisis was foreseen only by a small number of perceptive individuals who recognized the implications of unwise decisions being made in Washington and on Wall Street.
By contrast, nearly every fiscal expert and advisor in Washington has warned that a major debt crisis is inevitable if the U.S. government remains on its current unsustainable path. The government’s failure to prevent this completely preventable crisis would rank among history’s most infamous episodes of political malpractice.
We are on the exact same path as Greece, Italy, and others. And we’re not as many steps behind as you might think.
And here’s what Ryan says about how the debt crisis would unfold.
The first sign that a debt crisis has arrived is that bond investors lose confidence in a government’s ability to pay its debts – and by that point, it is usually too late to avoid severe disruption and economic pain. Right now, the U.S. government is able to borrow at historically low rates, partly because of the Fed’s interventions in the market, but also because the bonds of most foreign countries are looking even riskier. Neither of these conditions is going to last. Interest rates – and the burden of paying interest on the debt – have nowhere to go but up.
We may be mere months from this. If it’s years, it’s not very many (think less than 5).
If foreign investors, especially foreign governments such as China, begin to lose confidence in the U.S. government’s ability to solve its most difficult fiscal challenges, they will demand higher compensation to offset the perceived risk of holding U.S. debt – meaning sharply higher interest rates.
They may also demand payment in tender other than U.S. dollars. If China required that all future debt payments be made in gold, that would be catastrophic. At some point, that becomes not just a terrifying thought, but an destructive inevitability.
The economic effects of a debt crisis on the United States would be far worse than what the nation experienced during the financial crisis of 2008. For starters, no entity on the planet is large enough to bail out the U.S. government. Absent a bailout, the only solutions to a debt crisis would be truly painful: massive tax increases, sudden and disruptive cuts to vital programs, runaway inflation, or all three. This would create a huge hole in the economy that would be exacerbated by panic.
Well, that’s a pleasant thought.
Want more pleasant thoughts? Ryan doesn’t have them.
In the end, the debate about rising U.S. debt is not just about dollars and cents, but also about America’s status as a world power and its freedom to act in its own best interests. If the nation stays on its current path, interest payments on the national debt will begin to exceed yearly defense spending just 11 years from now. In just 16 years, yearly interest expenses will be double national defense spending.
If it stays on its current fiscal path, the United States will be unable to afford its role as an economic and military superpower. Other nations with very different interests will rush in to fill that role.
Last year in Foreign Affairs magazine, financial historian Niall Ferguson surveyed some of the great empire declines throughout history and observed that “most imperial falls are associated with fiscal crises. All the… cases were marked by sharp imbalances between revenues and expenditures, as well as difficulties with financing public debt. Alarm bells should be ringing loudly… [for] the United States.”
That’s where we are. The rest of the document lays out how to fix it. And it ain’t pretty. But overall, it could look much worse. The cuts aren’t extreme. They’re manageable. In fact, it’s easy to argue that in some places, they’re too small. Far too small.
Some more details of the plan:
Ending corporate welfare: There is a growing and pernicious trend of government overreach into sectors of the private economy – a trend that stacks the deck in favor of entrenched interests and stifles growth. This budget ends the taxpayer bailouts of failed financial institutions and stops Washington from picking the winners and losers across sectors of the economy.
Boosting American energy resources: Too great a percentage of America’s vast natural resources remain locked behind bureaucratic barriers and red tape. This budget removes moratoriums on safe, responsible energy exploration in the United States, ends Washington policies that drive up gas prices, and unlocks American energy production to help lower costs, create jobs, and reduce dependence on foreign oil.
This budget puts an end to empty promises from a broke government, offering instead real security through real reforms. The framework established in this budget secures health and retirement benefit programs both for current beneficiaries, who will receive the benefits they’ve organized their retirements around, and for future generations, who will inherit stronger programs they can count on when they retire.
As Governor Chris Christie (R-NJ) said recently:
I went before the firefighters convention on Friday down here in Wildwood, New Jersey, and I said to them, you know, I understand why you're angry. For 20 years, governors have been coming here to your convention and lying to you about the kind of benefits they can provide to you. And you want to "boo' me, that's fine, but I'm the first guy who's telling you the truth, which is if we don't make these reforms, we are going to wind up with you not having a pension in 10 or 15 years, because the situation is so dire.
I’ve seen a lot of booing and anger directed at the GOP lately. Especially the Tea Party wing. These aren’t the people you should be booing. You should be booing the people who have been promising you unicorns and rainbows for the last 50 years and telling you not to worry about how to pay for it because that’s a problem for the future. Guess what? The future is now.
Look, this is very simple. You may disagree with the items on Ryan’s plan. You may think that parts of it are too extreme. You may think that parts of it don’t go far enough. You might think that it goes too fast or too slow. You may think that it cuts taxes too much. You may think it doesn’t cut them enough. You might even think that we should raise taxes. If you think any of those things, that’s fine. Those are reasonable criticisms, and would promote a reasonable debate. Ryan’s plan is not the only solution. It’s not even the best solution, in my opinion. But it is a solution.
What you can’t do is to deny the need for a plan like Ryan’s. That is a path to economic suicide, and it’s not even a slow one. From what I’ve seen, and maybe they’ll surprise me and change, is that the Democrat leadership wants to continue down the path towards economic suicide. They will destroy this country if you let them.
Again, that’s not hyperbole. It’s not even exaggeration. It’s not even a criticism of progressive policies versus conservative ones. It’s math. And no matter how much the Dems try to make it not be so, math trumps politics every time.

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