Congressman Paul Ryan, the Republican Chairman of the House Budget Committee, has unveiled the GOP’s latest budget plan.
Is this proposal deserving of applause or criticism? The answer is yes and yes, with a bit of emphasis on the former.
Let’s start with some depressing news. The Ryan budget has gotten weaker each year.
Three years ago, he put forth a budget that limited spending so that it grew 2.8 percent per year.
Two years ago, he put forth a budget that limited spending so that it grew 3.1 percent per year.
Last year, he put forth a budget that limited spending so that it grew 3.4 percent per year.
His latest budget continues this slide in the wrong direction. Here are the numbers from the new budget, showing that the burden of government spending will rise by an average of 3.5 percent annually over the next 10 years.
And this is during a time when inflation is projected to be about 2 percent per year!
Since it would be foolish to ever expect perfection from the political process, let’s now look at the positive features of the Ryan budget.
1. Spending may be growing, but it would grow at a slower rate than the President’s proposed budget.
2. Spending may be growing, but it would grow at a slower rate than nominal economic output, thus satisfying Mitchell’s Golden Rule.
3. Perhaps most important, the budget contains genuine and structural reform of both Medicare and Medicaid, so it at least partially solves the long-run fiscal crisis.
4. The budget also foresees tax reform, including lower tax rates for households, a 25 percent corporate tax rate, and a move toward territorial taxation.
Now let’s close with some hard-to-judge news.
The tax reform would be “revenue neutral,” so it’s difficult to accurately assess the proposal without knowing the “revenue raisers” that would offset the “revenue losers” listed above (particularly since lawmakers would be bound by static scoring).
If lower tax rates are financed by getting rid of distortions such as the healthcare exclusion, the net effect is very positive.
But if lower tax rates are financed with increased double taxation (a major shortcoming of the Cong. Camp tax plan), then it’s unclear whether policy has improved.
One final comment. I’m disappointed that the House Budget Committee’s report approvingly cites Congressional Budget Office analysis to suggest that the Ryan budget would boost economic performance.
I think that’s a tactically and morally dubious approach. It’s tactically misguided because the Ryan budget supposedly hurts growth from 2015-2017 according to CBO’s short-term Keynesianism.
And it’s morally dubious because it’s wrong to use bad arguments to advance good policy. The supposed added growth beginning in 2018 is based on the assumption that interest rates are the significant determinant of economic growth – which is the same thinking displayed in the left-wing debt video I shared yesterday.
Paul Ryan and the House GOP can legitimately claim that the proposed budget is good for growth. But improved economic performance would be the result of a smaller burden of government spending and a potentially less destructive tax system. Those are the policies that free up labor and capital for the productive sector and boost incentives to utilize those resources efficiently.
International Liberty 
[…] Though both Chairman deserve applause for having more spending restraint than there was in the last two Ryan budgets. […]
[…] Though both Chairmen deserve applause for having more spending restraint than there was in the last two Ryan budgets. […]
[…] Though both Chairman deserve applause for having more spending restraint than there was in the last two Ryan budgets. […]
[…] In other words, the bad news is that Senate GOPers are not going to embrace the specific Medicare and Medicaid reforms that have been included in House-passed Republican budgets. […]
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With a 3.5% annual growth in government and 2% inflation, the US would have to achieve a 1.5% annual growth trendline to fall within Mr. “Mitchell’s Golden Rule”. That seems like a modest and achievable growth goal, but should not be taken for granted. That level of growth has become a challenge for most European economies, and to the extent that the US is copying the same de-motivating flatter effort-reward curves of the welfare state, a 1.5% growth trendline should not be taken for granted for the US economy. We have already seen the corrosive impact of ObamaCare on the work ethic, and that is just the beginning. More is coming down the pike as the impact of slower growth trickles down, translating into more voter discontent and more pressure to hang on to past standards of living through more redistribution, even flatter effort-reward curves, even slower economic growth, …. lather rinse repeat… decline…
So, when it comes to reducing the size of government (and thus freeing the more productive private sector) I’m not so sure the Ryan budget will pan out to satisfy Mr. “Mitchell’s Golden Rule”. But, of course, all this if the Ryan budget is even ever implemented… which it won’t. Because the Ryan budget is not the middle-road proposal along the national political spectrum. In political terms it represents the radical Ryan recommendation of the ruthless right.
So, America’s general trajectory is as follows: The Ryan budget, something that will merely arrest America’s decline, lies at the extreme end of the political spectrum. All the other proposals, including the “compromise” that will eventually be adopted by the legislative chambers, are simply paths to various rates of American decline.
America’s percentage of world GDP will continue to shrink, and the significantly above world average standard of living that American voter-lemmings have grown accustomed to taking for granted will end. I guess, in a leftist sense that is progress, since it will lead to more “worldwide equality and fairness”. There are only two obvious ways to achieve more equality: Raising the standard of living at the bottom, or depressing the standard of living at the top. Unfortunately, the former cannot be achieved with redistribution, because that inevitably flattens the effort-reward curves and thus leads to systemic lower growth and thus erosion of relative standard of living in a fast growing world. So, we will get the latter.
Remember, minimum wage in Cuba, the land of fairness, is $9
…per month. Sure, there’s fairness and equality,… at the $9/month level. But if equality is so important then it takes precedence over absolute prosperity. So many leftists would feel poorer but happier in more equal Argentina than in more unequal Singapore…. until they actually have to live there.
But, in more practical and personal terms,… can’t we, the current generation of Americans, just hope to coast along, living semi-happily the next four decades or so, while the country declines and then let someone else deal with any potential future problems, by emigration or other means? In my view, I don’t think so, I don’t think there is so much time, because some things in the world are highly non-linear. It will not be an orderly and gradual decline as we get from government consuming and dictating 38% of GDP to 60%. We only have a few percentage points of advantage left until we drop out of the group of most competitive nations in the world; a position of advantage Americans have taken for granted for more than a century now. When that threshold is crossed, and may have already been crossed, distortion will accumulate fast, and has likely already accumulated. Past that point, all hell will break loose. A sudden crisis and radical things, like the overnight imposition of VAT, and a definitive path to permanent expungement of the American miracle may be just around the corner. That is why those long term forecast graphs showing a neat trendline of government growing to 60% GDP over decades are just bogus. The real world is much more unstable with impending vicious cycle traps everywhere along the way and great inflection points.
So will it be a slow wretched decline, a series of stepwise decline crises separated by relative calm? A combination thereof? Will American voters be slowly frog cooked in the very soup they themselves prepared? Human systems are too complex to predict the details of such declines. Detailed predictions depend on often minute details that determine the weakest link that must first give way to the accumulating distortion. But just because the details cannot be predicted, does not mean that one can hope in the invention of perpetual motion machines of prosperity (Krugmanomics) anytime soon. They never existed and likely never will, but have been sold to countless electorates to their own self-destruction. A demotivated country full of unambitious citizens living in a flat effort-reward welfare state cannot produce enough to sustain exceptional prosperity, no matter how Paul Krugman and his followers imagine coercively drafting and organizing the working human citizen bees.
But no politician can tell that right to the voter’s faces. Even “radicals” such as Mr. Mitchell have to be careful not to offend the majority of domestic voters. Now don’t get me wrong, I admire and respect Mr. Mitchell as an exceptional individual and I would ultimately have the same pitchfork apprehension if I were in his place — or if I had to use my real name on this blog for that matter. But one must understand that this is the reality of public life. Understanding that reality helps one make much better decisions at the personal level — like getting in the poison business when a majority of voter-lemmings have decided to commit societal suicide anyway.
The serendipitously lucky history of America has made American voters grossly ignorant and naïve about the vicious cycle (the malaise of decline prompts demands for even more redistribution at the next election, even flatter effort-reward curves, even less motivation, even more decline…) and the great discontinuities of a competitive world, where a 3% loss of competitiveness can easily translate into a 30% loss of standard of living (real or diminished with respect to potential).
May you live in interesting times…
Times of decline…
Business suffers from an inefficiency which doesn’t apply to government.
What business spends is not automatically GDP (useful production). Business output is the added market value of what it produces. Someone has to buy it for it to be GDP, and we must subtract the value of purchased inputs. This is unreliable and complicated. Sometimes, a business can even reduce GDP if it loses enough money.
No one can really tell if government produces GDP, so it has decided that everything government spends is GDP by definition. There is no need for anyone to buy or value the output. It won’t make a profit under this rule, but there are no losses either.
If government were to spend less, then we would all have to deal with the immediate hardship of less GDP under that policy. That is less economic growth and less prosperity, according to the various accounting agencies employed by the government.
Every bit of government spending is useful or a multiple of useful by government accounting definition.
So, it is always good to raise taxes, or borrow, or create more money to increase government spending. GDP goes up safely and reliably with no risk. Plus, we are assured that production goes up by a multiple of 1.5 to 4 times government spending.
It is a mystery that we don’t have the government spend everything, so that we could all be rich. But, I guess they are busy doing their current volume of work. It is sad that government cannot be even bigger, but we can work on this.
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