Paul Ryan’s Roadmap for America’s Future
August 8, 2010
Representative Paul Ryan has come out with a “Roadmap for America’s Future.” It’s pretty good!
The plan basically consists of a series of fixes regarding spending — especially Social Security and Medicare — and tax reform with lower tax rates. This is worlds better than the typical “austerity” plan with its huge tax increases, leading to a gradual (or not so gradual) economic decline.
This proposal seems to be getting a fair amount of attention, both among Republicans and Democrats. Paul Krugman, who has volunteered to be the Democrats’ attack dog, does his bit here:
Overall, I consider this a good thing. A worse thing would be for both Republicans and Democrats to ignore Ryan’s plan completely, as somehow not in step with the times, and continue with their discussion about “austerity” and “stimulus.”
In recent months — apparently prompted by the scheduled reversal of the Bush tax cuts at the beginning of 2011 — we have seen a rather energetic criticism of the “supply side” tax cuts of the Reagan era. Certain conservatives blame them for the relatively modest deficits of the time, apparently because they didn’t reduce spending. Democrats associate the tax cuts with the spread of oligarchical control in the U.S. in general, often assisted by Republican politicians, which has certainly gotten worse over the past few decades.
Martin Wolf: the Political Genius of Supply-Side Economics
Martin Wolf is a great weathervane. He tends to stay pretty close to the conventional wisdom of the day.
David Stockman: How the GOP destroyed the economy
You have to love that they’re digging up David Stockman after all these years. He was installed as Reagan’s director of the Office of Management and Budget in January, 1981. In December 1981, he was profiled in an Atlantic magazine article, “the Education of David Stockman,” in which Stockman sounded just like Paul Krugman today, calling Reagan’s tax-cut plans a bunch of flim-flam. In other words, Stockman wasn’t a “supply-sider” for very long. Maybe he never was. He didn’t even wait around until the Reagan tax cuts were actually implemented, beginning with a very small phase-in in October 1981.
What really happened during the 1980s is just about what Arthur Laffer promised when he drew the “Laffer Curve” for Dick Cheney in December 1974. The idea was that there were two tax rates, a high one and a low one, that would produce the same amount of revenue. The high tax rate would be accompanied by economic stagnation and decline, and the low rate would be accompanied by vibrancy and growth. This is almost exactly what happened: as a percentage of GDP, Federal tax revenues were basically unchanged in 1980s, compared to the 1950-1980 period, and also the years following. The U.S. government got pretty much the 18.5%-or-so of GDP that it has for the last sixty years. In practice, the government got more revenue, because the lower tax rates allowed GDP to expand more than it would have otherwise. The same percentage of a larger pie is larger, in absolute terms.
For some reason, nobody seems to have noticed this, or maybe they are carefully ignoring it.
June 15, 2009: Bashing “Supply Side Economics” 2: Maybe We Don’t Want Growth?
June 5, 2009: Bashing “Supply Side Economics”
Overall, I think that Ryan’s plans are still not quite in step with the present period. We are not quite ready to fix our problems, yet, but would rather make them go away with deficit spending and easy money while we attempt to maintain the status quo. However, we have at least a seed for a future period of renewal.
Ryan’s plan basically amounts to Less Spending and Lower Taxes. This was the Reagan/Thatcher strategy.
June 21, 2010: The Deadly Cycle of “Stimulus” and “Austerity”
September 14, 2008: Depression Economics
The Less Spending part focuses on the entitlement programs, Social Security and Medicare. To summarize, the plan involves more “market based” solutions, such as refundable tax credits and individual accounts. I personally have tended toward a state-run basic healthcare system, such as Britain has. Britain spent 6.9% of GDP on its universal healthcare system in 2004, compared to the 7.5% of GDP that the U.S. government is already spending on healthcare. Hong Kong spends only 3% of GDP on its universal healthcare system. In other words, a universal system could be cheaper than the U.S.’s existing system, from the government standpoint, and corporations would eliminate the great majority of their health care costs. However, that would be a tough one for a Republican to embrace. At the end of the day, we don’t really know what the effect of Ryan’s “market based” approach would be. Maybe it would be pretty good. In any case, it would probably be better than the present system.
Although Social Security and Medicare (and other health-related spending) constitutes a large part of the Federal budget, it would be nice to see Ryan take aim at a few things that are not quite so obviously Democrat hobby-horses. How about the military? A nice 50% cut in military spending would be an improvement on a lot of levels. Among other things, it would send a message that we aren’t just targeting poor people in our spending-reduction plans. (Ryan proposes to keep discretionary spending at an unchanged nominal-dollar level, resulting in effective spending cuts.)
On the tax side, Ryan has a rather good tax reform plan, which involves a slightly watered-down version of the Kemp “flat tax” plan, with a 25% top income tax rate. There is also a 10% rate, so it’s a two-rate system. There’s no particular advantage of having more or fewer tax brackets, so this system would work pretty well. On the corporate side, Ryan proposes eliminating the corporate income tax (at 40% effective among the highest in the world) in favor of an 8.5% “corporate consumption tax.” This is an idea I haven’t heard before, although it appears to be functionally quite similar to a value-added tax. In any case, I find that Ryan’s thoughts about tax policy are quite sophisticated. Ryan also proposes eliminating taxation on interest and dividend income (and also capital gains and inheritances). However, since corporations would also not be taxed on income, it would probably make sense to tax interest and dividend income at the normal tax rates (25% top). Unfortunately, a government must raise taxes somehow, and each tax introduces a distortion into the capitalist economy. I think the plan may skew a little too heavily toward taxing employment income, while capital is untaxed. This arrangement would, in fact, maximize capital formation and investment, which is certainly part of Ryan’s goals, and which would have positive effects at all economic levels. However, a Democrat might complain that working people are bearing all the burden here, and that complaint would probably be justified.
Overall, I have to again compliment Paul Ryan for a plan with creativity, sophistication and ambition. Ryan is forty years old, a member of Generation X. If you follow Strauss and Howe’s generational theories, this Generation enters leadership roles during the Crisis (winter) phase, as all of the old institutions collapse in their decrepitude. We are not quite at the Crisis moment yet, the point at which the old institutions disappear and the new ones are formed in a flurry of activity. The last two Crisis phases, for the United States, were the Great Depression/World War II period, and before that, the Civil War. The Civil War of course saw the abolition of slavery, while the GD/WWII period saw the introduction of a whole host of new government arrangements, including Social Security and other such “New Deal” programs, the IMF/World Bank/Bretton Woods stuff, the nation state (instead of empire and colony), and the modern corporation. (Before the Civil War, the preceding Crisis period was the Revolutionary War.)
As it is, the U.S. seems on the course of sovereign default and currency decline at the very least, and perhaps hyperinflation. That would certainly be a Crisis. I doubt that much will happen to change that course until things get quite a bit worse. You can see why in Paul Krugman’s (a baby boomer) op-ed linked above. Krugman basically hates any tax policy change that varies from the tax code under the Clinton Administration, as if that was some sort of immaculate perfection, forever violated by Bush’s reduction in the top rate from 39.5% to 35%. On the spending side, Krugman criticized the Ryan plan for essentially reducing government healthcare spending, which is of course the point. Ryan looks at the current system as unsustainable and doomed to disaster. Krugman … likes the status quo, and as we know, is not afraid to issue any amount of debt to sustain it. The Krugmans of the world will probably block any real reform until their precious status quo catches on fire and burns to the ground, which I would put in a 3-10 year timeframe. At that point, I am looking forward to seeing what Paul Ryan and other such young, creative, sophisticated policy leaders come up with to deal with that situation. That is the point at which there will either be national renewal, or, instead, a long era of disintegration as was the case for Argentina in the 20th century, Spain in the 16th, or Rome in the third.
BP Coverup? Disaster ongoing? Wow, that BP oil blowout turned out to be a lot easier to fix than people originally thought. Or is BP just lying — and the original blowout well is gushing as much as it ever was? Anyone following the discussion is probably aware that Matthew Simmons, the oil industry veteran known for his “peak oil” research, has been saying for weeks that the blowout well has no casing, has no BOP, is gushing around 100,000 bpd, and is unstoppable by conventional means, without a small-yield nuke to fuse the rock over the hole at depth. Even oil industry veterans who followed BP’s narrative, of the failed “junk shot” and so forth, concluded that nothing would be possible without the “relief well” due mid-August.
Did BP switch the well? Watch this video:
Now check out these July 31 satellite photos, showing oil slicks that BP and the government claimed had disappeared.
Here are some new satellite photos:
When the Macondo well first blew out, there were rumors that it was flowing at an astonishing 100,000 psi. This confused oil industry veterans, who would have expected more like 17,000 psi, based on the location and geology. But then, if it did flow at 100,000 psi, instead of the expected 17,000 psi, that would explain the blowout, no? At 100,000 psi, no manmade device could contain it. What could cause the well to blow out at that pressure?
Apparently, the entire North American continent is undergoing a torque, which is putting the rock layers of the Gulf under pressure while causing expansion elsewhere. Have you noticed the burst of sinkholes and falling bridges? Those are the stretch zones. The Gulf is a compression zone.
If this is the case, then many Gulf wells could be undergoing much, much higher pressure than expected. The rumor today is that thirty-eight wells have had problems, and possible blowouts, due to this Gulf-wide geological development.
Matthew Simmons is DEAD. Apparently, he had a heart attack. Or he drowned in his pool, depending on the source. They haven’t quite got their story straight. You don’t assassinate people because they are kooks making up silly stories. LINK