5 False Assumptions In Paul Ryan's Budget

by
Owen Poindexter
Paul Ryan's budget is not so much a serious attempt at passing a bill so much as his first big move in the race for the 2016 Republican nomination. It's also a bunch of bad ideas.

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Paul Ryan released a spending plan that balances the U.S. budget in ten years. You'll want to know how he plans to do that. PHOTO: Reuters

Paul Ryan released his latest budget proposal today, and it's strikingly similar to the one that voters were none too thrilled about when Paul Ryan was running to be Mitt Romney's vice president. And the thing is, it's not that Paul Ryan gets economics and most Americans don't (even if it's true that most Americans don't). It's that Paul Ryan has very different assumptions about how the world works, and very different priorities from most Americans. Here are some of the biggies:
 
1. All liquidity is good liquidity
 
Paul Ryan's budget releases a whole lot of money into the economy through spending cuts and tax breaks, mostly for the rich. The idea is that if you love money, you should set it free, and it will be good for the economy no matter what. I'll get into some specific issues with this below, and it's true that to have mobile, active markets, you need liquidity, but Ryan's plan could actually decrease monetary velocity (how quickly money moves from one bank account to another) by giving a bunch of it to the rich, who tend not to spend as quickly as the poor, because they don't have to.
 
2. All government investments are bad government investments
 
Have you noticed a common refrain from Republicans on everything Obama has proposed over the last five years? It's "How can we spend all this when we already have a huge deficit?" Or the utterly wrongheaded "When ordinary Americans are tightening their belts, Washington needs to do the same." That second one is much worse, because government spending helps lift the economy out of recessions.

But back to the more general point, governments, like investment firms, can make good investments. Here are a few: preschool, medical research, healthcare, infrastructure. Spending in the present can improve both GDP and GDH (gross domestic happiness) in the future. Spending is not a problem as long as it's good spending.
 
3. Obamacare is pure spending
 
Speaking of which, Ryan's plan makes the politically untenable suggestion of repealing Obamacare. Putting aside for the moment that this isn't going to happen, and is therefore, not a very helpful suggestion, Ryan's math works on the ridiculous assumption that if the government stops spending on something, we don't have to worry about it. Case in point: his budget cuts Medicaid by 44% over ten years. It also cuts health subsidies to anyone making under 400% of the federal poverty level. This won't take away anyone's medical needs, it will just shift the burden onto individuals. But hey, it balances the government's budget, so go be an individual and try to make it on your own!
 
4. We need to balance the budget
 
Yes, Ryan's whole political career is based on the idea that it's really important that we balance the budget. But is it? Actually, as long as GDP is rising faster than the debt, then the U.S. is financially stable. As long as GDP grows faster than the debt, despite the cries that we are robbing from our children, that there will be more wealth for them to play with, because the giant of the U.S. economy grows larger in proportion to what it owes. Granted, GDP doesn't always go up, but if you invest to keep the fundamentals of the economy strong, you set up America for success, and that's really all the government can do. But it can do that.
 
5. Pay off the rich and everything will be okay
 
Ryan's plan would make the highest tax rate 25%. Quite a drop from the current 39% for income over $400,000. The lower and middle classes won't see anything line that under Ryan's plan, and their tax rates might even go up, as their benefits get cut as well. Why is this sound policy? Because, according to Ryan, and most Republicans, if the rich have even more money than they do now, everything will be okay. Never mind that the best way to stimulate the economy is to give more money to the lower and middle class, who will spend it quickly and fairly predictably.

Ryan knows that this budget isn't getting off the ground before 2016 at the earliest. He's not trying to get this passed, and he's barely trying to negotiate. What he is doing is campaigning. For president. In 2016.

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