The “Fly” In Ryan's Budget Ointment
In the last few days there have been a litany of articles written both in favor of and against Paul Ryan's proposed budgetary plan. (See here, here, here, here) Before I get into the major overriding "fly" that no one is addressing, let me just say the Ryan's proposal, while far from perfect, is at least a plan - which is more than we have today.
The problem with the proposal, and in fact all proposals presented so far, is that they are all identical in their dependence on increasing economic growth rates while at the same time cutting debt and reducing spending. The problem is that those two goals are diametrically opposed to each other in an economy that is dependent upon the latter.
My recent post on why 4% economic growth will remain elusive speaks to the very core of this problem. In an economy that requires $4 of debt to create $1 dollar of economic, growth implementing austerity measures to reduce debts and deficits will reduce economic growth - not increase it. This, in turn, will create lower revenues with which to reduce the debts and deficits on the government's balance sheet, and the expected "savings" will be vaporized by the debt service requirements on the current debt levels.
Secondly, the current level of anemic economic growth in the country depends upon the consumer. 70% of current GDP is based upon personal consumption. Unfortunately...
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