30 March 2012

The Ryan Plan is Unserious

Yet Emmett Tyrell tries to defend it anyway:

Ryan is a supply-sider. He advocates one of the few economic innovations in years. He realizes that the budget cannot be balanced without faster economic growth. Sure, it would be nice to balance the budget in five years, but not with tax increases. Tax increases would only slow down growth. So his budget balances out in 2039, though possibly sooner. Some of the Republicans think that future Congresses cannot be trusted to carry out the cuts that Ryan proposes, certainly not through all the vagaries leading up to 2039. Well, for my part, I think they can. The country has changed dramatically. A new majority of Americans composed of conservatives and independents understands that we have been spending ourselves into the poor house.

I would generally agree that there is no practical way to sufficiently raise tax rates as a way of balancing the budget, and I would also agree that taxes cause economic damage in direct proportion to their nominal rate.  I even agree that the fundamental assumption of the Laffer curve—that there is a revenue-optimal tax rate—is correct.  I would thus theorize that a lower nominal rate, coupled with fewer loopholes as part of a simpler tax code, constitutes the best course of action.  The fewer the taxes and (generally) the lower the rates, the better the results will be.

However, there is no tax rate low enough to achieve Ryan’s projected economic growth rate, and thus there is no way his economic plan is attainable, or even possible.  It’s not even conservative, at least in the sense of being fiscally responsible.  Quite simply, the way out of this mess won’t be a simplified tax system coupled with minor spending cuts; it will require a revenue-optimized ax plan with massive spending cuts.  Since Ryan’s economic plan more closely resembles the former, it is doomed to fail, and is therefore unworthy of serious consideration.

4 comments:

  1. You wrote: "the fundamental assumption of the Laffer curve... is correct... I would thus theorize that a lower nominal rate ... best course of action."

    This is what annoys me about the Laffer curve: it's perfectly mathematically and logically sound, but once that's granted, everyone assumes the precise optimum is wherever agrees with their ideology. The extreme value theorem says nothing about WHERE the extreme value occurs. Republicans seem to assume it must occur somewhere around 0.0000001% tax rate (I exaggerate, but only a little). It's just as reasonable (read: not reasonable at all) to conclude, from the fundamental Laffer assumptions, that the nominal rate should be INCREASED, rather than decreased. And I'm pretty sure you know this, so I'm not sure why you wrote what you wrote.

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  2. Don't you agree that the real problem is not the tax rate or amount but rather, the total amount of government spending?

    In the short term, government spending has to be paid for by the combination of tax revenue and borrowing. That borrowing affects the economy and mostly not in a good way.


    In the long term, government spending has to be paid for by the combination of tax revenue and inflation. The latter is bad by itself and also because of the bad incentive it gives the government.

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  3. The nicest interpretation of Tyrell's article is that he's admitting, between the lines, that we are headed for a Greek tragedy. The last time the national debt went down was during the 1956 - 1957 fiscal year. Every year since it has increased, meaning the budget has not been balanced for over half a century. To state that the budget can be righted by Congress today with much of the population dependent on government largesse and when it could not do so in the last 50+ years means he is either naive or has some other angle.

    And Tyrell is not naive. Longtime Imperial DC insider and editor of the American Spectator neo-con rag, he knows that stoking prole hope and buy-in to the system is the only way to keep the natives placated.

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  4. @GFM- Your comment merits its own post, which I will get to later.

    @pngai- I believe my final paragraph would indicate that spending is the bigger issue, mostly for the reasons you listed.

    @Carnivore- I would agree that Tyrell is playing some sort of angle, though I also think there is a slim chance that he's fundamentally ignorant of reality.

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