|
Representative
Paul Ryan has come out with a "Roadmap for America's Future." It's
pretty good!
http://www.roadmap.republicans.budget.house.gov/
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:
http://www.nytimes.com/2010/08/06/opinion/06krugman.html?_r=1
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."
June 21, 2010: The Deadly Cycle of "Stimulus"
and "Austerity"
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.
read "the Education of David Stockman"
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.
May 9, 2010: The Two Santa Claus Theory
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.
Healthcare Reform Conservatives Could Love
September 25, 2009: Does Hong Kong Have the
World's Best Health Care 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.)
The Fourth Turning (Strauss and Howe)
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.
Nathan
Lewis
Nathan
Lewis was formerly the chief international economist of a leading economic
forecasting firm. He now works in asset management. Lewis has written for the
Financial Times, the Wall Street Journal Asia, the Japan Times, Pravda, and
other publications. He has appeared on financial television in the United
States, Japan, and the Middle East. About the Book: Gold: The Once and Future
Money (Wiley, 2007, ISBN: 978-0-470-04766-8, $27.95) is available at
bookstores nationwide, from all major online booksellers, and direct from the
publisher at www.wileyfinance.com or 800-225-5945. In Canada, call
800-567-4797.
|
|