GO CRAZY, FOLKS! GO CRAZY! - (UPDATED)

When I finished watching Paul Ryan's speech at the RNC, I was really curious to see what the liberal talking heads over at MSNBC thought.  I, despite our well known "mancrush" on Paul Ryan here at the Chaos (heck, even my daughter said, "He's hot!"), tried to remain objective and see the speech as an independent voter might.  After flipping stations, I heard Lawrence O'Donnell complain that although the speech was very good and effective, it lacked much substance. With that, I smiled and got ready to head to work.

What, pray tell, caused me to smile you might ask. (No, really, ask me)  It was this.  My chief complaint about Ryan's speech was that it didn't include the type of policy depth that I like about him.  The truth is that the young VP candidate is totally in his element when the facts & figures are flying.  He's sincere, he's knowledgable, he controls the discussion with a fully logical and rational mind and temperment.  His sincere honesty, in tackling America's great fiscal problems exposes a deep and abiding love of this nation.

So I smiled.

CHOOSING PAUL RYAN.....

If there is only one thing you take from me today, I want it to be this - vote for PAUL RYAN. 

If you would ever, ever consider voting for me - vote for PAUL RYAN. 

If you would like to see America restored to her greatness and see much of the past decade erased - vote for PAUL RYAN. 

In case this is the only chance you will ever have to do so - vote for PAUL RYAN. 

If you hold out any hope that this nation will ever find a way to balance the budget and erase the deficit - vote for PAUL RYAN. 

If you are tired of seeing politicians talk, but not do - vote for PAUL RYAN. 

If you ever wanted to vote for someone who you knew was doing his absolute best to make America the best she can be - vote for PAUL RYAN. 

If you ever wanted to have a politician drop the political talk and level with you - vote for PAUL RYAN. 

If you think a politician should know more about his work than his staffers - vote for PAUL RYAN. 

If you think achieving affordable health care  for all is more important than paying for college student's contraception - vote for PAUL RYAN. 

If you want every man, woman and child living in these United States to have a better tomorrow - vote for PAUL RYAN. 

If you disagree with commentators and still believe in your heart that America has better days ahead - vote for PAUL RYAN. 

If you cheered for Tony Stark (Ironman) when he stood before the Senate and, talking about something that he had built, said, "You want my property? You can't have it." - vote for PAUL RYAN.

If you believe that America is an evil place without free health care - don't vote for PAUL RYAN.

If you believe that it's so important to keep abortion-at-will, that allowing a parent to abort all girls to get a boy is fine - don't vote for PAUL RYAN. 

If you're looking for dumbed down education standards- don't vote for PAUL RYAN. 

If you like higher taxes and even higher spending - don't vote for PAUL RYAN. 

If you want crony capitalism instead of free enterprise - don't vote for PAUL RYAN. 

If you want the President to use your tax dollars to make deals with green companies that will soon go bankrupt - don't vote for PAUL RYAN. 

If you want more sleazeball tactics that disrupt and distort the real issues - don't vote for PAUL RYAN. 

If you want higher energy costs - don't vote for PAUL RYAN.

If despite its success, you think taking work out of welfare is a good idea - don't vote for PAUL RYAN. 

If you booed when Tony Stark told the Senate they couldn't have his property, and thought to yourself, "He didn't build that!" - don't vote for PAUL RYAN.

With Mitt Romney's selection of PAUL RYAN as his running mate, the lines are drawn and the choice before us couldn't be more clear.  We must choose ROMNEY/RYAN.

1-21-2013

THE RECOVERY BEGINS

We Need an Economic "Gamechanger"

I've done my best over the past few days to emphasize that President Obama's "tax the wealthy" plan has the potential to do great harm to our floundering economy while doing nothing to overcome our pile of debt.  The idea that increased tax rates will result in associated revenue increases is not backed up by historical data. 

Throughout the past several decades, the top tax rate has fluctuated from as high as 91% in the early '60s to 28% at the end of the '80s to our current 35%.  Yet despite the huge difference between 91% and 28%, our revenue has consistently remained around 18% of GDP. 

The changes in actual tax revenue tracks more closely to economic contraction/expansion than tax rates.  In good economic times, even with an expanding GDP, revenue as a percentage of GDP increases, whereas as revenues decrease as a percentage of GDP during recession, despite a falling GDP.  During our current economic hard times, revenue sits at about 16% of GDP, but reached 21% at the height of the '90s tech bubble.

Conclusion #1:  If you want to increase revenue, you need to expand GDP.

It's time to toss aside the class warfare talk of what's fair and just talk about what works.  Raising tax rates is not stimulative and does not correlate with increased revenues or an expanding GDP, so there is no economic value in doing so.

But something must be done.  Doing nothing is not an option.  The following chart shows us that we can't just wait for something good to happen.

The biggest problem we face is not a true lack of revenue, but an explosion in our spending.  Even aside from the temporary spending measures put into place over the past few years, our entitlement growth will continue us on an unsustainable path.  Tax revenue in this chart is displayed at the historic average of 18% of GDP.

For those who believe that simply raising taxes will bring in enough additional revenue to fix this problem, here is another chart.

As it shows, even if we assume that we could hold revenue at our highest recorded percentage to GDP, we would still be swamped by the rising red ink.  What we are left with is this - we are not on a path to recovery, we have lagging revenue with no realistic plan to increase it and even if we could magically assume record revenues, it still wouldn't be good enough to bring our deficits under control.

The fact is we are at a crossroads.  We cannot continue down the path that we are on.  The same game of small adjustments here and there will not be sufficient.  It's at moments like this, that something drastic needs to happen.  What we need is a gamechanger and it is this - dramatically cut spending to expand the economy.

I can hear the collective gasp arising from the gallery, but wait a moment before you hit that "close tab" button.  I can show evidence of how this has worked before.

Our debt currently sits at 42% of GDP, the highest it has been since WWII.  But in the early '90s, Canada's overspending had put its debt at 53% of GDP.  At that point, they began a gamechanging plan.  They cut spending very dramatially and instituted new market reforms and tax cuts.  They consistently balanced the budget.  This chart shows the results.

The Canadian economy boomed as spending was cut.  Average growth matched the highs of the mid-90s U.S. economy until the 2009 recession took its toll.  Despite a small uptick, their debt is again on a downward trajectory and sits 10% less than before they changed course.  Their dollars are now more valuable than ours as our debt levels are heading in the opposite direction.

During that same time period, Japan was following the same Keynesian spending plans that Obama is proposing.  The results were atrocious.  Economists now refer to that time period as Japan's "Lost Decade".

The Keynesian economic model has been refuted time and again.  Look at how government spending affects states.  In data compiled from 1968-2008, here is a quick summary:

• When a state's Senator ascended to the chair of one of the top-three committees, earmarks in the following year increased between 40% and 50%, and discretionary state-level Federal transfers increased about 10%.  In the median case, that represented a $200 million increase in Federal spending directed to that state.

• In response, the average firm in the median state cut its employment growth rate by 3% to 13%, reduced capital expenditures by approximately 15% or $39 million, R&D expenditures by roughly 10% or $34 million and experienced a decline in sales.  They also increased their dividend payouts by 13%, suggesting fewer investment opportunities.  These results were even more pronounced for firms within industries targeted by the Federal spending and for firms that did not have overseas operations, and therefore were more exposed to the effects of the increase in Federal spending on their home state's economy.

Co-author Professor Coval says, "Our findings suggest that they (public policymakers) should revisit their belief that Federal spending can stimulate private economic development."

Conclusion #2:  Spending cuts expand the economy while increased government spending causes contraction.

In other words, cutting into the deficit by dramatically decreasing government spending can help grow the economy, producing jobs which will increase tax revenue helping pay down the (now reduced)deficit.

As Paul Ryan has stated many times, "We don't have a revenue problem, we have a spending problem".  They say the first step to recovery is understanding that you have a problem.  Getting both parties to admit that we have a problem can lead us to the real gamechanger that we need. 

Until then, expect more nonsense about what's fair as Congress and the President fight over who will be allowed to get in the lifeboats as the unsinkable United States of American slowly takes on more water.

Finally..."The Path to Prosperity"

Paul Ryan has released his 2012 budget proposal:  The Path to Prosperity.  It is perhaps, the boldest budget plan ever offered.  As the editors at National Review put it,

Paul Ryan’s budget proposal for next year is the most ambitious conservative initiative since — well, actually, since ever.

Our current budget deficit will be $1.6 trillion this year.  The total national deficit is $14 trillion.  A few months back, President Obama proposed a budget that will never break even over a ten year period and will ultimately end with spending levels at 40% of GDP.

Ryan's budget proposal will cut spending $6.2 trillion compared to Obama's budget.  It will cut spending back to the historical average of 20% of GDP.  His plan will completely pay off the national debt by 2050.  And he will do this without raising taxes.

I wish this graph was lying about our current path.  I wish that everyone understood how perilous our future is.  But wishing doesn't make it so.  Our current path is not just unsustainable, but implies a total disaster awaits us.