Friday, July 30, 2010

Let's Push The Shiny Red Button, Dad

I keep hearing all this stuff about how GOP Rep. Paul Ryan is a rising star in the party because he's so smart on economic issues.  So far he's been the point man for the GOP on the budget.  That hasn't gone really well for the guy, frankly ever since people figured out his "fiscally responsible budget plan" would actually make the budget deficit worse.  Yet, here he is again dispensing econ advice to Ezra Klein like these dense nuggets of fail:
I really do believe that locking in budget reforms and spending control will help us in the short run by taking pressure off interest rates and monetary policy. Spending control is pro-growth in this age of sovereign debt crises.
Oy.  Yes, in an economy where demand is drying up, the key is taking more money out of the economy!  Less spending is pro-growth, the way that not ever watering your plants teaches them to be tougher.
I think a mistake Keynesians are making is they think this is demand-side and consumption-led. I think we need to focus on investment and jobs. There’s lots of money sitting on the sidelines.
There's money sitting on the sidelines because there's no demand, Sparky.  Unless somebody plans on buying the goods and services produced by the jobs you create, they're not going to last too long.  We got in way over our heads on equity bubbles and cheap credit, and that's gone.  People are cutting back on everything.  If the government will not step in to stimulate demand, and the money's on the sidelines, who will buy it?
These short-term stimuli, which Bush and Obama did, don’t change aggregate demand. And that’s why I think we need more of an investment-led recovery. At this point, given the borrowing costs, stimulus is counterproductive.
To recap, borrowing costs right now are the lowest in several decades.  Why we're choosing not to take advantage of it is insanity bordering on economic negligence.   But here's my favorite part:
We need to do things to free up credit. We need regulatory forbearance there. Right now, the policymakers and regulators are doing opposite things. So you’re right that there’s a lot of capital parked out there, and we need to coax it out into the markets. I think literally that if we raised the federal funds rate by a point, it would help push money into the economy, as right now, the safest play is to stay with the federal money and federal paper.
Raise.  Interest.  Rates.  That will get people out of bonds and into stocks, where people will still be suffering from demand problems and...then what?  Oh, and raising interest rates would also retard investment because...borrowing costs would increase!  Ta-da!  How does that help with aggregate demand?  If raising interest rates would really motivate people to invest MORE, why did we bother lowering them in the first place?

It doesn't.  Ryan doesn't know a damn thing about economics.  Why do people continue to treat him like he does?

2 comments:

Dave in Northridge said...

Honestly, I think it's like the whole discourse about Newt Gingrich, Ph.D. in history and all, in the early 1990s. The village is usually wowed by people who seem to have a grip on something wonky that the villagers have avoided thinking about, and Ryan, well, I'm thinking Tom Tomorrow should do a cartoon about this.

No, he doesn't, but it's like a talking dog.

Zandar said...

Agreed. I mean, I can use words like "fiduciary" and "aggregate", where's my House seat?

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