Republicans Hope, but Don’t Change

For much of the past few generations, the debate over balancing the federal budget has been a central feature of every presidential campaign. But over time, the goalposts have moved. As the amount of red ink has grown steadily larger, the suggested time frames to restore balance have gotten increasingly longer, while the suggested cuts in government spending have gotten increasingly shallower. In recent years, talk of balancing the budget gave way to vague promises such as “cutting the deficit in half in five years.” In the current campaign, however, it appears as if the goalposts have been moved so far that they are no longer in the field of play. I would argue that they are completely out of the stadium.

It says a great deal about where we are that the symbolic budget plan proposed last year by Congressman Paul Ryan, the newly minted vice presidential nominee, has created such outrage among democrats and caution among republicans. The Obama campaign warns that the Ryan budget is a recipe for national disaster that will pad the coffers of the wealthy while damning the majority of Americans to perpetual poverty. The plan is apparently so radical that even the Romney campaign, while embracing the messenger, is distancing itself from the message (it appears that Romney wants to bathe himself in the aura of fresh thinking without actually offering any fresh thoughts). In interview after interview, both Romney and Ryan refuse to discuss the details of Ryan’s budget while slamming Obama for his callous “cuts” in Medicare spending.

(It is extremely disheartening that the top point of contention in the campaign this week is each candidate’s assertion that their presidency could be the most trusted not to cut Medicare. Mindful of vulnerabilities among swing state retirees, Republicans have also taken Social Security cuts off the table as well. What hope do we have of reigning in government spending when even supposedly conservative Republicans refuse to consider cuts in the largest and fastest growing federal programs?)

So what was the Ryan Budget’s radical departure from the status quo that has caused such uproar? If enacted today, the Ryan budget would so drastically upend the fiscal picture that the U.S. federal budget would come into balance in just… wait for it…. 27 years! This is because the Ryan budget doesn’t actually cut anything. At no point in Ryan’s decades long budget timeline does he ever suggest that the government spend less than it had the year before. He doesn’t touch a penny in current Social Security or Medicare outlays, nor in the bloated defense budget. His apocalypse inducing departure comes from trying to limit the rate of increase in federal spending to “just” 3.1% annually. This is below the 4.3% rate of increase that is currently baked into the budget, and farther below what we would likely see if Obama’s priorities were adopted.

Because there are no actual cuts in his budget, Ryan hopes that fiscal balance can be restored by 2040 only because he assumes that we achieve returns to the annual economic growth that are equal to levels averaged for much of the last century. In other words, he sees slow growth of the last four years as the aberration, not the new normal. As with all other government projections, this is on the extreme optimistic end of the spectrum. In truth, there is nothing on the horizon that should make anyone think these growth figures will be achieved. America’s crushing debt, burdensome regulations, political paralysis, and nagging demographic problems bode poorly for the return to trend line growth anytime soon. More likely, based on the speed towhich republicans will shrink from popular backlash, is that the “cuts” that Ryan proposes will be abandoned as soon as they prove to be politically unpopular.

In fact, among his other overly-optimistic assumptions are that the unemployment rate falls to 4% by 2015 and an unprecedented 2.8% by 2021, another real estate boom begins almost immediately, and there is an average inflation and ten-year treasury rate for the next ten years of 2.04 and 4.15 respectively. These are assumptions that would make even the most rabid economic cheerleaders sit on their pompoms. Despite these pollyannish economic growth and record low unemployment projections, Ryan still assumes interest rates will remain near historic lows and that none of the cheap money showered onto the economy will ever find its way into the CPI. In other words, it’s the economic equivalent of winning the lottery twice in a row while failing to account for the higher taxes that accompany such good fortune.

Like all other government forecasters, Ryan never considers how rising interest costs on the many trillions of dollars of outstanding government debt hold the potential to completely upend budget projections. For more on this, see my recent commentary “The Real Fiscal Cliff.”

More likely, the continued accumulation of unsustainable levels of debt under the Ryan plan will eventually cause our creditors to lose confidence in our ability to repay. It will cause interest to spike, the economy to tank, unemployment to soar, spending to rise, revenues to decline, and the budget deficit to spiral out of control. Rising interest rates hold the potential to spark a sovereign debt and currency crisis that will render the entire plan irrelevant anyway.

While I appreciate that Ryan has the courage to take a position at the vanguard of his party in the campaign for fiscal responsibility, the modesty of his plan is just the latest reminder of how utterly divorced from reality Washington politicians remain. Like all of his brethren, Ryan is pinning his budget battling plans on the pain free “grow your way out of it plan.” But as long the government consumes so much of the nation’s productivity, the conditions to create that growth will never occur. Hope is not a strategy.

Peter Schiff, CEO of Euro Pacific Capital and host of the nationally syndicated Peter Schiff Show, broadcasting live from 10am to noon ET every weekday, and streaming at www.schiffradio.com.

Sort of an eye-opening article.

I get really tired of this smoke-and-mirrors, bait-and-switch game that we get played by.

A rino is a rino is a rino.

To know them is to love them. /sarc

Ping

the Ryan budget doesn’t actually cut anything. At no point in Ryan’s decades long budget timeline does he ever suggest that the government spend less than it had the year before. He doesn’t touch a penny in current Social Security or Medicare outlays, nor in the bloated defense budget. His apocalypse inducing departure comes from trying to limit the rate of increase in federal spending to “just” 3.1% annually. This is below the 4.3% rate of increase that is currently baked into the budget, and farther below what we would likely see if Obama’s priorities were adopted

I could balance the budget in 3 years. Sell off or lease the majority of public lands. Make welfare, food stamps and section 8 available only to those who cannot work for valid reasons, and then, only those who’re unlikely to return to work for at least 2 years. All others will receive job training and work search classes, only. Those will receive commodity foods and food bank donations, only. Reincorporate the Air Force back into the Army and the Coast Guard into the Navy. Place the Army Airborne into the Marine Corps. Combine all special forces into one organization that will be uniformely highly trained. Cut federal employee pay and benefits by 25% and tie increases to the cost-of-living index, with a 5 year moritorium of now increases. Cut every agency budget and employee wise by 20% with further downgrades to follow a bi-partisan study, similar to the base closings. Make the federal agencies justify their not leasing land to mining and energy companies. Abolish the EPA and OSHA. Etc, etc..

If you put your mind to it, you could do it in a year. Abolishing whole departments is the place to start - Energy, Education, Commerce, Labor, Interior. The few programs that are worthwhile (VA, Indian Affairs, Park Service, etc.) we’d keep.

Anytrhing is possible if you have the will.

It is a nasty shell game they’ve been playing. Cutting spending increases and calling it a real cut; trying to out-Democrat the Democrats by adding more giveaways and centralizing government, and calling it “streamlining” or “greater efficiency.” The truth is, the government is bankrupt now. It has been for some time- the illusion of solvency is maintained by the Federal Reserve- and selling junk bonds to the Chicoms won’t hide it forever. We’ve already gone over the fiscal cliff- it is just that nobody has bothered to look down yet.

I could balance the budget in 3 years. Sell off or lease the majority of public lands....

I agree with most of what you wrote and believe that it won't matter as long as the majority of voters are educated in government schools whose very existence is a socialist institution.

But, I beg to quibble with the selling off of public lands. Recently there have been some huge petroleum finds that are on public lands. One of them is near the borders of Colorado Utah and Wyoming that according to at least one federal department contains more recoverable petroleum than all the other known reserves on the planet. So leasing the land is good, but pumping the oil, fracking the gas and mining the coal for revenue is even better. We have the oil and coal to sustain us for centuries, which is a huge blessing, but at the same time we have a source of revenue to retire the debt if we return to a limited constitutional government. All that doesn't matter, because we lack the will and the desire for freedom. For most, twelve years in socialist training camps education centers makes the hunger for liberty wither till it is at most a faint memory and echos of a history long gone. No more do men pledge their lives, their fortunes and their sacred honor for the cause of liberty, it is now pass the bear and have you seen my remote control.

Place the Army Airborne into the Marine Corps

That part I disagree with, but the rest are all good ideas. In reality, I would have all land forces under a land command, and all sea forces under a sea command. IOW, we'd have an Army and a Navy. When they debark to fight on land, they're land forces, and when they embark to fight at sea they're sea forces. There are excellent reasons for both land and sea forces to have their own air assets.

The Ryan budget is not extreme at all. It is well designed and well thought out to address the major issues...first, changing the tax structure to promote stronger growth, and to deal with the two biggest budget busters...Medicare and Medicaid. It does that without rocking the boat or affecting anyone in retirement or retiring in the next decade. It is a reform bill meant to be appealing to a majority of voters. It is excellent work, and effective politically, and should be implemented.

It does not deal with cutting departments or radically changing other functions. Those are different battles to have, for sure, and ones we need to have, but we could cut three departments and hardly make a dent in the big ticket problems looming in entitlement spending.

Just the idea that politicians are beginning to take seriously the idea that we need to start reining in entitlements will bring changes in the future. Ryan is facing it squarely, and he’s taking the heat for it. Thats OK, he can handle it.

“Sell off or lease the majority of public lands.”

Why?

I have an even easier way to balance the budget. And we could do it in a month. Simply repudiate the national debt.

After you pick your jaw up off the floor, think about it for a moment. Why should we put our kids and grandkids into debt slavery to pay off a bunch of debt that they had nothing to do with? Why do we want to mortgage the future to repay the chicoms and saudis? What sort of masochism would motivate us to want to pay the unpayable to people who hate us?

Naturally, repudiation means no more credit granted. Voila! Instant balanced budget: because we would have NO OTHER CHOICE.

But this is all academic. The reality is the current crop of Americans and their political representatives have no more desire to balance the budget than they do to poke their own eyes out. The can will be kicked down the road until as a practical matter, some form of repudiation is the only choice left.

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