“The speech exemplifies the policy disasters that arise from incoherent economics. The President embraced and gave further credence to two of the most harmful economic myths — that because governments are supposedly just like households, deficits signify excess and coming crises. He said: ‘Now, at certain times – particularly during periods of war or recession – our nation has had to borrow money to pay for some of our priorities. And as most families understand, a little credit card debt isn’t going to hurt if it’s temporary.’ Governments with sovereign currencies are not like households and are not like Greece. Unlike Greece, America has a sovereign currency. Nations typically run deficits, e.g., large ones,like that run during the supposed golden age of the 1950s. During the two decades of the “Great Moderation”, nearly every developed nation ran a deficit. The deficits did not cause inflation in either period. When nations run budget surpluses, they soon fall into severe recessions. Severe recessions produce substantial increases in budget deficits — due to automatic stabilizers. The automatic stabilizers are counter-cyclical — they reduce the length and severity of the recession. Cutting governmental spending while a nation is suffering from a recession is lunacy. It is a destabilizing policy. The automatic stabilizers and stimulus are nothing like ‘a little credit card debt.’ The stabilizers not only don’t ‘hurt’, they make the recession hurt far less. The Republican strategy of federal and state budget cuts is twice cursed. First, it harms the economy, the recovery, and unemployment. Second, by cutting, for example, useful education programs it harms our children and our future competitiveness.”
~William K. Black teaches economics and law at UMKC and is a former regulator
“The President appears to be drinking from the same Kool-Aid as as Congressman Ryan. Just a different flavor.”
~Marshall Auerback is a Roosevelt Institute Senior Fellow
My conclusion: The president's budget plan and the Ryan plan are depression budget plans. Neither plan recognizes the role of demand, and neither addresses the depression level unemployment that continues to persist. Neither plan is sound, either economically or morally. Neither is relevant to the challenges that America and the world face. They are both political documents expressing different ideologies, staking out the issues for the '12 election.
Both plans are clueless.
ASIDE: Martin Wolf picks apart the Ryan budget at The Financial Times.
Wolf concludes: The Ryan plan is a “reductio ad absurdum” – a disproof by taking a proposition to a logical conclusion.