John T. Harvey — Romney and Ryan's Disastrous Economic Plan

I have already argued that the latter’s proposed budget is an absolute nightmare (The Ryan Budget: A Mistake of Historic Proportions). It is premised on the existence of a fantasy world within which entrepreneurs, despite the decline in sales that would follow budget cuts, suddenly increase hiring and investment because they have been able to throw off the shackles of government interference. I don’t know any other way to say it–this is idiotic. A reduction in spending by any sector in the macroeconomy will reduce revenue in the private sector and thus make our predicament even worse. Say, for example, that for some reason we no longer had any need for a military presence anywhere in the world and therefore fired every American soldier, marine, airman, and sailor. Precisely how, Mr. Ryan, is this supposed to be good news for the entrepreneurs who sold groceries, gasoline, housing, clothing, etc., to these individuals? You don’t need a PhD in economics to answer that one–it’s not.

Romney may not be as extreme as Ryan, but he is cut from the same cloth. As he states on his web page, “The only recipe for fiscal health and a thriving private economy is a government that spends within its means.” This patently false. The only fiscally healthy or responsible policy is one that generates sufficient demand to hire all those willing to work. This does not include cuts to “non-security discretionary spending by 5 percent,” the shifting of federal government programs the private sector or state governments (entities that DO face a hard budget constraint), or, God forbid, a balanced budget amendment. Furthermore and as argued in an earlier post (The Real Job Creators: Consumers), the economy’s job creators are not, as Romney says, entrepreneurs and the wealthy, but the middle class. How can today’s unemployment be a function of overregulation and overtaxation when we are at or near historic lows in each? Rather, the problem, pure and simple, is demand. No amount of cost cutting will induce firms to expand employment in the absence of an increase in sales. Because this fact is lost on the Romney-Ryan ticket, their economic policies would be a disaster.

Forbes | Pragmatic Economics
Romney and Ryan's Disastrous Economic Plan
John T. Harvey | Professor of Economics, Texas Christian University