U.S. Markets open in 6 hrs 26 mins

Paul Ryan’s Economic Policies Are Stuck in the 1980s: Mark Dow

Aaron Task
Editor in Chief
Daily Ticker

Follow The Daily Ticker on Facebook!

"Game changer" is a fitting description of Mitt Romney's selection of Rep. Paul Ryan (R-WI) as his running mate. Saturday's announcement has been widely hailed as a bold political choice that's reinvigorated Romney's campaign and shown him to be an effective executive who shrewdly oversaw the decision and kept the process a secret — no small feat in the era of the 24/7 news cycle.

But good politics does not necessarily make for good policy. While Rep. Ryan gets credit for proposing solutions to the federal budget deficit — rather than just criticizing President Obama's handling of the nation's finances — he's offering the wrong prescription for what ails America, according to Mark Dow, a former policy economist at the IMF and Treasury Department and author of the Behavioral Macro blog.

"Just because rich guys will believe any economic theory that ends up in a tax cut doesn't make it the right policy for the time — even if it will get you their vote," he quips.

In a nutshell, Dow says supply-side economics — the basis of Ryan's budget proposals — will not work in today's economy.

According to Dow, supply side economics made sense in the 1980s when Ronald Reagan championed them, with the help of (among others) one of Ryan's political mentors, Jack Kemp.

At that time, America had better demographics: Baby Boomers entering their peak earning years, low financial leverage, and pent up demand after the stagnation of the 1970s, he recalls. Today we have the reverse of pent up demand -- the household sector most notably is deleveraging -- and a labor market weighed down by globalization.

"If you're counting on those policies that worked nicely in 1982 to come to save you…you're going to be disappointed," Dow says.

While Romney stresses that he will craft his own budget, the GOP standard-bearer is clearly expressing support and sympathy for Ryan's approach to tackling the federal budget. Ahead of Saturday's announcement, Romney declared that his economic plan — which, like Ryan's budget road map, counts reduced federal spending and lower taxes as key pillars — will help generate 12 million jobs in his first term.

"If you're counting on pent up demand to be unleashed by supply-side policies, guess what? It's not going to be there," Dow declares. "The credit bubble raised demand for services that people were hired to meet. Now that's not there anymore because we're deleveraging and have to compete against the rest of the world - it's going to be much more difficult" to create jobs and economic growth.

The Divided State of America

To be clear, Dow is not saying President Obama has all the answers or deserves a second term. He's also not saying that supply-side economics are always bad and Keynesian economics are always good; in fact, he's saying the Republicans have become too wedded to supply-side economics as a panacea, just as Democrats became too wedded to Keynesian solutions after the Great Depression.

Dow's also saying that rigid ideology on both sides of the political aisle is a big part of the problem the country faces. Whether you're delighted or outraged by this article is probably a good indication of where you come down on the ideological debate about the role of government in society generally and Paul Ryan specifically.

At issue is how the roughly 15% of Americans who haven't already made up their minds will be swayed by the Ryan-Romney combination.

Personally, I believe voters should and will give Rep. Ryan credit for offering bold solutions — and Romney for choosing the Congressmen as his running mate. But if voters scratch the surface of Ryan's plan they'll see — as the nonpartisan CBO found -- it would cut Medicare benefits, lead to higher medical costs for seniors and cut the budget for myriad government programs (excluding defense) while at the same time preserving and increasing tax benefits for corporations and the wealthiest individuals. (SEE: Paul Ryan A Bold VP Choice But Romney/Ryan Plan Will Hammer The Middle Class)

According to the Tax Policy Center, Ryan's plan would result in a an average tax cut of $265,000 for Americans making $1 million while 50% of Americans making between $20,000 and $30,000 would get no tax cut at all.

"At the margin, [Ryan's plan] would exacerbate the income distribution problems we already have...which would undermine societal cohesion," Dow says.

I'm not sure that's a winning campaign platform.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com