Ryan and Romney’s Secret Plan to Cut the Deficit – and why Romney opposes it

By William K. Black
(Cross posted at Benzinga.com)

My favorite scene from  The West Wing is the episode in which the President’s press secretary is recovering from a root canal and Josh Lyman decides to handle a press briefing.  Lyman is a young whiz kid who believes he is the smartest guy in the room, but the briefing goes disastrously.  Lyman has to explain to the President that he has, sarcastically, told the press that the President has “a secret plan to fight inflation.”  The press, fed up with Lyman’s arrogance, has decided to report Lyman’s statement about the secret plan without noting the sarcasm.  Worse is still to come, for upon questioning Lyman about the incident, the President asks in exasperation:  “Are you telling me that not only did you invent a secret plan to fight inflation but now you don’t support it?”

At Thursday’s VP debate, Representative Ryan renewed his claim that he has a secret plan to cut the deficit while cutting all tax rates by 20 percent and not eliminating any tax deductions for which the middle class are large recipients.  Oh, and Romney has also promised to increase military spending.

Romney is reprising the three contradictory budgetary promises that President Reagan made during the 1980 campaign.   Reagan’s OMB Director David Stockman admitted no plan could produce the three promises.  Stockman’s job was to lie in order to cover up the fact that the administration had no plan that could simultaneously (1) cut taxes, (2) end the budget deficit, and (3) increase military spending.  Stockman invented the “magic asterisk” to hide the truth from the public.

There is, of course, no Ryan plan.  There cannot be a Ryan plan because mathematicians are not like historians.  The cruel joke about historians is that while God himself cannot change history; historians can.  It is perhaps because they can be useful to God in this regard that he tolerates their continued existence and frequent errors.  Mathematicians are useless to God, at least in the non-exotic realms of mathematics relevant to budgets, because they are so good at exposing errors and when they do so the error is beyond dispute.  (Econometricians are God’s favorites among the quants.)    No budget plan could meet all (or even most) of the policy constraints Ryan and Romney have promised they would obey.  It is mathematically impossible.  Romney and Ryan’s primary lie is that they have a secret plan to cut taxes, cut the deficit, and increase military spending.

Ryan claimed during the debate that he could not tell the voters the plan because then it would not be secret and this would somehow prevent a bipartisan agreement to adopt the secret plan after the election.  On September 30, 2012, however, Ryan told Fox News he could not tell them his secret plan because “it would take me too long to go through all the math.”

Ryan’s secondary series of lies is required to cover up the primary lie.  He cannot keep his cover up lies straight.  He tried out the first version (“it would take me too long to go through all the math”) on Fox, the most Republican turf in media, and was ridiculed.  His handlers developed a new lie to cover up the primary lie that there is a secret plan to reduce the deficit.  Ryan’s handlers think their new lie is clever bit of alchemy, transmuting the “lead” of Ryan and Romney’s constant refusal to give any facts about their (non-existent) secret plan into the “gold” of bipartisanship.

But the ultimate kicker is that if Ryan actually had a plan to cut substantially the budget deficit Romney would oppose it.  Romney explained why in his May 23, 2012 interview with Mark Halperin in Time magazine.

Halperin: Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office?  Why not do it more quickly?

Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%.  That is by definition throwing us into recession or depression.  So I’m not going to do that, of course.”

If Ryan actually had a secret plan that slashed social spending and tried to reduce the deficit dramatically the plan would be an austerity program as self-destructive as the European austerity program that gratuitously threw the Eurozone back into recession and the periphery into depression.  Romney has stressed that adopting such a plan   “is by definition throwing us into recession or depression.  So I’m not going to do that, of course.”  It’s a good thing that Ryan doesn’t really have a secret plan to reduce the budget deficit, because it would cost millions of Americans their jobs by throwing us into a recession or depression.  Paul Krugman’s recent column explains how the House Republican budget calls for extreme austerity of the nature that Romney accurately warns would throw our nation “into recession or a depression.”

Ryan is the architect of this House Republican budget.  The House Republican budget is not a plan, but a fantasy.  It assumes that governmental spending cuts will cause a huge increase in economic growth, but as Romney admits it would do the opposite.  Recessions or depressions cause budget deficits to grow massively as tax revenues fall precipitously.  If you hate budget deficits avoid austerity like the plague.  Romney admits that the House Republican budget would produce the Ryan Recession of 2013.

 

Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.

Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.

Follow him on Twitter: @williamkblack

16 Responses to Ryan and Romney’s Secret Plan to Cut the Deficit – and why Romney opposes it

  1. ******************” no plan that could simultaneously (1) cut taxes, (2) end the budget deficit, and (3) increase military spending.”!!!!
    Please challenge, edit, improve, or use as a guide,
    “How to cut taxes, end the budget deficit, and increase military spending.” by Justaluckyfool.
    A plan that justaluckyfool has put together as an opinion resulting from reading articles by William Black, Michael Hudson, and Frederick Soddy (“The Role of Money” 1926,1933).
    How ? As stated on ” 60 minutes” (12/11/11)”
    President Obama said,”You can’t raise revenues by lowering taxes unless you get the money from somewhere else.”
    True, so why not do just that? As Einstein said, “Keep It Simple”.
    Cut federal income taxes to zero. Pay off the budget deficit at $1 trillion per year and have $4.5 trillion to spend each year for the next 36 years.
    All this can be done without any new legislation.
    The Federal Reserve Bank already has the ways and means. Almost all economist agree that the Feds can purchase an unlimited amount of assets it needs , and at no increase in deficit spending.
    The Federal Reserve Bank can mandate a change in reserve requirements for all private for-profit banks, that is from the present 10% to 100%.
    To prevent a collaspe of the financial system it would make $100 trillion available as Loans to the industry with a rate of 2% for 36 years.
    As law ,”All profits from the Federal Reserve Bank must go to the US Treasury”.
    That means a REVENUE STREAM OF $5.5 TRILLION OVER THE NEXT 36 YEARS.

    Perhaps to ignore this , or not to challenge this would not be in the best interest of mankind.
    Comments made by justaluckyfool on other sites:
    “The Wealth of a Nation is in how it Redistributes its Wealth” “Amend The Fed”, “Zero Federal Income Taxes”
    The banks have proven that their greed is a moral hazard

  2. The impossibility of the three goals depends on the definition of deficit. If it is the difference between government spending and revenue then the plan is impossible.
    But most people think the deficit is the amount of government borrowing. It is entirely possible in an MMT framework to reduce or eliminate borrowing in $US while decreasing taxes and increasing spending.

    • “The impossibility of the three goals depends on the definition of deficit. If it is the difference between government spending and revenue then the plan is impossible.” Daniel.
      ******************” no plan that could simultaneously (1) cut taxes, (2) end the budget deficit, and (3) increase military spending.”, As per article.
      WRONG, WRONG !!!! Any government can do all three. The solution was stated not only by Obama but also by Romney.
      ************”You can’t raise revenues by lowering taxes unless you get the money from somewhere else.”
      Translated: Create a revenue stream using a way other than “taxes”.
      Translated: Create interest payments on the issuance of our own currency.
      Take away from the private for-profit banks that stream of profits and use it as funding for the people,instead of the benefits for 1% make those benefits for 100% of the people.
      Please consider, challenge and improve, then endorse.
      Here is an example of where we are going wrong and how we can fix it.
      The Feds thru QE3 (QE Infinity) will be buying MBS at the rate of $40 billion per month.
      Translated: They are using our money to allow the private for-profit banks to make a profit.
      WHY NOT purchase the pure asset, the actual mortgage. And belive it or not, the price does not matter except for the more spent the more profit.Then modify all that are purchase and set as an assumable mortgage at 2% for 36 years. If $18 trillion is needed, that would produce $1 trillion dollars a year
      INCOME RAISED BY “SOMEWHERE ELSE” INSTEAD OF TAXES.
      Anyone, please explain why you would not wish properity for yourselves and your children?

      • the fed gets income from MBS it purchases, unless they all default

        • I like your idea though, Justaluckyfool

        • First, Thank You for your reply.
          That the Fed (for the US Treasury) makes a profit hurts me to think that “we the people” would accept “profit” from foreclosers- of 85% of those homeowners that have done no wrong simply because the value of their home (timing) has gone “underwater”. They want to stay and pay.
          Buying MBS’s allows the banks time and money to FORECLOSE. Purchase of the actual notes,
          then modify the loans allows Salvation for the homeowner, as well as allowing taxpayers to receive an income steam of double whatever amount is used to purchase.

  3. Of course he doesn’t sincerely believe in slashing the deficit. Say what you want about him (e.g. dishonest empty suit) but he’s not stupid and he’s probably still a moderate too.

    In fact, during the first debate, I recall him saying something about putting more money into the hands of the middle-class, and how that would promote growth – that’s a Keynesian idea (I of course also support low taxes for the middle class at this time).

    Of course, the problem is that many in his party are nutjobs who can’t think straight. Who knows what they’re proposing. Plus there’s the vested interests of the likes of the Koch brothers and Pete Peterson.

  4. It is simple Prof. Black. It is “Catch Twenty-two.” He has a secret plan but if he reveals it then it won’t be a secret plan, so it can never be revealed or it won’t work. I suspect that he will take the secret plan to his grave.

  5. Pingback: Ryan and Romney’s Secret Plan to Cut the Deficit – and why Romney opposes it : Sierra Voices

  6. Ryan DOES have a secret plan to fight the deficit, but he can’t say it because that would tip off the deficit and allow it to fight back.

  7. Andrei Sakarov

    Are there not some 100 million Americans who fall well below what Ryan might call “the middle class”? 200 million? Well now 200 million people paying 2,000 dollars in federal tax per year would raise a cool 4 trillion over ten years. Do you think these clowns are joking when they say everyone must pay something? Got 47%? Just about enough to pay for their insane tax cut too…how about that!

    Love your work Bill.

  8. While Black and Romney are correct that cutting the budget would plunge us into a depression, what neither realizes or attempts to understand is that we are headed there regardless. We can do it through a controlled method or we can kick the can until a bond crisis ultimately forces that depression. Easing us into budget cuts will prove to be equally difficult, but will produce little in the way of results. The bond crisis would hit sooner or later anyway.

    All of this ignores that simultaneously, the society is falling apart at the seems, increasing systemic instability. And of course, we know there’s going to be some kind of a black swan. Our ability to resist these crisis points is decreasing rapidly.

    A chain reaction could result from such a crisis that would bring the world to its knees. The potential for financial/social/political armageddon is real.

    • Sean, if there is one thing we know, better than anything in economics, it is that there will not be a bond crisis in the USA. It silly. It’s like saying I am sure that soon, my 10 dollar bills will only be worth 9 dollars. A depression is the opposite of a “bond crisis” – and that’s what we’re in now for the ordinary person. This will only continue or become an economist’s depression if we decide to. How to get out of it is / was well-known.

      There is a very real prospect of another 2008 style financial crisis, because the government has applied as little scientific medicine (MMT-Keynesian), while being increasingly guided by homeopathy (neoclassical- mainstream) supersition. If that’s what you mean by a black swan, then there’s a good chance of that. But that would just mean US T-bonds would be that much scarcer & in demand.

      Anyways, welcome too. Hope you read enough to realize you’ve been misled.

  9. Geez Sean Kerrigan, that post even got me bummed. Anyway, welcome to NEP. Might I suggest checking out the MMT primer and/or reading Warren Mosler’s 7 Deadly Innocent Frauds before you jump off that ledge your standing on.

    And a point about society falling apart. It is interesting how every generation thinks that society is falling apart around them, no matter the circumstances, yearning for the “good ole’ days”. I came across a copy of the Pittsburgh Post-Gazette from 11/11/1939. On the front page were articles about, War in Europe, Hitler’s threat to attack the West, the Pope calling for a just wage for American workers and decrying the evils of divorce and a wife murdering her boyfriend in a pool hall.

    • A well informed voter is a better voter.
      GrimReaper,” Might I suggest checking out the MMT primer and/or reading Warren Mosler’s 7 Deadly Innocent Frauds ”
      Also, Frederick Soddy “The Role of Money” You will not believe that it was written in 1926 and 1933.

  10. Pingback: Yes, You can lower taxes, pay off the debt, and at the same time increase spending. | justaluckyfool