Paul Ryan's 'Land of Austeria': Nothing but Nonsense

by: Cullen Roche

The Paul Ryans of the world would like to further separate the middle class from their meager savings. Why? Mainly because he can’t overcome his political ideologies and has become convinced (through a misguided understanding of our monetary system) that America is bankrupt. Of course, that didn’t stop him from asking for a tax cut for the rich in December, but hey – what else is new? The little guy has been getting the short end of the stick (due in large part to the Paul Ryans of the world) for the better part of the last 20 years.

I’ve tried to keep my mouth shut about Ryan in recent weeks, but the never-ending press coverage he is receiving over this “bold” and “courageous” (insanely misguided, in my opinion) plan has made that pretty difficult. To think that this man (who lacks even the most basic understanding of monetary systems) is the Chairman of the House Budget Committee is not only embarrassing for America, but a horrifying reality. He knows this plan will never pass, but that hasn’t stopped him from using his position of power to feed his fear-mongering message about the US’ imminent bankruptcy.

From a political perspective, Ryan’s plan is brilliant. Just look at all the publicity he is getting. But like the typical self serving politician, the plan is a total disaster for America.

Just what does Ryan want for America? In an effort to keep us from turning into Greece (which is a ridiculous and naive concern), Ryan believes we should follow the path into the Land of Austeria. We know exactly what that land looks like; after all, Ireland took the “bold” and “courageous” step of austerity in the midst of a balance sheet recession almost three years ago. It's on the brink of utter economic ruin. Greece followed its lead. And Portugal. And Spain.

We are all familiar with the disaster that is those economies. And now the evidence is beginning to roll in that the UK is falling back into the economic hole. Here’s the latest from CNBC on the UK economy:

British retail sales fell at their fastest annual pace in nearly six years and house prices slipped in March, surveys showed on Tuesday, underlining the fragile state of the UK economic recovery.

Britain’s GDP shrank at the end of 2010 and growth this year is expected to be modest as public spending cuts, tax rises and high unemployment take their toll on consumer confidence.

This is not even the least bit surprising to many of us who were long ago talking about the mistake the UK was making via austerity. This currency-issuer has convinced itself that it's at risk of becoming Greece. It would be funny, if it wasn’t imposing so much hardship on so many people. I said long ago and I’ll say it again: David Cameron is suplexing the UK economy like Hulk Hogan on steroids.

The Land of Austeria sounds like a fun place, doesn’t it? It’s a land where the poor get poorer, the unemployed go homeless and the banks get a government bailout on the taxpayers' dime. That’s the America Ryan wants for us all. He wants to crush the middle class, steal its Medicare payments and pass them along to his wealthy friends. All in the name of stopping a Federal bankruptcy that is monetarily impossible!

Ryan has had enough TV time in recent weeks. It’s time for him and his friends to wake up to the economic reality around us. The global economy is suffering the largest balance sheet recession since the Great Depression. And the only thing keeping this from turning into a true depression is the fact that Ryan and his friends were told to take a hike when they last demanded that the average American needed to receive less aid from the government. Yes, the Alan Greenspans and Ryans of the world were wrong when they tried to talk us over the edge of the cliff in 2009 and 2010.

The math here is relatively simple. With the household sector de-leveraging in the US and the country running a -3.5% current account deficit, the only thing keeping this economy from sinking into recession is the 10% budget deficit. This is allowing the private sector to save exactly 6.5% of GDP.

As the chart below shows, this is an accounting identity. If Ryan had it his way, we would be running a budget surplus currently and the private sector would be deeper in the red than we were leading up to the current crisis. Of course, Ryan doesn’t understand sectoral balances and the way that a modern monetary system functions, so it’s not surprising that he believes the government needs to save in order to spend.

As you can see, that wasn’t the case during the post-war era when the US government was always in deficit and the private sector was always in surplus. Yes, it’s not a coincidence that those were some of America’s very best years.

[Click to enlarge]

Click to enlarge

The current budget deficit is much needed at a time when unemployment is high and private sector debt burdens remain staggering. Make no mistake – this is not your average recession. If this were 1981 or 1991, I would not be so apologetic for the government’s largesse.

But it really is different this time. As Richard Koo has so often reminded us, a balance sheet recession really does mean “it’s different this time." And for those who don’t trust the math, look no further than Europe, where they are cutting budget deficits and their economies are sinking deeper and deeper into a hole. Is that really what we want for America?

By constantly comparing us to European nations (a sure sign that Ryan is a political fear-mongerer and nothing more), the Chairman of the House Budget Committee has proven (without a shadow of a doubt) that he does not even come close to understanding the plight of the US economy. And because of that, he continues to peddle the same neo-liberal nonsense that helped get America into this mess in the first place. It is bad economics and it is even worse for the future of this country.

I apologize for the rant-like note, but the state of America is sad right now ... and the last thing we need is a politician posing as a financial guru telling Americans that they need to suffer more. Ryan clearly doesn’t understand that the government is a tool that is to be used by the private sector to further the prosperity of the private sector – not to benefit at its expense. Scaring a currency issuer into thinking that it might run out of money is like scaring yourself into thinking that the air might run out of oxygen. The entire idea is nonsensical. If Ryan knew what he was talking about, he would at least be trying to scare us into believing that hyperinflation is right around the corner (of course, that would be nonsensical also, but at least it would prove he knew what he was talking about).

If Americans knew any better (why should they understand this stuff when people of such power clearly don’t?), they would kick Ryan out of Congress so fast he wouldn’t know what hit him. But this is the state of US economics and politics today. While millions are unemployed, our leaders are worried about debt ceilings that do not matter at all (that’s right, that whole debate is 100% politics as well) -- and the best way to incite anger in a population that knows less about economics than the people running the show.

Our country has become dominated by ideologues and political sideshows. And we are all worse off because of it.