There are plenty of valid criticisms being leveled at Wisconsin Representative Paul Ryan’s draconian budget proposals: they cruelly cut aid to the needy to pay for tax cuts for the wealthy, they steal from the young to shore up Republican support among the elderly. But one of the most essential points has largely gone unnoticed: that his whole agenda is based on a false premise.
Ryan, like many Tea Party heroes, such as Representative Ron Paul of Texas, is obsessed with the idea, repeatedly discredited by recent history, that our short-term deficits will cause inflation and interest rate spikes. This idea is widely shared among Republicans. Fear of inflation and higher interest rates are the reason offered by Republicans for opposing economic and monetary stimulus. That theory’s prevalence, at a time of such high unemployment and low borrowing costs, is sabotaging our economy.
Ryan and company keep trying to unnerve Americans with claims that deficit spending will cause us to lose our ability to borrow cheaply and send us into a downward spiral like the one engulfing Greece. The idea that deficit reduction, rather than boosting employment, should be our current top priority, is based on this assertion. “When you take a look at the problems our country is facing, debt is number one,” said Ryan on May 26, 2011. “The math is downright scary and the credit markets aren’t going to keep on giving us cheap rates,” he predicted. How has that prediction fared? On May 26, 2011, the ten-year Treasury rate was 3.05 percent. On August 10, 2012, it was 1.65 percent.
You might expect that after seeing he was wrong, Ryan has adjusted his priorities accordingly. After all, he is a “wonk,” right? But no. Ryan is an ideologue, and he is therefore impervious to evidence.
It’s the same story with inflation. On May 1, 2008, Ryan introduced a bill into Congress that would direct the Federal Reserve to focus only on restraining inflation, and cease worrying at all about unemployment. He noted at the time that the Fed was slashing interest rates to spur economic activity, despite “rising prices.”
Have we, in fact, been beset by runaway inflation since 2008? No. In 2009 the rate was actually negative, and in 2010 it was 1.64 percent. Had the Fed listened to Ryan’s idiotic advice, it would have simply undermined the economic recovery.
Ryan’s obsession with inflation and preventing the Federal Reserve from rescuing our economy puts him in the kooky fringe of right-wing politics. It is, in essence, a softer version of Ron Paul’s bizarre fixation with returning to the gold standard and ending the Fed entirely. Ryan doesn’t go that far, but he has called for “sound money,” which would fix the dollar to a basket of commodities.
Unwarranted fears of inflation and interest rate increases, and using those as excuses to demand drastic deficit reduction, are widespread among supposedly intellectual conservatives. Niall Ferguson, who penned an intellectually sloppy cover story in Newsweek arguing that President Obama does not deserve a second term, subscribes to the same theories. Joe Weisenthal at Business Insider has assembled a list of Ferguson’s wrong predictions: