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.
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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:
Ferguson was declaring victory in 2009 in his prediction of a bond market rebellion, but everyone should know what’s happened since then.
US borrowing costs have collapsed despite a debt downgrade, a brutal debt ceiling fight, and no evidence that Washington is going to do anything about long-term spending.
In May of 2011, he wrote a piece on The Great Inflation Of The 2010s, saying the Fed might deny it, but that everybody knows prices are surging. He declared that the era of double-digit inflation is back.
This is not the case. Inflation remains tame and is back on a downtrend these days.
Another off-base (at least so far) call was his February 2010 FT op-ed where he declared that the Greek crisis was coming to America.
In August 2009, in another Daily Beast piece, he said that the days of China supporting US debt was coming to an end, in part thanks to Obama’s spending. That hasn’t been an issue. (For what it’s worth, he made a very similar warning about Chinese ownership of US debt back in a 2004 piece for TNR).
In June 2009, Ferguson in the New York Review of Books predicted that in the coming “weeks and months,” US monetary and fiscal policy would come into painful conflict. That did not occur.
As Ezra Klein explains in the Washington Post, having the wrong underlying analysis of what ails our economy undermines the Ryan/Ferguson/Republican prescriptions for how to fix it:
These predictions were wrong. But Ferguson hasn’t updated the theory to account for their failure. Instead, he has simply applied that same theory to argue that Paul Ryan, who he first met at “a dinner in Washington where the U.S. fiscal crisis was going to be the topic of discussion,” should be vice president, because his deficit-reduction plan could “end four years of economic underperformance [and] stop the terrifying accumulation of debt.”
If Ferguson’s theory had passed its previous tests and we had evidence that the debt is what’s holding back our economy, perhaps that would be a reasonable prediction. But Ferguson’s theory failed its previous tests, and there’s no evidence that debt is what’s holding back our economy right now….
It is no surprise that most of the folks who bought into this theory were early and enthusiastic backers of Paul Ryan. After all, he bought into this theory, too, and his initial budgets included deep, quick cuts. More so than any other politician, he translated this theory into legislation. But the theory’s primary predictions proved wrong. That has not, however, had any reputational impact on the people who believed those predictions, and their champion is now on the GOP’s presidential ticket, but neither he nor his backers appear to have rethought any element of their critique or of their program.
On economics conservatives have become as willfully ignorant as they are on matters of science. Ryan, who is being celebrated as an intellectually serious policy maker, is the economic equivalent of a climate change denier.
