The Magical Economy, Brought to You by Paul Ryan and the Heritage Foundation

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The Magical Economy, Brought to You by Paul Ryan and the Heritage Foundation


Jake Berliner
Deputy Policy Director of NDN’s Globalization Initiative

When Paul Ryan unveiled his budget today, he touted it as a "Path to Prosperity" and he and his colleagues kept saying it was "based in fact." In reality, Ryan's claims of prosperity are based on an analysis - written at his request by the conservative Heritage Foundation - that has more basis in magic than economics.

For starters, the Heritage analysis's unemployment projections alone are utter nonsense. It claims that - under the Ryan budget - unemployment will plummet from the current 8.8% to 6.4% next year, 4% in 2015, and 2.8% in 2021. Each number is totally impossible - we'll never see 2.8%, and 4% would require runaway economic growth. As Matt Yglesias points out, the Federal Reserve would respond to that type of growth by raising interest rates to avoid inflation, so the levels forecast could never be reached. (As a reference point, full employment is around 5%, so 2.8% is a total fabrication.)

Furthermore, the Heritage report uses an almost comical conceptual explanation (under the heading "Economic and Fiscal Results" on page 3) of how the tax cuts in the Ryan plan pay for themselves and reduce the deficit. This would be great, if it were actually true. The Bush tax cuts did not come anywhere close to paying for themselves, nor have other large cuts to upper income tax rates. From the Chair of Bush's Council of Economic Advisors, Greg Mankiw:

I used the phrase "charlatans and cranks" in the first edition of my principles textbook to describe some of the economic advisers to Ronald Reagan, who told him that broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue. I did not find such a claim credible, based on the available evidence. I never have, and I still don't.



more:
http://www.huffingtonpost.com/jake-berliner/the-magical-economy-broug_b_845233.html