25 November 2008
Last Updated on 12 August 2009
Paul Ryan: Road to Economic Recovery - Part I
By Congressman Paul Ryan
This week, President-elect Barack Obama introduced his economic team, highlighting his effort to turn our struggling economy around and create millions of new jobs.
He will be surrounded by experienced economic minds to advise him in the years ahead– most notably New York Federal Reserve President Tim Geithner as the next Treasury Secretary and Larry Summers as the Director of the National Economic Council. As Ranking Member of the House Budget Committee, I worked closely with the Director of the Congressional Budget Office, Peter Orszag, and was pleased to learn that he will serve as Obama’s top budget official. Dr. Orszag and I have enjoyed a strong, productive working relationship, and I have been particularly impressed with his understanding of the looming entitlement crisis, and the critical need for action.
I look forward to working with Obama’s economic team, and share a deep respect for their impressive acumen and willingness to serve this nation. That being said, I have serious concerns with the recent economic “stimulus” proposals put forth by the incoming Obama Administration and my colleagues that control Congress.
In both rhetoric and substance, the road to economic recovery has been singularly focused on government spending. If economic growth were simply a function of government spending, our unprecedented spending from the public sector should produce unprecedented growth in the private sector. The failure of such fiscal stimulus proposals is obvious: government depends on the economy for its resources – not the other way around. As a recent study from the Heritage Foundation states, “Every dollar that government ‘injects’ into the economy must first be taxed or borrowed from the economy. No new spending power is created. It is merely redistributed from one group of people to another.”
Important lessons on our current crisis can be drawn from Japan’s “lost decade” in the 1990s, where deeply flawed policy responses lead to a protracted period of stagnation. In the early 1990s, Japan experienced a sharp economic slowdown resulting from the bursting of a real estate and stock market bubble. Sound familiar? In response, Japan’s policy makers pursued an aggressive agenda of fiscal stimulus packages after 1993. Japan’s preference for public spending at the expense of private investment led to record deficits, increasing government debt to 130% of GDP. Following the array of new spending projects, Japan made the critical mistake of raising its consumption tax rate in 1997, proving fatal for Japan’s already stagnant economy. Rather than addressing the significant structural problems in Japan’s financial sector or reducing taxes to spur sustained economic growth, Japan followed a path of increased spending followed by increased taxes. Such a path proved disastrous for Japan, and – should Obama and the Congressional Majority follow a similar path as they’ve promised – it will prove disastrous for America.
The Congressional Majority’s proposed stimulus plans will do nothing to address the fundamental problems in the U.S. economy. It will, however, increase the deficit and strengthen calls for raising taxes. The federal government’s budget deficit for Fiscal Year 2008 is nearly $500 billion. According to recent warnings from CBO Director Orszag, the federal deficit is likely to eclipse $750 billion before the 111th Congress will work to enact its promised spending “stimulus” plans. To put this mind-numbing number in perspective, this is roughly 140 times larger than Wisconsin’s projected budget deficit. In addition to swelling the government’s already growing debt, higher deficits raise borrowing costs and weaken the dollar in the global markets. More spending and bigger government – followed by larger deficits and higher taxes – is not the answer to our nation’s economic problems.
Job creation is at the heart of economic recovery, yet this process is deeply misunderstood by many in Washington. At yesterday’s press conference, President-elect Obama spoke of the "jobs that I intend to create,” referencing his pledge to create 2.5 million jobs in the next two years. With the exception of expanding bureaucracy, politicians don’t create jobs – they can enact policies with incentives for job creation and economic growth. Small businesses, entrepreneurs, and workers across America are the engines of economic growth. Job-creating policies – such as the economic reforms I’ve proposed in my Roadmap for America’s Future – must be focused on empowering those engines of growth, not further expanding the federal government at their expense.
Congressman Paul Ryan serves Wisconsin’s 1st Congressional District. To contact him by phone in Washington, D.C., call (202) 225-3031. Or visit Paul Ryan at www.house.gov/ryan