Mitt Romney introduces Paul Ryan to Republican Party faithfuls

Mitt Romney recently announced in Norfolk, Virginia that his vice presidential running mate is Rep. Paul Ryan of Wisconsin.

ABC News reported on the elaborate measures taken by the Romney campaign to keep the decision under wraps until the right moment. The report (http://abcnews.go.com/blogs/politics/2012/08/how-mitt-romney-and-paul-ryan-tricked-the-press/) read: “Mitt Romney decided on Paul Ryan on Aug. 1, the day after returning from his trip overseas to the Olympics in London and to Israel and Poland. The candidate and his campaign kept the secret for nine days, according to campaign sources. Romney and Ryan met secretly on August 5th, after the decision had been made and just before Romney submitted to round-the-clock coverage by reporters who had been traveling with him.”

Ryan is known as a fiscal ideologue who is in favor of spending cuts to reduce the government budget deficit.  He is respected within the Republican Party for his economic acumen and is considered by many as a key party leader.  Romney’s choice of Ryan as running mate reportedly energized party activists.

The choice of Ryan is considered by many to reflect the fundamental truth underlying the 2012 US elections: “It’s the economy, stupid!”  Both the Republican and Democratic parties must answer voters’ queries on immediate prospects of the sluggish  US economy beset with unemployment since the start of President Obama’s term.  

Ryan tangled with President Obama repeatedly in the past over proposed budgetary allocations for the Medicare program (the so-called ObamaCare).  The Wisconsin representative believed that Obama’s allocations were not sustainable given substantial US budget deficits.  

Notwithstanding these public deficits, Ryan follows the lead of several Republicans since the late 1970s to propose cuts in tax rates, especially for upper income individuals and corporations.  This suggestion is counter-intuitive and must have some solid theoretical backing.

During the late 1970s, the Western countries dealt with a new phenomenon–‘stagflation’–the coexistence of high prices and stagnant economic growth.   It was theorized previously that these cannot happen simultaneously–that inflation sets in only during full employment and that recession dampens prices.  This was the Keynesian consensus at the time.  

John Maynard Keynes

Keynesians ordinarily prescribed increased government spending (and sometimes tax cuts for ordinary consumers) to get out of economic slowdowns.  For this reason, Keynesians are called demand-side economists.  On the other hand, monetarists or so-called supply-side economists, led by Nobel Prize-winning economist Milton Friedman of the University of Chicago, believed the key policy tool is the control of money supply to control inflation, that is, tighter money leads to lower prices.  They also believed that artificial market imperfections such monopolization by trade unions  of labor markets, capital controls, and excessive government regulations should be dealt with since they raise wages, interest rates and overall prices.

Nobel Prize-winning economist Milton Friedman

Supply-side economic policies were adopted by President Ronald Reagan during his first term in the early 1980s.  The situation then was similar to current conditions: tax cuts were proposed for corporations and upper income individuals  amid US deficits.  The reasoning: corporations did not invest as much so the economy could grow because of excessive tax rates and regulations.  The tax cuts were adopted but the deficits did not decrease; in fact, they increased.  

President Ronald Reagan

The clarion call then was deregulation.  Government should stop regulating and interfering in the economy and allow market forces to work freely.  

President George Bush Jr.

However, it was not to be a simple binary choice.  One policy program does not exclude the other.  When the big US financial institutions started to go under in the aftermath of the 2007-2008 housing crisis, the US Congress at the urgent request of President George Bush Jr. approved a $700 billion bail-out program for the Wall Street banks as well as General Motors and Chrysler.  Alienating many within his ‘Main Street’ constituency, President Barack Obama had to maintain the program.  In many instances, Obama was accused of being soft on the banks, considered by many to be responsible for the financial crisis.  The five biggest banks were recently allowed to settle lawsuits over practices that forced millions of American families from their homes(see https://www.commondreams.org/headline/2012/02/09-5).

Obama weighing alternatives?

Our historical discussion shows that political leaders cannot be held captive by their ideologies.  They may be forced to adopt policies that work, pragmatic policies that is.  Should Romney and Ryan get elected in November 2012, I will be very interested to see if their ideology survives its first brush with reality.

Paul Ryan with his latest budget proposal

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