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Path To Prosperity

Do You Believe In Fairy Tales?

By | Commentary, Quantum Economics
It Seems that for the first time in four years, the senate has passed a budget. Republicans are bleating that it “has zero real deficit reduction” and “never balances.”…which is probably all true, but as I discussed a few weeks back, neither does Paul Ryan’s Path to Prosperity. You see, any monkey with a free copy of Google Spreadsheets can make a lot of bogus assumptions about revenue growth and cost cutting and squeeze the “projected” deficit down to zero in 10 or 20 years…Just ask the Congressional Budget Office, who in 2000 projected to much acclaim that the US would be more or less debt free by 2010.
In any case, we now have affirmation by both political parties that one of three things is true about each of them.
  1. They are a bunch of Lying SOB’s…
  2. They aren’t lying, they are just incredibly incompetent.
  3. Or…they believe in fairy tales.
I really don’t know which it is…all seem feasible to me. However, it is time for you to decide if you believe in Fairy Tales…or not. The fairy tale they want you to believe…written by the economic high priests of the last century is quite simple. First…deficits don’t matter. Government, led by the infinite wisdom of elected politicians and an army of bureaucrats can borrow and print an infinite amount of money with no consequences. They will save your job, care for you when you are sick, educate your children, and even manage your retirement for you…all you have to do is believe….and maybe tap your shoes together 3 times.
For comparison, let’s think about what might make sense for a typical family budget. It is generally accepted that an ideal state is a surplus…you should be saving, let’s just say 10% of income…. for rainy days, paydown of debt, and hopefully accumulation of enough wealth for the rather modern invention we call “retirement.” We could have a debate over the specifics, I think we can all agree that more or less, this is a pretty good prescription for success.
Imagine if instead of following the above, our family, with a household income of $80k/year, decides to take the prescription advised by modern economic theory. At this point in time, our family, has accumulated debt approaching $500k….not mortgage debt…unsecured credit card debt. Further, they are accumulating debt at the rate of about $40k per year, with no realistic plan to address the annual deficit, much less actually pay down debt accumulated so far. At this point,  really should be bankrupt, but fortunately for them, their credit card company keeps increasing their credit limit, and at this point has actually removed the limit altogether.
Do you see this ending well? Is it possible that a financial policy that would so obviously asinine for a household makes sense for a nation? Ben Bernanke, Tim Geithner, Republicans, Democrats, and most modern economic theory thinks it will. That’s what’s in the Fairy Tale, so it must be true…right? You need to decide for yourself what you believe. Is infinite deficit spending the right medicine to heal a sick economy, or is it just another line of cocaine….inching closer to bankruptcy and ultimately…death?

 

Paul Ryan’s “Path To Prosperity” 3/11/2013

By | Commentary
It seems that the Republicans have just come out with a great new plan to balance the budget in 10 years…. That’s great…I mean, why hasn’t anybody thought of this before…am I right? You can find it here. I haven’t read it all, and don’t plan too, but I did take a look at the CBO summary table, and compared it to the CBO’s own forecast released a few weeks ago, and my own forecast, which I have been working on , but not released…yet.
First, I need to provide some background about the poor bastards at the CBO (Congressional Budget Office). You might think that the CBO’s job is to create realistic models that forecast future revenues and outlay’s… you would be wrong…at least on the realistic part. You see, congress comes to them, and says…build a model…but use this list of ridiculous assumptions guaranteed to get to the numbers I want. The truth is any jackass can plug some numbers into a spreadsheet and squeeze the assumptions to force fit whatever output he wants, but that’s not called forecasting, it’s just called fiction.
The first thing that jumps out of both the CBO’s forecast, and the “Path to Prosperity” forecast is that the revenue numbers are completely bogus. For some reference, let’s take a trip down memory lane to 2003. If I know that 2002  had $1.89T of revenues….what would have I forecasted revenues 10 years out to be in 2012? To nail it, I would have needed to forecast revenue growth just a little bit under 4% per year, ending 2012 at $2.755T $865B higher. From 2002 to 2012, revenues grew by about 46%
Now, sitting in 2013, what do you think would be a good estimate for 2022 revenues knowing that 2012 was $2.755T? Paul Ryan’s plan predicts 88% growth…the CBO’s baseline forecast has it at over 93%. For some reason, they think that government revenues will grow at over twice the rate in the next 10 years as they did in the last 10? Are they optimists? Or are they just full of it? My own analysis…and realize this is one guy with a few hours a week, an ornery computer, and a ruler…I put it at 53%, and that rather than the budget being balanced in 10 years, will be pushing close to a $2T annual deficit.
On the cost side, from 2002 to 2012, outlays grew 75%. Per the Ryan plan…2012 to 2022 will only grow by 35%…despite what are sure to be massive increases in entitlements. I put it at 59%. The Ryan plan has federal outlays in 2022 at $4.888T. The CBO baseline has it $800B higher at $5.691T. I have it at $6.115T. So I guess this is a step in the right direction…but I don’t see it happening. The sequester was an $85B reduction in spending, and people had fits. The only way $1.2T of annual cuts happens is when the money runs out, which is almost certain to happen before 2022 anyway.
Look, I like Paul Ryan because he seems to be the only guy trying, and the only guy who has tried at all in the last 15 years to address this issue. But coming up with a grand plan…and using a ton of bogus, or at least unlikely assumptions  to hit your number…that’s the game that got us here in the first place.
As for results…We all know that little to nothing will come of this. You can’t start negotiations with the President by presenting a budget where the first assumption is to repeal Obamacare…tomorrow… Really?? That’s even more asinine than the revenue growth assumptions  Regardless of what you think about Obamacare, the truth is, it’s going to be here until at least 2016, and probably a lot longer than that. If my math is correct, by 11/2016, debt is at $21T, and the deficit is starting to accelerate. I’m not sure we make it that far anyway, but anything is possible…well..except this budget proposal ever becoming relevant.
Note to Paul Ryan…or President Obama for that matter…if you want/need a competent excel jockey…fire your guy and give me a call….but I’m going to need to work from home 🙂