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     Aug 18, 2012


President Ryan
By Chan Akya

Any quick read of my recent articles and forum posts (on Spengler.atimes.net) would show my growing concerns about the trajectory of the United States economy and its polity, which have been pushed to the general area of despair in recent times. Since 2007, there has been a visible lack of political leadership in the US across both the major parties, as they folded to the dictates of greedy banks and impecunious mortgage borrowers.

More specifically, I believe that allowing Lehman Brothers to fail was altogether a positive thing, but panicking after that and allowing the rescue of AIG and a number of big banks was quite simply beyond the pale.

While the right-wing party abandoned its free market principles, the left-wing apparently decided to cosy up to big business and

 

banks, effectively creating a rather confusing and mixed picture of the overall policy direction in the US. I have been disappointed for pretty much all of the last four years in terms of how the Republicans have flip-flopped on various issues central to the precepts of fiscal rectitude.

So it was a welcome relief to read last week that Mitt Romney, the presumptive Republican candidate to challenge President Barack Obama in November, had chosen as his running mate Paul Ryan, from Wisconsin. Romney doesn’t inspire much faith in people like me. As a serial flip-flopper whose ideological core appears rather similar to that of the incumbent, added to a certain amount of reticence on personal taxes that have cast doubts on the path to his prosperity, he appears to be a classic case of someone attempting to please too many masters. And yes, strapping the dog to the roof of his car doesn't help matters.

In contrast to the rather weak Romney, I like whatever is being published in the media about Ryan, whether it is intended to be negative or positive. A strong proponent of the Austrian school of economics in the US political context, he has presented in the past an alternative vision of where the US could go, if the country's political system were to ever break out of its current political straitjacket. By challenging universal medical care sponsored by the government and cutting back other welfare measures to fund a smaller government relying on lower taxes, Ryan has cast himself firmly on the iconoclastic side of US government.

There are a number of criticisms levied against Ryan, not the least of which is that his proposed alternative federal budget - the Ryan Budget - would have taken an inordinately long time to balance the current deficit trend in the US while more personal charges highlight the support given by Ryan for various proposals such as the Bush tax cuts that helped to balloon up the US deficit in the first place.

Given that Ryan is a fairly young congressman, the criticisms belie exaggerated expectations to start with. That aside, I am not entirely sure that they are valid in any event because most of Ryan's critics have their own axe to grind; chief amongst them being the Republican gadfly Paul Krugman who can be easily trusted to make up convenient stories and assumptions as he goes along.

As with most of his "analysis", Krugman forgets first- and second-order effects that in the case of the Ryan budget may vastly help to reduce the deficit faster. For example, removing certain types of free healthcare may help motivate the habitually indolent to get back to even low-paying jobs, in turn reducing both their own health risks (from increased physical activity) and also taxes from their earnings.

Criticism of his support for the George W Bush tax cuts is also misplaced as it represents ideological consistency at the very least, even if the eventual effect on deficits as exaggerated by the failed wars and misjudging the nature and depth of the economic collapse in 2007 and then on.

Sure there are other reasons to question his credentials - supporting the government bailout of the car industry, for example which was clearly aimed at protecting the jobs of his constituents in Wisconsin - but overall, Ryan seems eminently plausible as not just a fiscal hawk but also an innovative leader with real ideas.

'You didn't do that'
Think of the debate about jobs for example. In a speech that may well characterize the exact breaking point of the American public's confidence in Obama were he to lose this November, the president chastised business owners for imagining they were central to job and wealth creation by pointing out the role of supportive government policies and investments that lay behind the success of many an entrepreneur.

That argument, while seductive to communists and others who believe in big government, is also patently untrue. Government spending is itself driven by the taxes of productive people, but even leaving that nuance aside, individual entrepreneurs deal with the same variables as those around them and yet come out on top; partly as a result of work ethic and partly due to innovative ideas. To take away those achievements with a bland "you didn't do that" that suggested that "anyone" else could have achieved the same thing under the same conditions is both immoral and wrong.

Lower direct taxes can act as the engine of innovation as workers focus on maximizing their productive potential within the ambit of a working life that isn't always under their control. That is the context of America's greatness; not the mile-wide highways and bridges to nowhere that idiotic governments lavished their attention on over the past few decades.

The point of having people like Ryan in the political firmament is to ensure that governments go to what they do best which is to attempt the least possible damage whilst ensuring that sufficient infrastructure exists for innovators and entrepreneurs to thrive.

Split with Europe
There is a well-grounded fear amongst many bond market investors that American policy is fated to take the country closer than is comfortable to the experience of France, Italy and Spain due to widening fiscal deficits, low levels of innovation and a lack of policy distinction with those being followed by now-failing economies in Europe.

That is exactly where Ryan comes in, particularly as he bravely challenges the status quo in pushing out unnecessary and potentially counter-productive spending on universal healthcare as proposed by Obama. The example of Europe is clear - providing universal healthcare and other welfare approaches has vastly improved the quality of life, but has come at the cost of serious second-order effects such as labor indolence and low entrepreneurial dynamism.

The first-order effect of European welfare policies arguably was rudely healthy thugs roaming the streets of London, as I wrote last year (see "London riots reduce lies of the left to ashes", Asia Times Online, August 16, 2011), rather than well-adjusted individuals ever grateful to a munificent state as was imagined by communist ideologues over a century ago. Of course, similar trends have also been witnessed in other European cities such as France, Spain and Greece over the past 10 years.

In contrast, leaving out promises of government support on healthcare would likely change the basic working approach of citizens, and promote both healthier lifestyles and higher workforce participation as seen in the US for the past few decades. The relaxation of such rules since the Bush era (another ideological drift by the Republicans) helped to accentuate the depth and longevity of the current crisis in my view.

All in all, Ryan appears the right person to challenge the market's fears of political deadwood infecting the US government for the next few years. It is to some regret that I note he will not be the likely candidate for president directly this year - depending on the outcome we may have to wait another four or eight years for that outcome.

Meanwhile though, investors can take heart in the idea of a President Ryan in the not-too-distant future of the US.

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)





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