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America Cannot Afford Republicans in Power

Ryan Avent on Paul Ryan:

Economic policy: Paul Ryan's roadmap to recession: I was struck hearing all this, explained in this way. Adopting these policies would be nothing short of disastrous. The spending cuts Republicans seek for this year and next would not doom the American economy to disaster, but they would place a meaningful drag on a recovery that continues to chug along at or just under trend growth, and that's risky. The literature suggesting that austerity can be expansionary has faced a great deal of criticism, and that literature itself suggests that expansionary austerity is most likely when interest rates are high—which they aren't—and when the currency is allowed to depreciate considerably—which Mr Ryan opposes. Short-term spending cuts are unambiguously contractionary, and Mr Ryan wants them in spades....

[S]weeping reforms seem like an odd short-term prescription from a guy who says that uncertainty is constraining recovery. Another attendee asked Mr Ryan about this seeming tension, and his response was essentially that a sweeping reform won't happen because Democrats still hold the Senate and the presidency. In other words, if Republicans had their druthers, they'd be free to enact a potentially destabilising—according to Mr Ryan's view of the economic situation—set of reforms. Only Democratic reluctance is sparing the economy this horror.

And then there's the money issue. It wasn't so long ago that both parties supported countercyclical monetary policy. Top economists from across the ideological spectrum—from Milton Friedman to Christina Romer—point to tight monetary policy as a major factor exacerbating and prolonging the Great Depression. Mr Ryan claims he's worried about inflation. But based on what markets are saying, 10-year expected inflation is just 1.94%. That is, according to the Cleveland Fed, "the public currently expects the inflation rate to be less than 2 percent on average over the next decade". Mr Ryan said that he wished the Fed would drop its mandate for full employment and focus on price stability. Well, current inflation expectations indicate that tighter policy would maintain inflation below the Fed's implicit target of around 2%, which is the level of inflation most rich-country central banks have decided is conducive to stable prices and growth. Moreover, Mr Ryan's suggestion that high inflation is imminent cuts directly against the prevailing market view. That's a fine belief to have, provided you aren't spending your time arguing that markets know best and need to be free to guide the economy.

Mr Ryan's views are at odds with economic history and at odds with prevailing views of economic policy. They're untethered from economic reality. And no matter how charmingly he delivers them—and he is an engaging, funny speaker—they're a path to disaster. Ryanomics is a recipe for the return of recession.

And Paul Krugman wonders why economists like Greg Mankiw, John Taylor, and Glenn Hubbard have not yet crossed the aisle and joined the Democrats:

The Republican Descent Into Economic Darkness: Ryan Avent listens to Paul Ryan... and is appalled.... I don’t know whether Avent was really surprised by this — if so, he hasn’t been paying attention. 1930-vintage macro has been all the rage in GOP circles for a while now. But not, actually, for all that long.... [T]he 2004 Economic Report of the President.... To be sure, this is Greg Mankiw writing; but still, look at what he was allowed to say.

I’ve been writing for a couple of years about the academic descent into a Dark Age of macroeconomics, in which much of the profession has forgotten things they used to know. But that has been a gradual process. The GOP descent into the intellectual abyss, by contrast, has been stunningly swift. Some of this is just partisanship.... But the truth — which I suspect that people like Greg aren’t willing to face, yet — is that the intellectual barbarians have completely overrun a party that even a few years ago was still capable of making sense.