Ron Paul: Economics 101 Is Not Rocket Science! – OpEd

Last week the Congressional Budget Office (CBO) issued its annual long-term budget outlook report, and the 2012 numbers are not promising. In fact, the CBO estimates that federal debt will rise to 70% of GDP by the end of the year– the highest percentage since World War II. The report also paints a stark picture of entitlement spending, as retiring Baby Boomers will cause government spending on health care, Social Security, and Medicare to explode as a percentage of GDP in coming years.

While the mainstream media correctly characterized the CBO report as highly pessimistic, they also ignored longstanding errors of methodology in CBO estimates. And those errors tend to support arguments for higher taxes and government spending, when in fact America needs exactly the opposite.

As Paul Roderick Gregory explained in a recent Forbes column, CBO has always applied wrongheaded assumptions inherent in Keynesian economics when forecasting future deficits – no matter how many times both history and economic theory have proven such assumptions incorrect. In particular, CBO seems wedded to two enduring Keynesian myths: First, that higher taxes necessarily increase federal revenue and have no negative effect on the economy; and second, that lower government spending hurts the economy. Neither is true, of course.

CBO also fails to factor in unexpected wars and expensive foreign entanglements, and we should not assign too much validity to predictive models based on peace. Judging from the actions and rhetoric coming from both parties in Washington, new military entanglements in Syria and Iran may well spike military spending in coming years.

Despite these sobering budget realities, the CBO report suggests that a solution is possible with merely a few minor adjustments in the way Congress handles economic issues. But what we need are not minor adjustments, but rather a fundamental shift in our philosophy of government. If we could come to our senses about the proper role of government in America, and what level of government interference is appropriate in a free economy, we would quickly find that there is no reason for government to spend so much, borrow so much, and tax so much.

If we simply allowed markets to work free of governmental or Federal Reserve interference, bad debt would be liquidated relatively quickly and malinvestment would be curtailed. Scaled-back regulations would encourage businesses to expand. Lower taxes would jump start investment and spur job creation.

This is not rocket science, it is Economics 101. All it would take is for government to get out of the way. There would be some short term pain, of course, but only by allowing the bubble to burst and bad debt to liquidate can we ever hope to begin building a real economy again.

The CBO report was alarming to most simply because they know neither party will take the steps necessary to avoid eventual fiscal calamity. Instead, despite their rhetoric, both parties want to maintain the fantasy that “deficits don’t matter.” But the CBO report, combined with what is happening in Greece and the European Union, should finally make the undeniable case that economic realities apply even to industrialized first world economies. We must take concrete steps today to avoid having America become the next Greece.


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Ron Paul

Ron Paul

Ronald Ernest "Ron" Paul (born August 20, 1935) is an American physician, author, and politician who served for many years as a U.S. Representative for Texas. He was a three-time candidate for President of the United States, as a Libertarian in 1988 and as a Republican in 2008 and 2012.

3 thoughts on “Ron Paul: Economics 101 Is Not Rocket Science! – OpEd

  • June 12, 2012 at 11:36 am
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    Spot on analysis and outline of what needs to be done. Have to do this, rather than listening to the Krugmanomics which will bring Western economies crashing down. The demographics are completely different from the end of WWII. We have huge aging populations with pension/fixed income saving requirements which cannot survive a mass destruction of their purchasing power. We also do not have a large number of able-bodied men and women returning from war to boost the economy with a surge of labour capital. On the contrary, the governments are threatening to send these men and women back into wars. The biggest threat to the national security and public harmony of Western countries is their economic policies.

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  • June 12, 2012 at 4:10 pm
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    If we do nothing and just let the status quo persist, the government is going to economically get out of the way whether they like it or not. Economics is like physics. You can defy natural laws for a while but not forever.

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  • June 13, 2012 at 9:02 pm
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    Way to go! Next how do we make it happen? And is there a way to toss out those that do not follow there premises? – other than the vote? Another idea is to restrict the use of thr Executive commands coming from the PRES. Just because he wants a war he should not be able to mak it happen. All so how about stop sending all thay money every where but here -spend on US FIRST!

    Reply

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