Banking & Finance, Economic Development, and Government

The $800 billion Romney-Ryan stimulus plan

October 8, 2012
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There seems to be a fair amount of uncertainty over Governor Romney's plan to heal the nation's struggling economy. In fact, the Romney-Ryan team has provided a detailed plan to jump-start the economy. The plan provides for an $800-billion-a-year boost to private business activity.

The Romney-Ryan plan doesn’t attempt to stimulate the economy by increasing government spending. Such plans weaken economic activity by shifting spending from the private, productive sector to public programs. Instead, the Romney-Ryan plan boosts private economic activity by shifting spending from inefficient government programs back to the private, productive sector.

In order for government to spend money, it must first take money from those who earned it. Government does this by either taxing or borrowing the money. In either case, those who earned the money can’t spend it. When government spending replaces private spending, it tends to weaken the private sector. Government simply can’t spend other people’s money as efficiently or carefully as the people who earned it. This is why the economy performs so poorly when there are rapid increases in government spending.

Since the private sector is the source for both private and public spending, it is essential to stimulate the private sector to achieve a healthy economy. One way to do this is through lower tax rates. Another way is to shift spending from the public to the private sector. This is essentially what the Romney-Ryan plan does. It shifts roughly $800 billion a year from government-related programs to productive, private activity.

Half of this total is in the federal budget. President Obama’s budget shows he plans to spend $400 billion more on federal programs in 2014 than Paul Ryan’s House Republican budget. Allowing for $400 billion more for government programs would seriously weaken the private economy. It means individuals would have $400 billion less funds available to produce and buy the goods and services they need to take care of their families. Instead, those funds would go to increased spending on less productive government programs. By comparison, the Romney-Ryan plan would allow individuals to use the $400 billion intended for government programs to directly support their families.

In addition to its budgeted spending, the federal government also redirects spending from private to public use through regulations and mandates. Even before the health care law and Dodd-Frank financial regulations, complying with federal regulations amounted to $1¾ trillion a year. This is money devoted to public purposes that is no longer available to individuals for their household needs.

Recent increases in regulatory compliance costs are massive. I estimate the combined costs for the health care law, Dodd-Frank financial regulations and new environment rules will amount to roughly $400 billion a year. The Romney-Ryan plan to repeal these items removes $400 billion in compliance expenses. As in the case of federal spending, the money would then be available to expand jobs and investments in the productive private sector.

Shifting $800 billion a year from government programs would produce an explosive increase in the production of goods and services people want and need. This would immediately increase the number of well-paying private job opportunities. The increase in jobs and output would reverse declining middle income living standards. By doing so, the Romney-Ryan economic plan would restore the American economy to its previous standing as the healthiest, most productive economy in the world. 

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