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Paul Ryan's House Budget Committee released a report today making the case that debt-supported government intervention raises unemployment rates and impedes economic recovery. The point of the report is to demonstrate that Keynsian theory has been discredited so much that we need to find another path. And, in this case, that path is the Path to Prosperity.
The report makes use of a John Taylor chart, which he first published along with a WSJ column in January, which is worth featuring again.
There's hardly a better picture of what our nation needs right now. Rather than "increasing revenues" or more stimulus, we need a full court press on opening up pathways to private investment.
Here's why this matters:
Taylor’s view is that the economic data tell us that the government needs to encourage private investment, rather than keep its own spending high, in order to encourage job growth. He believes that vast uncertainty, linked to the prospect of higher future tax rates and interest rates, is having a chilling effect on private investment and therefore job creation. Reducing government spending now would “reduce the threats of higher taxes, higher interest rates and a fiscal crisis,” and would therefore provide an immediate stimulus to the economy.
Predictability regarding tax rates and interest rates. It's pretty basic really. But the latter point, especially, is one that we don't talk enough about. Deficit reduction for this reason is fundamental to future economic growth. Anyone involved in a race in 2012 should make this a central feature of their stump speech.
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