The Independent Market Observer

And They’re Off!

Posted by Brad McMillan, CFA®, CFP®

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This entry was posted on Aug 13, 2012 10:07:52 AM

and tagged Politics and the Economy

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The big story over the weekend and on Monday was the Paul Ryan vice presidential selection. The U.S. presidential race really started with that announcement. Yes, I know that we have had months of Republican primaries and you could argue that the race began when Romney wrapped up the nomination. But until this weekend we did not really know what the race would be about.

Now we do.

By selecting Paul Ryan as his running mate, Romney has explicitly made the election about the size and role of the federal government in the economy. The Wall Street Journal, the Financial Times, and the New York Times (NYT) all ran front-page stories on Ryan with different perspectives, but the common theme was what Ryan is best known for—the budget proposals that he has developed over the years. The most recent, for 2012, was actually passed by the Republican House of Representatives before being voted down in the Senate. I think it is safe to assume that this budget was at least partially the basis of Ryan’s selection and will certainly be the basis of Democrat attacks. The most noteworthy features from a political perspective are as follows:

  • Starting in 2022, end the current Medicare program for all Americans born after 1956 and replace it with a voucher system
  • Repeal the Patient Protection and Affordable Care Act (Obamacare)
  • Radically reduce other governmental spending, from 12 percent of gross domestic product (GDP) in 2010 to about 6 percent of GDP in 2021
  • Lower income taxes and reduce tax expenditures (deductions, exemptions, and subsidies)

As I have detailed at some length in other posts and in webinars posted on the blog, the math of the situation requires substantial changes in either tax levels or in spending or (in my view preferably) both. In Ryan, we have an unapologetic spokesman for attacking the deficit by cutting spending to the bone while also cutting taxes. Romney has clearly aligned his campaign with tax and spending cuts.

We kind of knew this already, of course, and it should not have come as a big surprise. Nevertheless, by selecting a Congressman from Wisconsin who has never been elected other than in his district and who is known for his budget proposals, Romney has put the ideological component front and center.

I will be looking in detail at the Ryan budgets and what they will mean for the economy going forward. They will certainly mean lower spending and probably mean lower taxes—at least initially.

I will also be discussing how this looks to play out politically. As I have pointed out, the politics are not as simple as they seem to be on the surface. Here’s a really good discussion by Nate Silver of the NYT—probably one of the best political analysts out there.

Have a great day!

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