To much fanfare, Paul Ryan’s budget proposal is highlighted in the Wall Street Journal this morning. Much cheering is being done by the ‘conservatives’ (Yay! Spending cuts!) while there is much hand-wringing being done by the other side (Oh-noes! Cuts are too big!). Is EITHER reaction merited? Well, I decided to pose the question to a 5th grader after cutting through much of the political-speak in the WSJ article. Let’s boil it down to very simple, 5th grade math. This requires an understanding of simple addition, subtraction and the concept of greater than and less than. ( +, -, <, >) Most children have a relatively firm grasp on this by the 4th or 5th grade.
Paul Ryan’s budget states that he would reduce spending from the current 5% annual increase to a mere 3.4% increase. He claims that this reduction in the rate of spending will result in a balanced budget by 2023. Well, for this math to work, it would mean that GDP (that which we produce or make) must exceed the rate of spending. In other words, GDP growth must be substantially greater than the 3.4% rate of spending. Therefore, annualized GDP growth must be a minimum of 5% over the next 10 consecutive years in order for Paul Ryan’s proposal to actually ‘balance the budget’ by 2023. Keep in mind, this 5% growth must occur in each and every successive year up until 2023 for Representative Ryan’s bill to actually balance the budget. That means, not just two or three years, but TEN years of consecutive 5% growth.
Let’s see if this is a realistic expectation. We will look to the government’s own historical records of United States GDP.
The last time we had even one isolated occurrence of 5% growth was in 1968. It was a one-time thing and has not been repeated since. As a matter of fact, since 1973 we’ve hardly managed to hold above 3% growth. In addition, for the past 8 years, GDP growth has been SUBSTANTIALLY UNDER 3%! Regular readers of this site will also know that economic indicators have not and do not foretell any increase in GDP growth in either the near or medium-term future. So, the likelihood of growth remaining at 2% or LESS for the foreseeable future is actually quite high.
So, I posed the following question to a 5th grader: If the annual spending increase is 3.4% and the annual growth is 2%, can you get out of debt? Is 3.4 < or > 2? In other words if you earn $10 per week in allowance, but spend $24 a week, will you get out of debt or get further in debt? Is 24 < or > than 10?
5th grader’s answer: I’ll be bankrupt. Oh, and even if we could get 5% growth and this budget ‘worked’…..I’LL BE TWENTY IN 2023!!! This whole thing is dumb.
I would agree. How long will we allow politicians to lie to us, hoping we can’t do simple math?