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Congressman
Paul Ryan
Contracting Economic Growth.
Economic growth through the second half of 2008 is now negative. In the third quarter, the Gross Domestic Product (GDP) shrank .3%, with an expectation of a greater decline in the 4th Quarter. More distressing still has been the soft labor market. Unemployment has reached 6.5%, and in October 2008, 240,000 jobs were lost. Inflation has begun to moderate, with headline inflation falling by .1% in August 2008 and holding steady in September 2008. However, inflations remains much higher, up 4.9% in September 2008 over the September 2007 levels.
Inflation is a serious long-term threat to our economy. If high inflationary expectations take hold, it would be possible to enter into a period of “stagflation,” characterized by high inflation rates and low growth rates. This would affect every income level, as buying power erodes and real wages stagnate. Higher inflation would especially affect lower income individuals, who spend a greater proportion of their income on essentials such as food and gasoline , as well as senior citizens living on fixed income.
Due to the serious threat that inflation poses to our economy, I have introduced H.R. 6053, the Price Stability Act. Currently, the Federal Reserve Bank has a dual mandate: to promote full employment as well as price stability. Unfortunately, these goals, while laudable, can lend themselves to contradictory policy responses . For example, we are currently seeing both rising unemployment and increasing inflation. Traditionally, the policy response to rising unemployment would be to lower interest rates to stimulate the economy; however, the response to increasing inflation is to raise interest rates. With these competing aims, the Federal Reserve finds itself in a difficult position.
The Price Stability Act would solve this problem by removing the dual mandate. It would instead give the Federal Reserve only one mandate – to maintain price stability. It is important to recognize that, by virtue of its control of monetary policy, the Fed is the
only institution that can control inflation over the long-run. By providing stable and foreseeable prices, businesses and individuals are better able to plan for the future and provide continued growth for our economy. Additionally, stable prices would ensure the continued buying power of our wages.
Emergency Economic Stabilization Act.
Like many Wisconsinites, I am furious at the situation the country currently finds itself in. During my time in Congress, my top priority has been, and always will remain, protecting taxpayers. However, this crisis threatens the livelihoods of all Wisconsinites – farmer’s ability to make needed investments, student’s ability to get needed loans, families’ ability to secure their savings, and worker’s ability to keep their jobs. Because of this crisis, Congress took drastic action so that the crisis in the financial system does not devastate ordinary Americans. The Emergency Economic Stabilization Act was designed to curtail a deep and severe recession, although many difficult days remain ahead. The roots of our present crisis must be understood in order to get our economy back on track and prevent such a crisis from happening again. As easy money and a lack of concern about risk fueled an unsustainable housing boom, subprime mortgages were sold to investors who had little knowledge or concern regarding their true worth and repackaged and sold throughout our financial system.
The original bailout package was a $700 billion blank check with no oversight, no limits on executive compensation and no expectation that Wall Street would share in the costs of their mistakes. The Bush Administration offended the American people with a three-page request for a blank check from Congress. I told them that “trust us” wasn’t good enough, and fought for and helped add 107 pages of taxpayer protections. I fought to make sure that once these troubled institutions start making profits, the taxpayers benefit first and foremost. I fought to make sure Wall Street executives don’t profit personally as a result of their irresponsible decisions. I wrote the provision that ensures that Wall Street shares in the cost of its own recovery.
In securing this alternative I kept several principles in mind. First, the taxpayer must be protected. Second, Wall Street must take responsibility for the problems it created and CEOs cannot be rewarded with golden parachutes. Additionally, this bill could not be used as a vehicle for special interest giveaways and there must be stringent oversight and transparency. Specifically, I fought for the inclusion of provisions that:
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Guaranteed taxpayer
protections. Requires any participating institution that sells their troubled assets to the government to provide equity warrants to the U.S. Treasury. I fought for this provision to guarantee that taxpayers will be the first to benefit from any future growth of companies that take part in this recovery effort.
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Reduced taxpayer
exposure. Rather than the $700 billion blank check requested, $250 billion will be available to the Treasury Secretary immediately with any additional funds requiring Congressional action.
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Wall Street bails itself
out. Institutions participating in the Treasury plan will be required to pay insurance premiums, in effect forcing Wall Street to take responsibility for its actions.
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Placed caps on executive
compensation. Ensures that bad actors who contributed to this crisis are not rewarded with golden parachutes or severance pay.
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Increased oversight and
transparency. While the Paulson proposal explicitly removed judicial oversight or transparency provisions, the negotiated compromise requires honest and transparent reporting to Congress and the public.
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Eliminated special interest
giveaways. Instead of creating a special interest slush fund, any funds that are recouped from this plan will go towards paying down the national debt.
Our country is likely headed toward a recession, if not already in one. The Emergency Economic Stabilization Act is an attempt to curtail what could be a deep and severe recession. However, it will not, by itself, solve our economic problems. For long-term economic prosperity, we must provide a modern, transparent regulatory structure for our financial system, reform our entitlement programs so the next generation is not crushed under a burden of debt and create a more competitive America, so that we stop shipping jobs overseas and keep them at home. Most of all, we need to improve our savings rate in America. While I supported the rescue plan that was recently signed into law, I did not like it. To create a long-term solution for our financial system we must create a transparent and open regulatory system that provides for comprehensive oversight without stifling small businesses.
We must also end models, such as Fannie Mae and Freddie Mac, which thrive on privatizing profit and socializing risk. I have warned of the dangers inherent in these two mortgage giants since my freshman year in Congress, and I will continue to guard against cronyism in government and markets. More importantly to our economy, however, is the reform of our entitlement programs. Social Security and Medicare remain cornerstones of the financial security for millions of Americans. However, they are in deep financial problems. The current unfunded liability for these two programs is $53 trillion. I have proposed a plan that will put these two programs on sound financial footing while ensuring adequate health care and a higher standard of living for seniors. Our tax code should also be revamped and made to work for American workers, not punish them. Currently, our tax code punishes American exports while rewarding imports. That’s wrong, and needs to be fixed in order to assist our ailing manufacturing sector and the entire economy.
Challenges Ahead in the Manufacturing Sector.
The announced GM plant closing in my hometown of Janesville, as well as mass layoffs elsewhere have been personally devastating, and have dealt a painful blow to communities across Wisconsin. Manufacturing jobs are the bedrock of Southern Wisconsin's economy, and the bedrock of our nation's economy.
I have introduced legislation that would address the specific challenges facing Wisconsin's manufacturing sector. My "Roadmap for America's Future"
(www.americanroadmap.org) would level the playing field for American-made goods and services in the international marketplace. It does so by removing taxes from American-made exports and puts an equal tax on foreign imports. For example, right now, Racine's Case New Holland tractors are at a competitive disadvantage against their Japanese competitor, Komatsu, because of the current U.S. tax code. When the Komatsu leaves Japan, Japan lifts its tax on the tractor, and it arrives in the U.S. tax free. But when a Case tractor rolls off the assembly line in Racine for export to Japan, the U.S. first taxes it here and then it is taxed again in Japan. This punitive tax policy kills American jobs and puts American companies at a competitive disadvantage in the 21st-century global economy. My Roadmap proposal would end these backwards tax policies and put American workers in the position to thrive, instead of struggling to survive, in this period of economic uncertainty.
The second area that we must focus on is to prevent jobs from being taken away. Specifically, less developed countries like China have not only taken advantage of their lower costs to win manufacturing jobs, but often they also employ unfair trade practices. For example, China has undervalued its currency, subsidized domestic manufacturing, and disregarded intellectual property law. These practices have hurt U.S. manufacturers and must be stopped.
I have fought against policies that have pushed jobs overseas. I have sought to provide greater incentives for investment and job creation here in America. I have worked to cut the cost of doing business in the United States – lower health care costs, lower tax rates on American manufacturers, and make energy costs more affordable and more reliable. I will continue to fight to ensure China is playing by the rules and I will continue to advocate for sensible economic policies that will provide much needed relief for Wisconsin families.
Additional Information.
For more information on the economy and jobs, please refer to the following
web sites:
U.S.
Department of Labor: www.dol.gov
U.S.
Department of the Treasury: www.treas.gov
U.S.
Department of Commerce: www.doc.gov |
