Mitt Romney And Paul Ryan’s Budget

By Simon Johnson

The conventional wisdom in American presidential politics is that once a candidate has secured a party’s nomination, he tends to move away from articulating the views of the party faithful toward the political center. This makes sense as a way to win votes in the general election, and there has been a presumption that Mitt Romney will head in that direction.

However, in a panel discussion on Tuesday, Vin Weber, a senior adviser to Mr. Romney, indicated that the campaign may be moving toward positions on fiscal policy that are close to those proposed by Representative Paul D. Ryan of Wisconsin and his Republican colleagues on the House Budget Committee.

To be sure, when Mr. Ryan presented his budget in March, Mr. Romney described it as “marvelous”. In the Wisconsin primary, Mr. Ryan campaigned with Mr. Romney and speculation arose that Mr. Ryan might be the Republican vice presidential candidate.)

Yet Mr. Romney’s embrace of the Ryan plan during the general election campaign would represent a significant shift toward a much more extreme view on the future of government than many Romney proposals during the primaries (see this assessment of his primary proposals by the Committee for a Responsible Federal Budget). Mr. Weber said he was not speaking for Mr. Romney; I was on the same panel, and my strong impression is that Mr. Weber was floating trial balloons.

Mr. Ryan’s proposals would substantially phase out the federal government’s role in providing basic social insurance for older people by massively reducing Medicare and by eliminating almost all nonmilitary discretionary spending. The House Budget Committee is also proposing to remove the only safeguard we have against the failure of another mega-bank. Some libertarians praise these proposals. But these Republicans’ strategy is not so much to remove government in favor of abstract “markets” but to shift the balance of power away from government and toward entrenched private lobby groups, particularly in the health-care sector and on Wall Street.

On Medicare, Mr. Ryan’s proposal is very simple. He wants to cap increases in spending on Medicare below the rate at which health-care costs increase. By his own estimates, the share of Medicare spending relative to the size of the economy would shrink dramatically over the coming decades. (Mr. Ryan proposes to keep Medicare in place for people currently retired and soon to reach the eligibility age of 65, so his proposal would affect people 55 and under today (I, by the way, am not yet 55).

Mr. Ryan’s approach certainly reduces this dimension of government spending over time. But keep in mind how the nonpartisan Congressional Budget Office has assessed these ideas: according to the C.B.O., this approach would increase total health-care costs as a share of the economy and as paid by you (see Figure 1 in this C.B.O. document, which analyzes the proposal Mr. Ryan presented last year; while some details are different this year, the essential substance is the same).

The idea behind this C.B.O. scoring is simple. At present the government buys health care for about 100 million Americans. Certainly, the government could use this buying power more effectively as a way to hold down costs. The government has much more market power than you or I would have relative to health-care providers and insurers when we are in our 70s, 80s and 90s.

The C.B.O. scoring is based on actual experience, including administrative costs in Medicare compared with private insurance. These costs will fall directly on older Americans and their families.

Before Medicare was created in the 1960s, there was no meaningful health-care insurance for older Americans – and there will be none after Medicare is phased out. For the private sector, this is a set of uninsurable risks.

The federal government provides a minimum level of social insurance to all of us, in case we outlive our assets and our families’ ability to support us. Mr. Ryan – and now perhaps Mr. Romney – would end this role.

According to the C.B.O., the net impact would be to increase what you pay for health care. The government-provided piece would decline, but your insurance premiums and other out-of-pocket expenses would increase.

Just as striking is Mr. Ryan’s proposal for nonmilitary discretionary spending. This currently amounts to about $650 billion, about 4 percent of gross domestic product, and it has been around this size relative to the economy for about 50 years.

This now represents about 20 percent of federal government activity. The federal government is roughly a $3.3 trillion shop, annually, with the big chunks of spending being Social Security, Medicare and other government-backed health care, and the military. The United States economy has a total annual production, or G.D.P., of about $15 trillion.

Mr. Ryan is less clear on the details, but assuming that he would seek to maintain military spending at no less than 3 percent of G.D.P. – which is its lowest level in the postwar period – my colleague James Kwak has projected that the domestic discretionary spending would fall to almost zero in the coming decades (see the charts at the end of this blog post).

I’m all in favor of bringing the federal debt under control – and stabilizing it at a reasonable level relative to the size of the economy (say, 40 or 50 percent of G.D.P.). But there is no need to eviscerate the federal government in order to achieve this over a reasonable time frame.

Mr. Ryan’s plan would effectively shut down the federal government’s ability to set rules for the economy and to provide essential public services, such as air-traffic control, the monitoring of hurricanes and the provision of disaster relief.

Big private companies will no doubt do well under this approach; there will be less restrictions on what they do (e.g., as the Environmental Protection Agency winds down or food-safety rules go unenforced), and they will be able to increase their market power (as the Department of Justice drops its remaining interest in antitrust issues).

This is bad news for entrepreneurs or anyone seeking to invest in start-up companies. The playing field will become ever more uneven – just as it was when J.P. Morgan and his colleagues were building the original industrial, railroad and energy trusts at the end of the 19th century.

From the perspective of too-big-to-fail banks, the news from Mr. Ryan is even better. The House Republicans are proposing to repeal Title II of Dodd-Frank, which creates the legal authority to wind down large financial institutions in an orderly fashion.

Without this, we are back at the situation of fall 2008, where big banks can blow themselves up, inflict great damage on the economy and also receive large-scale bailouts (see my recent post in this space for more on exactly how that works).

None of these Republican proposals should be dismissed as pure rhetoric. For many Republicans in Congress, the Ryan proposals are a very real agenda. And, as Ezra Klein has argued, if Mr. Romney is elected president, the Republicans are likely to gain control of the Senate and would almost certainly be able to push through a version of the Ryan agenda – particularly as the key details would be immune to filibuster in the Senate.

Under such a Ryan-Romney approach, big risks – such as severe ill health and the danger of other calamities – would be shifted from society to individuals. Large corporations in health care and finance and perhaps in other sectors would benefit. So, too, would the people who control those favored legal entities.

This is a return to the way the United States economy operated more than 100 years ago – in what Mark Twain ironically labeled the Gilded Age. A few people would do very well; almost everyone else is in for a hard time.

An edited version of this post appeared this morning on the NYT.com’s Economix blog.  It is used here with permission.  If you would like to reproduce the entire post, please contact the New York Times.

24 responses to “Mitt Romney And Paul Ryan’s Budget

  1. Welcome to corporate feudalism.

  2. Didn’t the framers design the constitution so that anyone who even considered politics as a carrier, would be found in the end, to be completely out of their mind, self centered, and working on behalf of the rich. I think the bill o rights framers had this completely planned. Frame the politicians who really can not see, or time up, the light of day, or even so much as admit they made past mistakes.

  3. Jeff Miller

    Welcome?! We’re already there. If Romney and his ilk are in charge this will only accelerate the path to revolution.

  4. They’re bad news, the Republicans.

  5. A Banana Republic, that’s what the US is, and has been for sometime now. It will only end when the people rise up. Then again resource depletion, will end it too.

  6. sufferinsuccotash

    “If Romney and his ilk are in charge this will only accelerate the path to revolution.”
    Maybe so, but we would probably go through an interlude of outright (as opposed to pseudo) fascism and unsuccessful war first.
    To tell you the truth I’d just as soon skip all that.

  7. Nice post, Simon. As Always. However, it does not seem too surprising that Romney is NOT going to the center to curry votes. Doesn’t everything come down to Citizens United now? Romney knows that winning depends on raising more money than Obama, not on trying to get a majority of voters on the the basis of their position. Sadly, we will also see Obama curry more to the business interests and the obscenely rich. Wish it wasn’t so……

  8. The interesting thing is that this may not, in fact, be perceived as a right-ward tilt by the general electorate. This would be due to the fact that many commentators who are viewed as reasonable (centrist) have given an undeserved stamp of credibility to the latest Ryan plan. I have read a number of pieces (from the non-right) that have labeled the latest Ryan thrust as something of a supposed genuine attempt to move the conversation forward. I am not exactly sure how this plan is so much different from Ryan’s earlier (and more maligned) version but nonetheless the impression (however far-fetched) has been planted in the mainstream that this is somehow not a radical proposal.

  9. @sufferin – agreed. Skip the outright and let’s get it over with. There is unrest all over the planet – it’s time for a “USA Spring” and we throw the Republicrats and their friggin’ tool lobbyists out. Alas, we’re going to have to endure a painful election season that will further divide this once great country. And, in the end, the lawyers, lobbyists, banksters, big pharma and the military industrial complex will pollute and compromise congress, senate and Obama or Romney.

    Personal footnote: I will be 50 years old in 3 weeks. A time for reflection: I’m a successful, international businessman and my wife owns her own small business. We enjoy a six-figure income, have no children, no debt except a 15 year mortgage and are healthy. A life of envy for many. Funny thing is, I have voted in every election since 1980 and have never felt as restless, angry and helpless going into an election *than this year*.

  10. According to Paul Ryan and Mitt Romney and their ilk, the ideal economic model for America is the pre-Revolutionary France of the late 1700s.

    But we all know how that ended, don’t we?

  11. sufferinsuccotash

    Napoleon?
    If I were into historical analogies I’d prefer the 19th century British reforms that ended the domination of the landed interests (the UK’s equivalent of the 1%).

  12. No, I wasn’t referring to Napoleon but to the very bloody French Revolution. Napoleon came later, after the Revolution.

  13. @sufferinsuccotash, “….Maybe so, but we would probably go through an interlude of outright (as opposed to pseudo) fascism and unsuccessful war first. To tell you the truth I’d just as soon skip all that.”

    Too late, it was a pre-emptive strike against Iraq….and the killin’ keeps going on home turf – look at Arizona – I guess they’re not officially *terrorists* like the guitar players are…

  14. Oh, and let’s “meh” this non-news – Main Street and other small-medium size businesses are being visited by “local lobbyists” (used to be called mob goons) and they are being threatened with a loss of credit line/rating and IRS audits and warrant-less surveillance if they hire anyone who is unemployed between now and the coronation, er, election…

    TRUTH.

  15. Moses Herzog

    This one goes out to……. Adam Yauch. (just press the play button after the jump)
    http://www.behance.net/franzini/frame/886571

    “MCA” gave joy and happiness and a momentary escape from some of the more dislikable parts of life to at least thousands and probably millions of people. That’s better than a lot of people can say. Rest In Peace Adam Yauch.

  16. sufferinsuccotash

    “the impression (however far-fetched) has been planted in the mainstream that this is somehow not a radical proposal.”
    Yes. Since the Sunday morning bobbleheads have officially defined Ryan’s plan as Serious it’ll be difficult to portray it as anything else. If we had Harry Truman in the White House the plan would already be in a million pieces on the floor. But the last time I checked we don’t.
    :(

  17. cut and pasted from their website:

    Today, the Federal Reserve’s duties fall into four general areas:

    – conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
    – supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
    – maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
    – providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system

    So since we all know that nihilistic hooligans are speaking for the FED – seems like the FED is a EPIC FAIL.

    It’s now:

    More misery for others = more $$$$ for ME ME ME

  18. What makes any of you think that this is anything but the final “Plan” to introduce a Monarchy to the US? The skull and bones club has been on this since their ancestors lost out with the advent of the bill of rights. This crew is scared to death of anything other than hierarchical governance, based upon ….wait for it…The Chimpanzee Model of Social Compact.

    Bud

  19. It is incredulous to me that no one seems to want to look forward to 2022 and what will undoubtedley happen to the Ryan budget.

    Faced with 65 year olds who cannot get private insurance and/or cannot afford private insurance(and the 64 year olds, etc. waiting in the wings), there will be a bill presented to include these people in Medicare. And not one single solitary Rep or Dem will dare to vte against it.

    So all of the “savings” from the Ryan budget have absolutely no chance whatsoever to be realized.

  20. roger lema

    The only way to solve this problem is to let the Republicans get their way pass all their stuff and let it fail. We will suffer alot up front but at least we won’t have to put up with this crap from the Republican party any longer.

  21. roger: I keep thinking that too, then I remember that people react to dire times by going farther and farther to the right, blaming and killing scape goats along the way. I am a middle 50+ year old white female so I may be safe, but what about the “others” who will be scarificed to appease the masses?

  22. AiR Brooklyn

    Why exempt those presently over 65? Because if they were included it would be immediately clear how inadequate the Ryan plan is.

  23. Ryan Wilson

    Simon, you are another “educated idiot” that thinks government can solve all problems. You and all your Ivy League buddies are laughably ignorant and lack total common sense! Why don’t you propose some solutions in this article? Oh yes, your solutions are always the same. Let’s continue on our debt binge and some way or another, the government will take care of everything and make everything better. Its embarrassing that you and your buddies are called educators!