By Simon Johnson
Writing in the Financial Times today, Paul Ryan – the incoming chair of the House Budget Committee – presents himself as a fiscal conservative, primarily focused on bringing the budget deficit and government debt under control. He is not.
Only in American could self-styled “fiscal conservatives” say that “America is eager for an adult conversation on the threat of debt,” but then decline to discuss the first order problem that has brought us here and threatens us going forward: Dangerous systemic risk brought on by the reckless behavior of big banks. No “fiscal conservatives” showed up for the legislative fight to rein in big banks – none, and now Spencer Bachus (presumptive incoming chair of House Financial Services) says that restrictions on big banks should be further lifted (quoted in the FT today, p.15).
We can reasonably draw only one conclusion: Paul Ryan and his colleagues are not real fiscal conservatives. This is further confirmed by the following:
1. Paul Ryan’s main short-term suggestion in his FT piece today is: Cut taxes. Anywhere else in the world you would be laughed out of the room for suggesting this as the first step towards bringing a government’s fiscal house to order.
2. For concrete proposals on spending cuts, Mr. Ryan refers us to the Republican “Pledge to America“. But that Pledge has no such detail on anything that would make a first-order difference, i.e., add all their proposals together and it wouldn’t even make a noticeable dent in the government debt path. If a politician can’t summarize his main suggestions in an op ed, there are no real suggestions.
3. Mr. Ryan is right to bring up the need to make small adjustments to Social Security; this has been done before and makes sense. But the major budget buster in the CBO baseline, as you get out to 2030, is Medicare. What exactly is Mr. Ryan proposing in terms of controlling those costs? On current demographic and technology projections – with the existing cost structure – even if you cut benefits substantially, Medicare becomes unaffordable. Who will be squeezed over time – beneficiaries, providers, or payers – and how exactly? This will be a tough and emotional conversation – the lobbies here are almost as powerful as banks – but Mr. Ryan is not even starting us in the right direction.
Mr. Ryan has an important job in the next Congress and will no doubt have great influence on Republican policy in the run up to the 2012 presidential election.
The White House would do well to take him and his colleagues on directly. We should have the debate about our long-term fiscal future and lay out a path to sustainability that is consistent with an economic recovery.
It is up to the Obama administration to explain clearly and widely why Mr. Ryan’s proposals do not deal with the first order problems that have increased government debt dramatically in the past decade and that threaten future fiscal stability. Let us hope the White House has learned from the midterms that there are dire electoral consequences when the president shrinks from directly confronting misleading ideas.
The Baseline Scenario 
Yesterday’s news conference in the East Room didn’t exactly inspire confidence.
It is transparently obvious that Republicans ran on this spending cuts platform because it was a winner. I don’t think anyone seriously believed that they are clueless as how to reduce deficit and debt. Cutting taxes is their solution to everything. They are like parrots, “cut taxes, cut taxes…”. All talk, no action – as usual.
The Republicans (and many Democrats quite frankly) are pinning their hopes on the idea that the economy is going to naturally improve itself over the next two year. Not only will this reduce unemployment, so the hope goes, it will also lead to deficit reductions as the need for countercyclical spending winds down and tax collections increase along with GDP.
There is some truth here, as there will be some of the above, but it’s not going to be anywhere near the size of what they expect.
The bigger question is – why are we even talking about deficit reduction now? When unemployment gets down to around 7% and we see a couple of back to back quarters with > 3.0% GDP growth, THEN we can get serious about deficit reduction. It’s premature to focus on it now, and we risk a repeat of 1937 if we do.
Is this blog becoming a fact-free zone? Ryan has been putting forward concrete proposals for some time. An adult conversation requires all participants to listen to what the others are saying.
http://www.roadmap.republicans.budget.house.gov/
http://www.washingtonpost.com/wp-dyn/content/article/2010/08/12/AR2010081204918.html
Sorry, Namazu, putting forth Ryan’s website and editorial won’t cut it. Ryan’s ideas have been analyzed in detail and found wanting. His plan would increase taxes on everyone but the rich, and strip medicare to the bone. But most pertinent to this discussion, he would increase the deficit thru massive tax cuts to the wealthy. The CBO did not score his plan in relation to taxes, as is claimed.
http://www.cbpp.org/cms/index.cfm?fa=view&id=3114
Namazu – I visited those sites listed and clicked around – and I came to the same conclusion as the author – HE LISTS NOTHING CONCRETE OTHER THAN CUT TAXES. Ryan’s “plan” makes a grand taxation assumption of a 19% of GDP valuation returned in taxes – the only true way to make that happen is a huge across the board tax hike. yet the plan as is without major tax hikes, “would reduce tax revenues by between $6 trillion and $8 trillion over 10 years. Unless Ryan can achieve unrealistically large cuts in spending as well, this is not exactly a roadmap to solvency in my book.”
http://taxvox.taxpolicycenter.org/blog/_archives/2010/2/4/4447284.html
Sorry – but facts and figures are important – not stylized grandiose plans with no numbers backing them up.
Unbelievable. Ryan states in “Social Security & The Draconian Do-Nothing Plan” that huge deficits are looming in the Social Security Trust Fund and recipients better learn to tighten their belts. What arrogance from a member of the Party that criminally gutted the Trust Fund to pay for an immoral war.
Really, Congressman Ryan? Really?
I agree. I do not think this white house has the backbone to directly take on Republican obfuscation and slogans, and I voted for Mr. Obama. I sometime wonder that there maybe other forces at play, such as contributions from the financial sector, pharmaceutical industry etc during his election.
I just hope I am wrong!!
Ryan’s plan for health care spending is to pay for it with tax credits that are used by consumers to buy private insurance. Then gradually privatize health insurance. The tax credit is indexed to an average of general inflation and health care inflation. It is a way to subtly ration government spending on health care. If Congress followed the index formula for the long run it could work – but why would they change their behavior?
Ryan uses a “refundable tax credit” to pay for it. What is the difference between “refundable tax credit” and “government spending”. Only the name. But it sounds much better. After all, who could object to a tax credit for everyone?
The best part of his roadmap is the assumption that we can cut all inheritance, capital gains, and dividend taxes – and still assume that government tax revenues as a percent of GDP won’t fall.
The lack of real vision in the political system is disgusting. People have been wiped out for all time by the banks and the ridiculous excuse for pension and retirement systems we have and will never be made whole. Enact a ‘Tobin Tax’ on the financial system and start to make people whole. Also rebuild infrastrucure like crazy.
Mr Ryan writes in FT, “Mr Obama must now move quickly to join the growing bipartisan consensus calling for at least a two-year freeze on all current tax rates”. What is coming with this proposal. Congress knows that economic growth will still be slow and unemployment rates still hovering around 9 percent in 2012. Although, the Dumbocrats outta try this one out on the Repugs – call their bluff on repealing Medicare, Social Security, Obamacare (all of the bill, not just portions of it). Also repeal the Minimum Wage, Unemployment Benefits, defund the Department of Education and Environmental Agency – priorities of the Republican base and their definition of being a fiscal conservative.
Any truth to the claim that Tea Party candidate Joe Miller of Alaska got a job for his wife but then later had to fire her but then urged his wife to apply for unemploymennt benefits even though Joe Miller says unemployment benefits is unconstitutional. Any truth to the claim that while Sara Palin was governor of Alaska she taxed the oil companies for extraction rights but then used those funds torward government services. Any truth to the claim that Republicans, like Democrats, stand by their principals.
Attacking Paul Ryan for having a radical program for Medicare is a legitimate disagreement. Attacking him for having no program is a lie.
JH – “clicking around” is not doing you any good, apparently. I was going to excerpt Ryan’s Medicare proposals, but it’s too difficult. His plan has headlines of Payment, Risk Adjustment, Income Relating, Enhanced Support for Low-Income Beneficiaries, Retention for Those 55 and Over, and Fail-Safe Mechanism.
He also includes this:
“The plan was developed in consultation with the Congressional Budget Office [CBO] Office of the Chief Actuary of the Centers for Medicaid and Medicare Services, and would assure the solvency of the overall Medicare Program for the long term.”
Thank you both for at least acknowledging what Simon has declined to, namely that Ryan does indeed have a program. I’m not persuaded, but neither am I an expert on health care policy, so thanks for playing. I’m curious–and maybe this one is for Simon–if there are any genuine fiscal conservatives we should be using as role models, and where the cost savings are supposed to come from in the current bill. If the big money is to be saved by the Medicare oversight panel (headed by a recess appointment who considers the British NHS standard to aim for), I guarantee the resulting political failure will not show up in the CBO model.
My favorite part of Ryan’s “roadmap” is how he structured the tax cuts. As Krugman noted…
The Tax Policy Center finds that the Ryan plan would cut taxes on the richest 1 percent of the population in half, giving them 117 percent of the plan’s total tax cuts. That’s not a misprint. Even as it slashed taxes at the top, the plan would raise taxes for 95 percent of the population.
Seriously, couldn’t Ryan have put a little effort into at least pretending he cares about the non-donor class?
They know that, but it is so easy to continue lying to the public and to let the Fed (and those poor Dems who made the right decisions for the country back in ’08-’09) do the heavy lifting– and just keep complaining about everything….When will the American public wake up?
Great facts….
Amen. As I said, great facts…..
What I do not understand is the lack of realisation by those who see tax cuts as the only panacea is that if we do not get the books balanced then EVERYONE will see a real reduction in the US standard of living and quality of life. If 80-90% of the population is barely ekeing out a living what kind of social order would we have??
Here’s an NPR interview with Lawrence Meyer, ex of the Fed. The obvious exasperation in his voice, even though he was probably told that the interviewer would play devil’s advocate, is obvious. After the third go-around about how inflation is not the problem, he spews out the deflation word as distasteful as it is. And he mentions how the Fed would be ecstatic if they could simply get inflation to go from the sub 1% level it’s at right now, to 2% which it has, apparently been unable to do. He’s very blunt in his assessment of unemployment: 9.5% and rising.
http://www.npr.org/templates/story/story.php?storyId=131074449
Here’s a logical conundrum. Do you increase taxes on wealth when the economy is going great guns? Why will you do that when it would stifle the economic engine and possibly cause it to stall?
So, do you increase taxes on wealth when the economy is in the tank (and you’ve blown out your account)? Why would you do that when the economic engine needs to be restarted?
Hitting Las Vegas for the weekend is much the same. Do you quit when you’re ahead? When you’re winning? Are you crazy? Do you quit when you’re behind and write off the losses? When you need the money? Are you crazy?
There’s no logic that gets you to “it would stifle the economic engine and possibly cause it to stall?” Maybe conventional wisdom, but no logic.
As they say, “same crap, different day”.
Ryan is just another political hack sending blurry signals to the electorate. Sadly, only about 1% of our population even pays attention long enough to underatand that, and, even more sadly, none of the other 99% read this blog or otherwise pay attention. Most of them think that the regular media outlets give them what they need to ponder. Almost none of them understand that these outlets are all owned by the oligarchy and only tell them enough to confuse or misdirect them, but never facts. The best we can expect from most media is half-truths, which, as we all know, are actually far more dangerous than outright lies, especially if carefully scripted.
What we do is drastically increase taxes on the robber class (those who have massively benefited from the bailouts and absurd related programs). This is not confiscation, but a simple rebalancing. If they cost us at least $13 trillion in cash or asset values, why shouldn’t we tax the everloving crap out of them. Like the 93% top rate in effect in 1946 which was used to help us get out of the war debt. And, incidentally, that rate didn’t stop our transition to a healthy post war economy. Any questionsZ?
The problem with Medicare is our own freedom and liberty. We are free to do wreckless things, companies are free to do wreckless things to us and our enviroment.Behaviors affect our health and finances. The answer is a crusade for healthy living, but then, we’re not homogenus enough for that to happen.
Mitch Daniels is the closest thing the Republicans have to a true and real, bona fide fiscal conservative. Judges are still deliberating that. But if he is a real fiscal conservative, you can wager if he ran for President the odds are 95% he would not survive the Republican primaries. He would be slaughtered by some idiot like Gingrich or waffling psycho like Mitt Romney, yanking out the old “no new taxes” playbook for the great unwashed illiterate to swallow with a s.h.i.t. eating grin.
http://andrewsullivan.theatlantic.com/the_daily_dish/2010/09/mitch-daniels-fiscal-conservative.html
http://andrewsullivan.theatlantic.com/the_daily_dish/2010/10/the-heresy-of-mitch-daniels.html
These are the arguments that are used constantly. There’s never any right time to tax wealth according to this thought process.
Good points. What has it cost to service the key players in this disaster, even as they shovelled tens of billions of additional dollars out the door to the worker bees who thought this crap up.
Republican fiscal policy can be summarized thusly:
If we just cut taxes and increase defense spending, everybody gets a job and a pony and the budget deficit goes away.
This has been their economic policty since the days of St. Ronald the Good.
A great post from Howard Gleckman on this topic over at TAXVOX. I think I found this over on Andrew Sullivan’s blog.
http://taxvox.taxpolicycenter.org/blog/_archives/2010/11/3/4670681.html
Ryan, like the majority of Republicans in Congress, is intent on returning the country to the Gilded Age, at least with respect to social welfare and the power of capital. His roadmap is little more than a plan to substitute welfare for insurance companies for social welfare. He and his party have not and will not advocate responsible fiscal policies. They will no doubt continue to advocate dangerous and ineffective tax and spending bills that have no chance of being adopted but which they can use later to beat on Democrats and pander to the ignorance of many of their supporters. Their success will depend on the administration’s, and it supporters’, willingness and ability to explain to the public the social and fiscal consequences that would follow from these irresponsible proposals and the benefits that flow from progressive policies. The adminstration’s recent performance in this regard suggests there is little reason to be optimistic.
Adult conversations no longer exist. The Republicans have threatened to bring down the country if the Democrats and the president don’t cave. Rand Paul and Jim DeMint have said they will refuse to increase the debt ceiling unless Congress “balances the budget” or agrees to a balanced budget amendment. The president and the Senate can be held hostage by just one senator who is willing to place his radical agenda ahead of the majority.
Since I just departed Alaska prior to the election I can say that the big newspaper, ADN, verified that he hired his wife for a low level admin job, she departed for some reason, and did receive unemployment benefits. Yes, he did question the legality, while running for US Senate, of the unemployment compensation mandate from the federal level. Picking apart the Tea Party/Republican party marketing campaign has little effect on the swing voters who don’t read. What they say prior to an election is quite irrelevant just like the Democratic party. Its about brand and marketing.
Is claimed by the right that raising taxes on the wealthy would reduce incentative to earn and thus reduce overall revenues. In this situation that might be a good thing as the reduction in revenues would be dwarfed by the funds not needed for another bailout. It would also solve the risk/reward problem–why take the risk if it will all be taxed away?!
Right on viking, it’s mostly about branding and marketing. So many so called swing voters like to believe that they are so mature, thoughtful and open minded, but that’s bunk. Like the average voter, most don’t even know that much about their own income taxes and explains why they were so easily led to believe that their taxes went up when in fact they went down in 2010. The dishonest marketing wasn’t that clever it was just repetitious. They are just easily fooled, politically clueless chumps.
Most of the time they have to get hit right between the eyes before they get a clue.
A program without any sort of realism on the financial side of things is not a program, just an attempt to mislead those who want to be conned.