By Simon Johnson
As the presumptive Republican vice presidential candidate, Representative Paul D. Ryan of Wisconsin and his plans for the federal budget are drawing increasing interest. Mr. Ryan has been chairman of the House Budget Committee since the Republicans took control of the House of Representatives in the 2010 midterm elections and has articulated a vision for federal public finances that is quite different from what other prominent Republicans have been advocating – including Mitt Romney.
The contrast between Mr. Romney and Mr. Ryan tells us a great deal about the competition among fiscal ideas within the Republican Party. It also highlights the challenge Mr. Romney will face in November, if he is shifting rightward toward Mr. Ryan’s approach to budget policy, away from independents in the center of the political spectrum.
The budget ideas of Mr. Romney and the other Republican presidential candidates in the primaries mostly focused on proposals to cut taxes. The Committee for a Responsible Federal Budget assessed Mr. Romney’s specific ideas as likely to increase national debt to close to 100 percent of gross domestic product by 2021, using net federal debt held by the private sector, which is currently around 75 percent of G.D.P. (I use the high debt scenario when thinking about any political candidates’ proposals; in my experience, something almost always goes wrong with more rosy forecasts.) Mr. Romney has mentioned cutting tax expenditures – i.e., ways in which the government spends through giving various kinds of tax breaks – but so far he has been very vague on the details. To date, Mr. Romney has stood for cutting taxes and therefore increasing the deficit and debt relative to what it would otherwise be. (He embraces the widely optimistic notion that such cuts would stimulate investment and lead to job creation, which in turn would increase tax revenues; previous tax cuts have not accomplished this.)
Mr. Ryan is different. Rather than just wanting to cut taxes, he definitely and very specifically wants to reduce government spending. Mr. Ryan’s proposals are phased in – and in some versions debt would increase a great deal before it stabilizes. The difference between his approach and Mr. Romney’s is fundamental and clear: Mr. Ryan tells you what he would cut.
His Medicare proposals have received the most attention. Two Ryan variants have been placed on the table. In the first, he would phase out Medicare and replace it with a voucher program. The Congressional Budget Office does not generally score budget resolutions, as these are not detailed enough to be amenable to their calculations; the resolutions are more of a framework than legislation. But this Medicare proposal, part of Mr. Ryan’s 2011 budget, was scored by the C.B.O. at Mr. Ryan’s request. (I’m on the C.B.O.’s Panel of Economic Advisers, though I’m not involved in any of its budget work.)
Mr. Ryan must have been surprised and disappointed when the C.B.O. determined that changing Medicare in this fashion would actually increase total health-care costs (as a percentage of the economy).
The reasoning is straightforward. At present the federal government buys health care for about 100 million Americans. Buying at scale and pooling risks, the government can get lower prices than you would get on your own.
Medicare is also highly efficient in terms of its administrative costs, which are about one-fifth of what it costs to run leading private insurance companies.
Mr. Ryan’s second and more recent proposal involves offering a voucher program but also continuing traditional Medicare – a kind of “public option” that was derided by many on the right during the health-care debate of 2009-10. This plan has not been scored by the Congressional Budget Office – it would be too much of a stretch using the standard budget methodology. But it’s clear that under the voucher plan, the risk of higher health-care costs, now covered by the government, would be transferred to the individuals.
If you believe in the magic of the market under all circumstances, then Mr. Ryan’s plan has appeal. But we have had a great deal of market competition for decades in health care – look at the insurance plans and hospitals around you – and health-care costs have not been brought under control.
It is hard to see how any version of his proposals would reduce health-care costs, although he could certainly cap what the government pays for health care. Would that really lower costs or just shift more risks onto retired people?
The more dramatic part of Mr. Ryan’s budget is for government spending other than on Medicare, Medicaid, CHIP (a health program for children), Social Security and net interest payments (this is close to what is known as discretionary spending). My colleague James Kwak calculates that Mr. Ryan would bring this spending down from its likely medium-term projection of 8 percent of G.D.P. toward 4 percent of G.D.P. (or even lower).
Given Mr. Ryan’s other pronouncements, it is reasonable to assume that he would not want military spending below its post-World War II low point, which was 3 percent of G.D.P. If you factor that into the projections – see the second chart by James Kwak on the previous link – non-defense discretionary spending would fall below 1 percent of G.D.P. (from its average since the 1960s of 6 to 7 percent of G.D.P.).
Mr. Ryan stands for substantially phasing out not just Medicare but also the federal government. This may help boost turnout among the conservative base, but will this extreme vision really help Mr. Romney win over independent voters or disaffected Democrats?
A version of this post previously appeared on the NYT.com’s Economix blog. It is used here with permission.
The Baseline Scenario 
“He embraces the widely optimistic notion that such cuts would stimulate investment and lead to job creation, which in turn would increase tax revenues; previous tax cuts have not accomplished this.”
Should “widely” be “widely-held, but” or “wildly”
The problem isn’t what his policy proposals actually say and do. It’s what people THINK his proposals would say and do that will decide the election. aka – which candidate will be better at scaring seniors into believing what they want to them to believe. Romney/Ryan are going to muddle the water by confusing people with “premium support” language – which most people will not be able to translate into “voucher”.
If Ryan Plan is ever enacted. I wonder how long it would take for it to be ditched? You ask yourself how bad does it need to be to change this woefully inefficient system where everyone wants to take a giant-size piece of the healthcare dollars. As stated, Ryan Plan simply doesn’t stop rising health care costs. This is pandering to insurers, hospitals and pharma and sticking individuals with the bill.
‘But we have had a great deal of market competition for decades in health care – look at the insurance plans and hospitals around you – and health-care costs have not been brought under control.’
What we have had was an increasing reliance on a third party paying for a service used by one party and provided by a second party. Not at all what ‘market competition’ means.
‘It is hard to see how any version of his proposals would reduce health-care costs, although he could certainly cap what the government pays for health care. ‘
Which is exactly what the ACA does (as well as what the Canadian govt does). Obama’s own cabinet members (Geithner, Sebelius, and Solis) admit it;
Click to access tr2012.pdf
and, they say they don’t believe their boss;
‘If lawmakers continue to override the statutory decreases in physician fees, and if the reduced price increases for other health services under Medicare are not sustained and do not take full effect in the long range, then Medicare spending would instead represent roughly 10.4 percent of GDP in 2086. Growth of this magnitude, if realized, would substantially increase the strain on the nation’s workers, the economy, Medicare beneficiaries, and the federal budget.’
More from Obama’s own team;
—————quote———–
The financial projections shown for the Medicare program in this report reflect substantial, but very uncertain, cost savings deriving from provisions of the Affordable Care Act [aka, Obamacare]. It is important to note, however, that the improved results for [Medicare] HI and SMI Part B depend in part on the long-range feasibility of the various cost-saving measures in the Affordable Care Act—in particular, the lower increases in Medicare payment rates to most categories of health care providers. Without fundamental change in the current delivery system, these adjustments would probably not be viable indefinitely.
—————endquote————
Less politely, they’re nothing but lies;
—————quote———–
It is possible that health care providers could improve their productivity, reduce wasteful expenditures, and take other steps to keep their cost growth within the bounds imposed by the Medicare price limitations. For such efforts to be successful in the long range, however, providers would have to generate and sustain unprecedented levels of productivity gains—a very challenging and uncertain prospect.
————-endquote————
and;
——————quote————–
Hopes for success are high, but at this time there is insufficient evidence to support an assumption that improvements in efficiency can occur of the magnitude needed to align with the statutory Medicare price updates.
—————-endquote————-
Fact: U.S. healthcare costs are double that of any other developed country, and are currently 16-18% of GDP (depending on who is counting).
Fact: U.S. healthcare costs are growing at 6-8% annually (depending on who is doing the counting).
(An aside here. For all that expenditure, our health out comes are substantially worse than nasty UK or socialist France, et al.)
The great problem is that neither Obama or Romney (Ryan) have any serious proposals for reducing this expenditure, let alone slowing down its increase. All they want to do is shuffle the payers.
Here is an example to make that point. The exact same procedure that costs $100,000 at the Mayo Clinic costs $200,000 at the UCLA Medical Center, and both are world class facilities.
And it you want a more personal example, here is one. Our cardiologist is a leading doctor on the West Coast. In addition to private practice, he is on the staff of a leading West Coast Hospital. He is originally from India. His mother in India needed some heart surgery, stents, etc. So our Doc met with the president of the hospital and described what he needed. The Prez said he would give our Doc a 20% discount since he was on the staff. The total cost would be $100,000.
Our doc went to India and had the surgery on his mother performed under his supervision and to his standards of care………for $3,000!! (Not counting airfare, of course.)
Until somebody wants to get serious about healthcare costs and deal with the real facts, we will continue to proceed toward bankruptcy and have the infant mortality rates of a third world county while our adults will die sooner than adults do in France.
When did it become an “Extreme Fiscal Policy” to propose a balanced budget? Really the Ryan plan doesn’t go far enough fast enough to avoid the fiscal cliff we are facing as a country.
I think the real problem is they both actually believe what the other one says.
No one actually knows what the real health care needs are for anyone – today – much less what the future needs will be. Homeland Insecurity could just send us all an IM and ask, but they really don’t care how you’re doing, especially if you’re already on their economic genocide list. And since the elite have BILLIONS at their personal disposal, no worries with their health care. So this is all an abstraction distraction….
Also, no one knows if there will be medicine around to handle another crisis like HIV since the research and coordination of medical needs by a “government” entity has been hollowed out by idealogues and “debt” concerns and then trapped in the cross-winds of “shareholder” demands for increasing profit on existing stuff like Viagra – charge more “rent”….
So this endless yaddayadda about health care costs by bean counters is nothing more than figuring out a sneaky way to suck out, with a straw, a big enough gulp from the river of Fiat $$$$ that flows out from the Federal Reserve Board to fix your own health issue before ALL the fiat $$$$ flows back to the FRB as their pound of flesh “interest” on “debt” which then flows out to war. Not that complicated….
And the biggest winner still is United Health Care CEO in 2005 – that was some “package”. Top that, Pauli…and work it, work it, work it….feel the muscle tightening….
Like I said, nothing to lose for the 99% and everything to gain – abort the Federal Reserve Board and you abort the self-fulfilling and richly financed “Armageddon”. Choose.
Yeah, they’re 360 degree Exorcist head spin nasty no matter what you say or do – so do the right thing. The days of hiding their depraved and predatory crimes against ALL humanity behind bs PCism WORDism are over. We The People have to ABORT a war.
http://www.pogonowski.com/?p=2713
A fascinating thing about fiscal policy, Republicans always whining about federal waste, and yet it seems most of them don’t shy away from sticking their hand out for their state.
Mary Fallin, a woman who just couldn’t be bothered to greet President Obama at the airport when he visited Cashion Oklahoma (the Mayor of Oklahoma City had to do her job for her as the pudgy snob Fallin felt she was was too good to shake the U.S. President’s hand) is constantly whining about the evils of “big government” and the “wasteful” federal government.
Maybe Mary Fallin was taught in rural Oklahoma grade school that “darkies” would give her the “cooties”??? That’s actually a better speculation than some of you might imagine…. ZERO Oklahoma counties voted for Pres. Obama in 2008. ZERO counties. Because Politics??? Even South Carolina has now become more broadminded than Oklahoma.
But look who is oinking for her federal handout here???
Oh look, and an oink oink here.
http://www.krmg.com/news/news/local/governor-says-creek-county-receive-federal-wildfir/nRHxn/
Oh look, oink oink oink everywhere, but we got our federal dollars here and the piggy is very happy.
Fallin is even joined by one of her close compatriots in piggy oinking, Senator Inhofe. Notice how the piggy seems to forget, piggy had ZERO to do with the project’s funding. It was Federal dollars from a bill signed by the man Fallin couldn’t be bothered to drive to her city’s airport to meet: President Obama.
What the illiterate hillbilly idiots collectively known as the “Tea Party” might stop to ask themselves is, “Why are these Republicans who hate ‘big government’ so much, the SAME Republicans so eager to show up to take bows for projects paid for with federal dollars???”
“Mr. Ryan would bring this spending down from its likely medium-term projection of 8 percent of G.D.P. toward 4 percent of G.D.P. (or even lower). Given Mr. Ryan’s other pronouncements, it is reasonable to assume that he would not want military spending below its post-World War II low point, which was 3 percent of G.D.P. If you factor that into the projections – see the second chart by James Kwak on the previous link – non-defense discretionary spending would fall below 1 percent of G.D.P. (from its average since the 1960s of 6 to 7 percent of G.D.P.).” Yes but consider Romney’s statement that defense spending should be 4% of GDP and non-defense spending would have to go to zero.
Also – you should add that Rep. Ryan wants to virtually eliminate Federal spending on Medicaid and CHIP.
Time to get LOUD – Armageddon is set in motion on September 16 ala “military exercises”….
Abort Abort Abort !!!
No way to appear sane when dealing with the CRIMINALLY insane, sorry….there is NO historical evidence that they are anything other than violently greedy and predatory – NO evidence whatsoever…
‘Medicare is also highly efficient in terms of its administrative costs, which are about one-fifth of what it costs to run leading private insurance companies.’
Mr. Johnson, can you (or anyone else) provide a good link to substantiate this? Honest question; I would love to share that number with others. It seems an important point to me…
http://www.msnbc.msn.com/id/3096434/#48763002
abort the war…
Hey Flanders, try this one for a start……………But there are lots of others as well.
Click to access CAHIMedicareTechnicalPaper.pdf
OK all you free marketers. Here’s the bad news: it’s entirely possible to make lots more money providing high end services for very sick folks who have insurance and lots of dough than it is providing preventative services for the entire population. Wrap your spreadsheets around that if you will.
That’s even though those preventative services are the actual route to a healthy population. And none of that is conjecture, it’s pure simple fact. Ryan’s recidivist ideas take us back to square one: even more money for an “industry”, who’s cost has been running at 5% to 10% above inflation for decades.
Now, couple that with the widely held yet completely antiquated notion that it’s impossible to have a well-run single-payer system – tantamount to saying that computers and databases had never been invented – and the problem crystallizes rapidly.
We decided years ago that some services were essential, such as electrification, water, sewer, telecommunications, and so on. It’s only entrenched interest and those very same profits from providing limited very high-end services that keeps us from deciding the same about health care. And don’t give me that stuff about socialism. I just shelled out a pile to save Wall Street’s a$$ while they took their stolen cash and ran away from their criminal behavior.
I throw in $7,000 to $8,000 every year, out of pocket, for co-pays, deductibles, not-covered, and for my health insurance. That means I could pay that much to a central provider and forgo the blizzard of useless paper that floods my mailbox regularly, and get maybe 10% administrative costs instead of the 20% vigorish I’m paying out now for all that churn.
Both myself and my wife are very healthy and we have reasonable insurance. We are, of course, subsidizing this ridiculous under-the-table system. Open it up, get rid of the stovepiped medical systems that keep both cost and efficacy hidden away. Use the newly surfaced data to ruthlessly cut costs and identify waste. Watch the price of services drop. Watch the investors find themselves some other cash cow they can milk. Doesn’t it seem odd to anyone that, as I write this in 2012, we still don’t have a way to mine the mountains of medical data that’s out there? And forget about HIPAA. It’s a triviality to strip off patient information, and simply provide statistics. The medical minions just don’t want to do it.
The idea that privatizing Medicare will save us money is right up there with this bit of nostalgia…
It’s amazing to me that otherwise knowledgeable posters are completely unaware of the outlandish – upwards of 20% – administrative costs, the highest by almost double of any other nation, that we pay out to our medical insurers and providers. Get informed, please.
Norm, there is no question that the current health care system is and has been completely unsystainable since something like the late 50’s. As each generation grows more unhealthy, additional money has to be raised until even the youth are asked, or better yet compassionately forced, to contribute to a system starved for money and solutions. Once the answer(s) are provided, the upper class rejects them and then proceeds to follow an unsystainable path to proven failures. All the while using costly resources to rid the cancer rather than trying to prevent it in the first place. I have proved this time and time again and only get the debate door shut in my face after the opponant has puked his or her brains outs and come back the following day having forgotten of the incident just a day earlier and goes about his/her business on as if nothing had occurred. This has gone on for well over 20 years. And shows no signs of stopping or relenting in these failed beliefs, I gave up trying to reconcile with them and their like minded cohorts and politicians, who continually resort to partisan politics so as to reset the debate, collect money from the under class, and then carry on with their superior intellect as they try to convince us once again that this or that can or can’t occur, or else we may slip off another fiscal or health care cliff. And if its not that then it is in the name of national security, of homeland defense, or a war on terrorism. The bad ideas never stop arriving from him, and he croaked at the thought of her being more able than him to address any situation. His arrogance and hypocrisy are simply over the top, and not to be believed or even listened to anymore, more less stringently adhered to as a patriotic member of his like minded society. It also does help the situation when the majority of the citizens are wrong with their premises or beliefs and then we all jump on board for majority sake.
The Romney and Ryan team is stuck on the old Friedman and Hayek school ideas that you must create sufficient space by tax policy to enable investors to accumulate capital and invest in the economy, and thus create jobs and spur growth. Ever since Reagan announced the theoretical effects of this economic idea, it has failed to work miserably, creating only massive imbalances. The real result of this policy has been seen in South America many times, Indonesia, and many other countries, especially Eastern Europe ever since the Soviet bloc breakup, including China, England, and now the US, as the world’s economies are more and more being described as plutocratic, with the wealth in full control. A mere peek at their budget/economic proposals, or a cogent listen to the themes presented over and over again shows the obfiscatory nature of their pronunciations, guaranteed to simply drive more into starvation, poverty, and ultimately, homelessness and total despair. Not that our current President is likely to really provide assistance to the real economic future, as his policies have proven to be weak and ineffective, and he has yet to declare any kind of battle against the austeriacs who are now in control on Capitol Hill.