Ryan vs. ObamaIs that all there is?
The Washington Post, April 6, 2011
Paul Ryan's new fiscal blueprint doesn't balance the budget until sometime between 2030 and 2040, and racks up more than $14 trillion in new debt by then. By Ryan's own reckoning, his plan adds $5.7 trillion to the debt in the next decade alone, while more than tripling interest payments, from $212 billion this year to nearly $700 billion in 2021. The only way such a profligate plan can be called "fiscally conservative" is by comparison to Barack Obama's budget, which never comes close to balance and loads on more debt even faster. Meanwhile, both the House budget chairman and the president shortchange needed investments in America's future. The question sane citizens should ask in the face of these dueling disappointments is: Why are these the only choices?
There will be plenty of overheated reactions to Ryan's budget, declaring him to be either a savior or the devil incarnate. Since neither is the case I want to give folks who are amenable to reason a few facts and perspectives to make sense of it all:
Paul Ryan proposes that the federal government spend $40 trillion over the next 10 years, as opposed to Barack Obama's $46 trillion. The first thing to note is that there is thus about a 15 percent difference in the size of government envisioned by our two major parties. This difference matters greatly, of course, but shouting aside, this is a fight taking place between the 40-yard lines on either side.
If, in addition, you assume, as I do, based on privateand public-sector experience, that there's rarely been a budget that couldn't stand an aggregate 10 percent cut, then the real gap between the parties may be smaller still. Ryan's choices within these totals are unwise and deeply unfair for reasons I'll explain. But this overall magnitude of change can't be called "radical." Doing so is just a way of underscoring how timid and incremental the debate usually is.
Ryan wants the federal government to spend about 20 percent of gross domestic product. Obama wants it to spend 23 to 24 percent. (One percent of GDP is worth about $150 billion today.) For context, recall that Ronald Reagan ran the federal government at 22 percent of GDP, when America's population was much younger, when we weren't about to double the number of seniors on Social Security and Medicare, and when per capita health costs for all age groups were much lower.
To run government at smaller levels than Reagan did with an older population in an era of higher per capita health costs, Ryan's plan would thus substantially shrink the portion of federal spending devoted to things besides senior citizens. For example, while Ryan's budget increases spending on Social Security and Medicare by $929 billion a year by 2021 (an increase of 72 percent over today's levels), it would cut nonsecurity discretionary spending (from which funding for such things as research and development, infrastructure, and recruiting and retaining better teaching talent would come) by $143 billion, or 25 percent, in that year. Ryan would thus exacerbate the already dramatic tilt in federal spending toward current consumption for seniors and away from investment in the future. If you're under 40, and especially if you're under 25, these (bipartisan) priorities should be a call to arms.
State and local governments spend around 12 percent of GDP today, so in Paul Ryan's America government at all levels would represent 32 percent of GDP, and in Barack Obama's it would represent 35 or 36 percent. Interestingly, this means Ryan's and Obama's visions resemble each other more closely than they resemble what other rich nations do. For context, according to the Organization for Economic Cooperation and Development, the 14 countries in the Eurozone spent 50.7 percent of GDP in 2010; Finland, Sweden and Denmark are in the mid to high 50s; Britain, 51 percent; Germany, 47 percent. Canada spent 43.5 percent; Japan 40.6 percent; Switzerland, 34 percent; South Korea, 28 percent. (The OECD does these calculations in ways that leave the spending numbers higher than we do in the United States; they show the United States at 42 percent vs. our 37 percent for 2010, for examplebut the gap between us and most wealthy nations remains sizable.)
My own view is that unless we can find a politically viable way to shrink our radically inefficient health sector's claim on American output, we won't be able to retire the boomers, provide decent coverage to the uninsured, shift health costs from corporate payrolls to government budgets (which would be good for business and for workers), and invest in the nonelderly priorities I've cited for less than 40 percent or so of GDP as the boomers age. This would still leave us with a government much smaller than those in Europe and Scandinavia, conservative cries to the contrary aside.
Instead, Paul Ryan's "path to prosperity" would leave America with 50 million or 60 million uninsured (as he'd repeal Obama's health-care plan while funding no alternative coverage extension), and with decrepit roads, bridges, sewers and airports, lagging R&D and a middling teacher corps. Apart from 30 million fewer uninsured, Obama's plans don't adequately address these nonelderly priorities either.
My verdict on Ryan: By including only token defense cuts in his plans, by excluding higher-income Americans from playing any role in deficit reduction, and by shortchanging investments in the public goods that would promote future growth, the Wisconsin Republican's plan fails every reasonable definition of shared sacrifice, fiscal conservatism and vision.
By pretending, moreover, that we can retire the baby boomers without raising overall taxes (his original and continuing sin), Ryan disingenuously betrays his assertion that the American people are ready for "honest talk."
In addition, the way his budget flatlines Medicaid (via block grants) while nearly doubling Medicare spending in the next decade seems to cynically distinguish between the poor folks who'll never vote Republican and the seniors the GOP desperately hopes to woo.
Ryan's proposal to convert Medicare to a system of "premium support" takes courage, however, because the GOP will be demagogued mercilessly for the idea. What's the right way to think about it? For starters, Ryan is right that no one is "cutting" Medicare; it will grow under his plan from $563 billion to $953 billion over the next 10 years. In any other country this would be enough. As would be his proposal to slow the growth of the federal contribution to Medicare thereafter at rates lower than recent rates of health-care cost inflation. This appears to be the source of virtually all his budget savings in the long term.
The key thing to recognize about premium supportunder which Medicare would become a defined contribution to assist folks in the purchase of private insurance, rather than a defined-benefit planis that it can "solve" the federal government's budget problem without necessarily doing anything to solve the country's excess health-cost problem. Capping Uncle Sam's exposure is easy (and gives Ryan the pretty long-term charts he likes to tout). The trillion-dollar question is whether premium support can be part of broader reforms that help change the overall trajectory of health costs in the United States, or whether it will instead simply shift costs to millions of people who can't afford them.
No one knows the answer today, but it's possible that premium support may well be part of a sensible broader response to our macro health-cost woes. It's an idea supported not just by Ryan & Co., after all, but by Alain Einthoven, whose "managed competition" concept formed the centerpiece of Clintoncare back in the early 1990s, as well as by my former boss Alice Rivlin, budget director under President Bill Clinton, who I can attest is both a fiscal conservative and a progressive (though, to be clear, Rivlin said Wednesday she doesn't support the specific way Ryan implements premium support in his plan). So it's worth taking very seriously. (Premium support was at the center of the 1999 Breaux-Thomas Commission's report on Medicare's future; I wrote a long piece on the proposal for the New Republic back then.
In the end, the most intriguing thing about Ryan's blueprint may be the ideological blindspot he inadvertently reveals when he talks about the future. "We are at a moment," Ryan said in his State of the Union response earlier this year, sounding a theme he reprised again Tuesday, "where if government's growth is left unchecked and unchallenged. ... we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency." (My emphasis.)
As I've argued before:
"My question is: What hammock is he talking about? The only thing slated to grow the size of government in the years ahead is the retirement of the baby boomers. The doubling of the number of people eligible for Social Security and Medicare is what is driving all the increase in federal spendingalong with the spiraling of systemwide health-care costs, which afflict Medicare along with all privately financed health care. But if those programs for seniors haven't been a "hammock" until now, simply doubling the number of people eligible for them can't turn them into a "hammock" tomorrow. When it comes to fiscal policy, we have an aging population challenge, and a health-cost challenge. We don't have a "hammock" challenge.
"I suppose it's possible Ryan thinks all those 70-something slackers living large on their $14,000 in annual Social Security benefits should get off their complacent, dependent butts and start pulling their weight. But I think his comment is more likely a tic of the conservative mindwhich unthinkingly views any increase in spending as putting us on the slippery slope to European-style decadence. Or maybe its just a rhetorical ploy to invoke that slippery slope. Either way, Ryan's "hammock" is a charade, and the data I've shared above proves it."
The bottom line is that there remains a huge void in the debate. President Obama punted on long-term debt and deficits, while pretending that his modest new investments in areas such as education are enough to "win the future." They're not, though he plainly hopes they're enough to win him reelection. Now, speaking for his party, Paul Ryan has offered a plan that stiffs the poor, gives fresh breaks to the wealthy, shortchanges needed public investment, yet still adds trillions in new debt and doesn't balance the budget for decades because Republicans won't come clean on taxes. As if to punctuate the lunacy, our fearless leaders may now let the government shut down to boot!
As Peggy Lee once sang, "Is that all there is?" America desperately needs a third choice if we're ever to get serious about national renewal. I'll try in the period ahead to flesh out what it should sound like (I've written two books that were meant to be a start in this direction; time now perhaps to distill them into the "stump speech" the country needs). Your thoughts welcome. Watch this space.