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:
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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.
Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”