22 Aug 2012

How Draconian Is the Ryan Plan?

Economics, Shameless Self-Promotion 47 Comments

Today at The American Conservative I examine this question. The money excerpt:

Hardly. The first jaw-dropping fact—in light of the commentary above—is that Ryan’s plandoesn’t even call for a balanced budget until the year 2040. Don’t believe me? Read it for yourself on page 84 of the actual proposal [.pdf]. There, the analysis proudly declares: “The CBO estimates that this budget [i.e. the Ryan proposal] will produce annual surpluses by 2040 and begin paying down the national debt after that.”

Indeed, if you look at Table S-1 (p. 88), you will see that the Ryan budget estimates that over its first ten years, it will add $3.1 trillion to the federal debt held by the public. Over that decade, the lowest the deficit gets (in absolute dollar terms) is $166 billion in Fiscal Year 2018, and at the end of the decade—i.e., in FY 2022—the Ryan Plan projects the federal budget deficit will have risen back up to $287 billion. Remember everyone, this estimate of a $287 billion federal budget deficit occurs in the tenth year after the Ryan Plan kicks in.

47 Responses to “How Draconian Is the Ryan Plan?”

  1. Blackadder says:

    Good post, but there is also another point that’s worth addressing. Saletan says it’s crazy to reduce discretionary spending to 3% of GDP by 2050. After all, in 2009 defense spending alone was 4.7% of GDP. But that’s not really an apt comparison, as it doesn’t take account of economic growth. As the economy grows, the same amount of real spending will fall as a percentage of GDP.

    In 1962, for example, defense spending alone was 9% of GDP, and discretionary spending as a whole was 12.3%. In 2010, defense spending was 4.7% of GDP, and discretionary spending as a whole was 9.3% (source).

    So what Saletan claims is absurd (reducing discretionary spending/GDP over several decades to less than defense spending/GDP currently) actually happened, despite the fact that 1962-2010 was not some period of austerity where discretionary spending was pared back to the bone.

    • Daniel Kuehn says:

      re: “So what Saletan claims is absurd (reducing discretionary spending/GDP over several decades to less than defense spending/GDP currently) actually happened, despite the fact that 1962-2010 was not some period of austerity where discretionary spending was pared back to the bone.”

      I don’t like the exaggeration of broad trends, but that’s kinda sorta EXACTLY the trend of the second half of the 20th century: a modest move towards austerity.

      That’s why leftists rave about neoliberalism and the “Washington Consensus”.

      A lot of those changes were good in my mind, but if you say it “was not some period of austerity” I think you’re missing some of the major contours of American political economy in the late 20th century!!

      • Blackadder says:

        Daniel,

        Let me see if I understand. Your view is that a period in which the federal government created the EPA, HUD, the Department of Energy, the Department of Education, the Department of Transportation, and the Department of Homeland Security should be considered a period of austerity?

        • Bob Murphy says:

          Blackadder, if rising absolute spending in UK can be described as “unprecedented austerity,” then why not? (I’m quoting Krugman not Daniel.)

        • Daniel Kuehn says:

          Well as I noted, I don’t go as far as what you hear some leftists say.

          But as a general matter, yes – there’s a big difference in this period. Welfare programs became more conditional, not less. Exchange rates became more market determined, not less. Workforce investment budgets shrank, unionization declined.

          A lot of these I consider good trends. But they are trends that happened. The so called “Washington Consensus” didn’t emerge out of a fantasy.

          You were trying to ridicule the sense that anything was particularly wrong with the second half of the twentieth century, and then extrapolating that into something like “so how can these budget cuts as a percent of GDP be bad”.

          You seem to completely miss the arguments of many that the second half of the twentieth century has been very different.

          So we started new agencies. So? What’s your point?

          • Blackadder says:

            Daniel,

            What do unionization rates or floating exchange rates have to do with federal discretionary spending?

            I don’t deny that there has been a move towards neoliberalism during the last half of the twentieth century. Trade barriers are lower, marginal taxes rates are lower, yada yada. But I don’t see how any of that is relevant to the issue of whether federal discretionary spending has undergone austerity.

            • Daniel Kuehn says:

              re: “What do unionization rates or floating exchange rates have to do with federal discretionary spending? “

              Nothing – they have to do with the narrative about “neoliberalism”.

              If you are concerned with one slice of that, then the relevant thing to talk about is the changes in welfare and workforce development spending.

              The point is you act like nobody thinks there’s been a change that’s noteworthy. There has been. There’s also this weird sense in which “austerity” has to mean “absolute decline”. If that or something like that is what you mean, you should say what you mean.

              • Ken B says:

                ““absolute decline”. If that or something like that is what you mean, you should say what you mean.”

                I think he did say that DK. He said ‘austerity’. Just to double check, because I know MF will, I looked it up.

                3. a. reduced availability of luxuries and consumer goods, esp when brought about by government policy
                b. ( as modifier ): an austerity budget

              • Daniel Kuehn says:

                Reduced relative to what, Ken?

                A growth trend? Per capita or no?

                I usually don’t get my economics from the dictionary.

                If we are not talking relative to some kind of plausible growth trend then of course you are never ever going to see austerity, but then the word is useless.

              • Bob Murphy says:

                DK wrote:

                If we are not talking relative to some kind of plausible growth trend then of course you are never ever going to see austerity,

                You mean, except in those cases (such as Canada in the mid-1990s, and some countries in Europe right now, though not the UK) where they actually cut federal spending?

              • Ken B says:

                Relative to the day before Daniel, rather than relative to 1776. You want to argue ‘in the long run we’re all non-austere’. True, but that’s not the comparison the word implies.

              • Ken B says:

                Daniel Kuehn: “I usually don’t get my economics from the dictionary.”

                Well, wait till Paul Krugman writes one.

                🙂

                More to the point, you made an observation about plain English not economics. So a dictionary reference is apposite.

        • Daniel Kuehn says:

          Let me put it more succinctly. Your argument is more or less that Ryan is continuing a trend from the late twentieth century, and nobody thinks the late twentieth century was bad.

          I’m just pointing out that lots of people think the late twentieth century was bad and that’s exactly why they’re concerned about Ryan continuing it!!

          • Blackadder says:

            Let me put it more succinctly. Your argument is more or less that Ryan is continuing a trend from the late twentieth century, and nobody thinks the late twentieth century was bad.

            No, my argument is that nobody thinks federal discretionary spending over this period was an example of austerity. Some people think the late twentieth century was bad because you had increases in the divorce and abortion rates. It doesn’t follow that federal discretionary spending underwent austerity.

            • Daniel Kuehn says:

              re: “No, my argument is that nobody thinks federal discretionary spending over this period was an example of austerity.

              But people do see it that way!!!!!

              That’s the whole point.

  2. Blackadder says:

    Slight correction: total discretionary spending/GDP in 2010 was still slightly higher than defense spending/GDP in 1962, so where I say “less than” in the last paragraph it should be “approximately.” The basic point remains.

  3. Ken B says:

    This is what I find so depressing about the “Ryan, what a radical” meme. He’s more responsible than most in congress certainly, but that’s a low bar. There is still no-one in American politics as serious about this as Canada’s left-centre Liberal party was in the 1990s. Well, no-one remotely electable; I accept Ron Paul might be.

    • Tel says:

      Agreed, that’s a low bar. We have learned to hope for very little.

      But what’s the point of demanding something you know you aren’t going to get?

      • Ken B says:

        “But what’s the point of demanding something you know you aren’t going to get?”

        Don’t ask me; it’s Bob who prays.

        🙂

  4. Egoist says:

    Which politician has ever implemented a fiscal plan that politicians 30 years henceforth have abided by?

    I mean really. Who in their right mind would think that Ryan has the authority or influence to compel future politicians, who are probably today still in high school, to act in his way, on not their own way, when it comes to government spending?

    This is vanity in the extreme.

    • Ken B says:

      Actually Bob’s hero, FDR, reportedly wanted his social security law written to make it hard for future legislators to eliminate, and the way it was packaged & sold I’d say he succeeded beyond his dreams.

      But your point is a good one. It’s a common dodge for pols to pass the buck to the future, expecting the required steps will not be taken.

  5. Blackadder says:

    If I want to figure out how much I should save for retirement, I need to make projections about my income and expenses over the next several decades. It’s true that these projections won’t be binding on me. I can always change my mind in the future and my income/expenses aren’t going to perfectly match the initial projections. But it’s still a useful tool to help me figure out what to do now.

    The Ryan budget is the same sort of thing. It’s a useful thing, but it’s not written in stone. More important, from my perspective, is the Ryan-Wyden Medicare reform proposal, which if enacted really would have important long-term fiscal consequences.

  6. Daniel Hewitt says:

    Also, as Paul Krugman delights in pointing out, the Ryan plan is based upon utterly ridiculous assumptions. Unemployment going down to 2%, for example.

    • Ash says:

      Paul Krugman’s demolition of Ryan’s plan was epic. I remember it bittersweetly. I felt embarrassed for Ryan. I thought for sure that everyone would accept Krugman’s critique, and, in a moment of humanity and intellectual honesty, concede that it was a crazy budget and it was time to move on.

      But I was wrong. Ryan became a bigger deal than ever. “How could you do this?” I said to an empty room. “How could you be so obviously and demonstrably terrible, yet continue to be taken so seriously?” I wish I had an answer.

      • Egoist says:

        “How could you do this?” I said to an empty room. “How could you be so obviously and demonstrably terrible, yet continue to be taken so seriously?”

        You sound like what an egoist thinks of the average voter.

      • Tel says:

        Ryan vs Krugman… and Ryan will win every time. Krugman is an Economist playing around at being a Politician. Ryan is a Politician pretending to be an Economist. Krugman thinks that all of politics comes back to Economics deep down (worse than that, he thinks it all comes down to Keynes), but Ryan knows that all of Economics comes back to Politics deep down. I’d say Ryan is correct on this one.

        Whether the USA defaults is going to come down to Congress though, that’s where the budget gets sorted.

  7. Scott H. says:

    Who knows what lies within Ryan’s heart. However, I like the Ryan plan because it places a marker down on the “less spending” side of the budget argument. The Ryan plan includes tax cuts. I don’t believe tax cuts will ever make it into any grand budget deal. When you are ostensibly trying to reduce the difference between revenues and expenses it’s tough include revenue reductions. However, at least the Republicans can be given proper credit for conceding those issues during a negotiation.

    • skylien says:

      If you look on page 88 you will see that the decrease in the deficit nearly entirely is supposed to be reached with increases in revenue. On net they will have to increase taxes quite heavily.

      To me this plan looks like pathetic wishful thinking, and nothing more..

    • Tel says:

      Some of Romney’s speeches have even mentioned “freedom”. Pretty exciting huh?

      Look, these guys are good at sniffing out which way the wind is blowing, that’s their primary skill. Obama tried to copy the Elizabeth Warren “you didn’t build that” theme and he is still hurting from just a single mention. Krugman is trying to whitewash the blunder, but that ain’t working either. Possibly we can even guess that, “You didn’t build that” might have cost Obama the election.

      I’m encouraged that the Socialists still can’t come out and admit what they are, because there are still enough people who really don’t want Socialism in the raw. That just leaves us dealing with Socialism by stealth. Even if the Romney / Ryan team loses, they still taught a lesson, and maybe there a bit of a rising tide happening, well maybe. You can’t wring hands and moan every day of the week.

      • skylien says:

        This one made me really laugh:

        “From a friend watching the Olympics: “How about that Michael Phelps? But let’s remember he didn’t win all those medals, someone else did. After all, he and I swam in public pools, built by state employees using tax dollars. He got training from the USOC, and ate food grown by the Department of Agriculture. He should play fair and share his medals with people like me, who can barely keep my head above water, let alone swim.””

        http://online.wsj.com/article/SB10000872396390444320704577565393495544010.html?mod=WSJ_Opinion_LEADTop

        • Tel says:

          I messed up my bold tags, but yeah the whole personal achievement vs “we own you” debate is heading into the surreal territory.

          I’ve seen a genuinely serious explanation say basically this: sure you might have worked hard and sure you might have had some genuine ability, but only by random chance did you happen to be the type of person who was inclined to be hard working and only by chance did you happen to be the sort of person who would make the most of your natural ability so everything comes down to chance.

          Worse than determinism surely.

  8. Watoosh says:

    Talking about public finance has always seemed like terrible PR for libertarians. The liberals see Ryan’s plan as “Slash Medicare & Medicaid, food stamps etc. and give even more tax cuts for Scrooge McDuck and Richie Rich”, so when libertarians say “This isn’t draconian, it’s a joke.”, the implication is “Pfft, you think Ryan’s cuts are draconian? Wait till you see what we have in mind! Plus, taxes are theft anyway, so Richie and Scrooge ought to have their taxes cut to precisely ZERO.*”

    This isn’t to say libertarians are necessarily wrong about cutting spending or the morality of taxation, it’s just not an easy thing to sell. I’ve never heard a plan for significant cuts in entitlements that wouldn’t hurt the elderly and the poor, precisely the demographics you need to show sympathy to in order to succeed in politics. If it is the case that cuts are going to hurt bad, then at least be honest about it.

    *If you’re an anarcho-capitalist, that is. Most minarchists advocate flat or even regressive taxes, which, to liberals, screams “I hate the poor with all my heart”.

    • JFF says:

      Well, there was this one libertarian congressman from Texas who said something like,

      “Yeah, entitlements DO need to be dismantled, but it’s somewhere between heartless and impossible to turn them off overnight.

      Hey, let’s drastically reduce military spending, end all active offensive actions, close all foreign bases, and bring all troops home. We can then give all that money back to the private sector and to the taxpayers so the economy can make use of it and people can start significantly saving and investing again. Then we’ll tackle the give-aways.”

      Sounded like a good plan to me.

  9. integral says:

    It’s SO draconian, when Paul Ryan visits the White House Obama says ‘FUS RO DAH!’

  10. ted says:

    offtopic, did anyone see the porcfest roast by adam kokesh?

    http://www.youtube.com/watch?v=fuRZsuQgNYU

    Dude’s a [person I don’t care for–edited by RPM]! oh my god this pissed me off so much, keep your integrity bob, molyneux and adam are the type of people we don’t need in the libertarian movement, they are so self-centered and don’t even understand economics

  11. ted says:

    also, do you by chance sell autographed books?

    kinda like what tom woods does, it would be awesome to have a collection of all your books autographed

    http://www.tomwoods.com/books/

    • Bob Murphy says:

      Hi Ted,

      Hmm thanks for the kind words, but unfortunately I think right now I’m out of stock on the PIG books. Usually what happens is that I order a few cases of each before an event, and then I take the leftovers back to my home office. But right now I happen to have sold through all of what I had.

    • Ken B says:

      What they heck!?! Woods doesn’t give them away free???

Leave a Reply