Assume a Can Opener*

Some reflections on the new Ryan plan.


The CBO provides some numbers (it’s not a “score”), with a caveat:

At the request of the Chairman of the House Budget Committee, Congressman Paul Ryan, the Congressional Budget Office (CBO) has calculated the long-term budgetary impact of paths for federal revenues and spending specified by the Chairman and his staff. The calculations presented here represent CBO’s assessment of how the specified paths would alter the trajectories of federal debt, revenues, spending, and economic output relative to the trajectories under two scenarios that CBO has analyzed previously. Those calculations do not represent a cost estimate for legislation or an analysis of the effects of any given policies. In particular, CBO has not considered whether the specified paths are consistent with the policy proposals or budget figures released today by Chairman Ryan as part of his proposed budget resolution.

In other words (as stressed by Ezra Klein), Representative Ryan specified revenues and expenditures, and told CBO to calculate how the debt trajectory would change as a consequence. Thus, CBO did not “score” the plan, exactly because so much was unspecified. In this respect, it shares a lot with Romney’s plan, but even more so. This is also very much like the previous iteration of the Ryan plan. I would call this “constructive ambiguity”, except it seems completely unconstructive to me.


Klein summarizes the can opener:

Ryan tells CBO to assume his tax plan will raise revenues to 19 percent of GDP and then hold them there. He tells them to assume his Medicare plan will hold cost growth in Medicare to GDP+0.5 percentage points. He tells them to assume that spending on Medicaid and the Children’s Health Insurance Program won’t grow any faster than inflation. He tells them to assume that all federal spending aside from Medicare, Medicaid and Social Security will fall from 12.5 percent of GDP in 2011 to 3.75 percent of GDP in 2050.

So everything from food stamps to defense to the NOAA and USGS (think tornado alerts and earthquake alerts) amounts to no more than 4% of GDP) by 2050, in the Ryan budget.


Well, one can still estimate what would happen if tax rates were reduced, but none of the unspecified tax expenditures eliminated. This is what the Joint Brookings-Urban Tax Policy Center has done:


ryan1.gif

This scoring is visualized by the Center for a Responsible Federal Budget, hardly a leftist organization.


ryan2.gif

Figure 1 from Center for a Responsible Federal Budget.

Let me say upfront that this scoring doesn’t include tax revenue responses of either a Keynesian or supply side sort due to behavioral changes. I am confident that if one were to include the supply side responses incorporated in the Heritage Foundation’s analysis of the earlier Ryan Plan, then the circle could be squared! All one needs is some price elasticities many times larger than those in the extant literature, and et voila – a supply side miracle and a debt-to-GDP reduction as government spending is decreased. As I noted in this post, an elasticity about ten times that cited in the literature would do the trick.


More on the Heritage Foundation’s “analysis” of the previous Ryan plan here and here.


Speaking of Representative Ryan’s economic analyses, I am still awaiting massive crowding out due to government borrowing pushing up interest rates. [1]


ryan3.gif

Figure 2: Ten year constant maturity yields (blue), expected real (red +), and TIPS (green), percent, monthly averages. Observations for March are 3/20. Expected real calculated by subtracting mean ten year expected inflation, from Survey of Professional Forecasters. NBER defined recession dates shaded gray. Source: St. Louis Fed FRED and SPF from Philadelphia Fed.

Currently, ten year real interest rates on US government debt appear to be approximately zero, even after the recent surge in yields (see the RA/Free Exchange for thoughts on that event).


For more on the Ryan plan, see Tax Vox, CBPP, Economist Mom, and OMB Watch.


* This is a reference to a famous economist joke, as recounted here.

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49 thoughts on “Assume a Can Opener*

  1. RN

    Depending on how the press chooses to cover it, this is the beginning of the end for the Republicans.
    Keep that objective scoring coming.

  2. c thomson

    Since we haven’t had a proper budget in some years, any budget is just a fantasy. Why is a gomer Republican budget fantasy any worse than a snivel – aka liberal Democrat – fantasy budget? Either is mostly useful for comic relief in this vale of tears.
    This is all just joke stuff; we will grope our slimely political way into the usual sludgey mess in due course.

  3. jonathan

    1. Defense spending has not been below 3% of GDP in many decades. Romney wants it to be 4%. 2050 is a ways off but it means the elimination of the entire federal government.
    2. The $4.6T total revenue decrease over 10 years is the same as I’ve seen from a couple of sources. They use the same CBO or CBO based model, I believe. Correct me if I’m wrong on that.
    3. I like that the healthcare reform – Obamacare – costs are separated. This highlights that the plan requires immense cuts, that it’s not just repealing Obamacare.
    4. While many apparently don’t care, a very large amount of money would come out of Medicaid. On the order of $800B over 10 years. It will not be good to be poor child in America.
    5. The changes to Medicare are scary – and I would qualify for the current program. Premium support at GDP per capita plus .5% will shift costs to the elderly. Having to shop for plans when you’re old is ridiculous. They say there will be some risk adjustment payments to Medicare – to compensate for the fact that any private competitors will siphon off the healthiest old people – but I don’t trust government to do that and to do that so old people are kept whole. I see rising costs for old people in Medicare. I frankly see rising health costs generally because the plan takes tax money and uses it to fund a giant insurance bureaucracy that is only nominally private. The libertarians complain about misallocation of resources: this would be a gigantic allocation of resources to paper pushers. And the costs of those plans, given marketing alone but with the higher admin costs – about 1/4 to 1/3 of every premium dollar now – the overall system will generate higher costs than today. The only counter to this is Ryan’s assertion that Plan D has lower costs, but that has been shown to be due to a 35% drop in prescription prices generally as we all switched to generics.
    I take this budget proposal as a statement of principle not as an actual plan.

  4. tj

    These budgets are pure political moves. They will never be passed. Ryan actually did the CBO a favor by not making them waste time with a proper score.

  5. JSeydl

    The entire rhetoric that comes out of the mouths of Ryan and his supply side buddies is one gigantic contradiction. First we’re told that something has structurally changed since the recession ended and that we need to “get used to” 1 to 2 percent growth for the foreseeable future. Then we get budget proposals from the same pundits that rely on +5 percent growth for the foreseeable future. It’s really bizarre. If you believe that something has indeed structurally changed in the economy since the recession ended, then you need to tell me the choices we need to make to reduce deficits and debt with only 1 to 2 percent growth. Relying on an explosion of growth due to the dynamic effects of tax cuts is fairytale logic.

  6. random worker

    How many ways can you say “totally unserious” before you just give up and surrender to ennui?
    Here’s something different – and I come at this as one who votes for Democrats more often than not.
    Democrats should not discount the overwhelming *feeling* that people have that the Federal Government is hopelessly bloated. Someone likened the difference between R and D as simply which special interests get the firehose of money sprayed on them. Is there not one old vestigial federal agency, department, or office we could close? Not one sacred cow we could gore a little bit?
    Someone who could address this and get people to believe that he (or she) was really serious about making sure that we were being fiscally responsible would probably get a lot of votes. It sure isn’t any of the four clowns gunning for the GOP nomination. But then I haven’t seen much “seriousness” from congressional Dems either.
    Regards.

  7. Jeff

    “Assume a can opener?” That also sounds a lot like the CBO saying: we assume a fiscal multiplier of X and thus the effect of $Y in stimulus is $Y times X, QED.

  8. Jonathan

    If I may, what bothers me most about the Ryan proposal are:
    1. It’s fundamental dishonesty. You can’t close loopholes to the tune of trillions. They can’t say the truth is either they won’t raise money or that they’ll raise taxes while cutting the rates for the top earners. This means, for example, eliminating deductions, from mortgage interest to the rest. This would raise taxes for many in the middle and upper middle. But they won’t say that because people won’t vote for that. (And I’m well aware of the arguments for ending the mortgage deduction. I’m speaking about dishonesty.)
    2. Fundamentally, this vision of America is to me absolutely hideous. The GOP has been arguing that Obama is for “equal outcomes” while they are for opportunity. If they believe this kind of thinking provides opportunity, then I don’t get it. If you are sick, if a family member is sick, you may well be screwed for your entire life. That isn’t your bad decision, unless you count the choice of being born into that family. If you are poor, you will not be able to afford college because the grants for that will be ripped to shreds and, I would assume, the government won’t be guaranteeing loans. This budget shifts all the costs to the people, so it reduces federal revenue by taking money from everyone but the richest Americans. That isn’t right. And as a note, I’ve voted Republican more than I’ve voted Democratic over my decades as an adult.

  9. Brian

    Menzie, do you have a viable alternative? Democrats love criticizing GOP budgets, yet it’s the Democrats in the Senate who haven’t put together a budget in three years!

  10. don

    One thing seesm obvious. Our current healthcare system will continue until the costs force us into undeniable budget crisis, then there will be draconian changes.

  11. A.West

    It’s dishonest, because Ryan claims he’s in favor of cutting the size and scope of government without actually specifying departments he would close, and programs he would shut. Which makes him look evasive. Then guys like Jonathan start crying about how everyone will die of government doesn’t spend 30% of GDP. Somehow people survived the genocidal reign of Alexander Hamilton, when federal spending to GDP was under 5%, but that’s beyond the imagination of today’s caged government pets.

  12. Menzie Chinn

    Jeff: Hmm. I think CBO surveyed the empirical literature (instead of adopting the axiomatic approach), and provided a *range* of estimates for the multiplier, and then provided a *range* of impacts on GDP. (In academia, as you might recall, we term that first part a “literature review” — or have you forgotten that?) In addition, CBO has an in-house model to do simulations. So…I don’t think you characterization is correct, from my observations.

  13. Buzzcut

    “You can’t close loopholes to the tune of trillions.”
    Sure you can. Make health insurance a taxable benefit.
    Two brackets, one at 10%, one at 25%, with health insurance taxable, no mortgage interest deduction, no charitable deduction, no state and local tax deduction, score that!

  14. jonathan

    A.West’s comment is exactly the debate:
    1. Federal spending is nowhere near and shouldn’t be near 30% of GDP. It varies normally around 20% and would be there if not for the decline in tax revenues caused by the recession. That part of the debate is ridiculous distortion.
    2. Reference to Alexander Hamilton, besides making little historical sense, brings out what we’re really talking. The last time federal spending was 3% was before WWI. Life expectancy during Hamilton’s life was 36 years. I don’t think that counted slaves, who lived shorter lives. Current life expectancy in the US is 78.3 years, so the answer is that, no, most people didn’t survive in Alexander Hamilton’s day. BTW, US life expectancy is 36th in the world, per the CIA World Factbook 2009. We’re behind all of socialist Europe, much of Asia and even communist Cuba.
    So the idea is we return to the pre-modern era. Pre-WWI. I guess that explains the antipathy to all regulation, from child labor laws to environmental restrictions. That is the debate as Ryan frames it.

  15. Ricardo

    What do we know? With out a doubt the Keynesian/monetarist stimulus fiasco did not work. I have a novel idea. Let’s see if supply side will work again. It worked in the 1920s and it worked in the 1960s and it worked in the 1980s. It worked in Japan after WWII and it worked in Germany after WWII.
    Footnote 76 in the Republcan budget, The Path to Prosperity, directs us to a letter Congressman Dave Camp sent to Paul Ryan outlining the principles used to craft the Republican tax plan.
    Below are Camp’s major proposals as listed in the letter.
    Major Proposals
    • Reject the President’s call to raise taxes.
    • Consolidate the current six individual income tax brackets into just two brackets of 10 and 25 percent.
    • Repeal the Alternative Minimum Tax.
    • Broaden the tax base to maintain revenue at the appropriate level designated by this budget resolution for the next ten years and at a share of the economy consistent with historical norms of 18 to 19 percent in the following decades. These are levels compatible with growth, and – if the spending restraints in this budget are enacted – sufficient to fund government operations over time.
    • Shift from a “worldwide” system of taxation to a “territorial” tax system that puts American companies and their workers on a level playing field with foreign competitors and ends the “lock-out effect” that discourages companies from bringing back foreign earnings to invest in the United States.
    We are continuing to fight the Keynes versus Hayek battle that has raged since the 1920s. The Republicans are using Hayekian principles based on capital theory versus Keynesian principles based on a demand theory and monetarist principle based on money manipulation theory.
    While the Ryan/Republican budget is not perfect, it is a huge step in the right direction of returning our economy to a capitalist system and away from a mercantilist/crony capital system.
    Ryan is a supply side economist who worked with Jack Kemp in the 1990s so he learned the power of good economic policy from one of the primary architects of the Reagan revolution. He has not made wild claims about the Republican budget; his assumptions are modest. But he knows that if his economic and tax policies are adopted the economy will far out pace his modest projection.
    Ryan has said that this budget is a first step. He is working the politics of the issue. The budget will be hugly effective in bringing recovery, as was the Reagan economic revolution. Economic growth will increase tax revenue allowing him to move our economy year after year back toward a true capitalist society.
    As I said, we have proven what doesn’t work with failed stimulus after failed stimulus. It is high time that we try something that will work and has a huge track record of success.

  16. 2slugbaits

    I believe the University of Miami (Ohio) should recall Rep. Paul Ryan’s economics degree or risk tarnishing their reputation. As to our friend Ricardo‘s alma mater…well, I’m just hoping supply side voodoo and gold bug fever is just a natural part of the aging process and is not actually part of his school’s curriculum.

  17. steve

    ” The budget will be hugly effective in bringing recovery, as was the Reagan economic revolution.”
    Mmmm, Reagan tripled the debt. Reagan’s recovery occurred when high interest rates were reduced. That does not seem likely now.
    Steve

  18. Binky Bear

    @Ricardo 3:00pm
    This interpretation of the situation seems to disregard reality as many know it entirely.
    -Is there any evidence at all that anyone is using Hayekian principles, and how could this be demonstrated with facts or statistics on the ground?
    -Is there an actual “Hayekian” economics or is it really a matter of being the ideological tribal marker of a particular subset of pampered ivory tower conservative think tank prisoners at Heritage, Cato, etc.? Is it similar to the terms “liberal” and “conservative” in that the meaning is fluid and entirely context and speaker based, e.g. in a postmodern sense or Carrollian sense of “it means what I mean it to mean when I say it” category?
    -The Reagan revolution was simply a shifting of the tax burden from the wealthy to the poor and middle class and primarily an ideological victory for the wealthy and a financial loss for the vast majority of Americans as demonstrated by measures of household and individual income, tax receipts, and employment. How many times can you rob the same people with the same scam-is there a proposal to extract blood from turnips in the Ryan plan?
    -Is there any evidence that this effort to destroy American democracy and government of, by and for the people will benefit anyone but the already wealthy who will use their expanded power and influence to perpetrate a de facto feudalist or authoritarian state even worse than the present plutocracy?

  19. Jonathan

    In the 1960’s, marginal tax rates were 70%. The rate dropped to 50% in 1981. Given the war spending, space race spending, the 1960’s are typically used as an example of Keynesian success.

  20. dvdhwl

    I want some of what Ricardo is smoking. The Reagan growth was Keynesian too: military Keynesian.

  21. Ricardo

    Rather than respond to each comment on my post let me simply ask, do you like where we are today better than the 1920s, 1960s, or 1980s?

  22. random worker

    1920’s? Yes, no contest. We know how the 1920s ends, don’t we??! My moms family never recovered. My dad’s family did but they were very very wounded.
    1960’s? I loved Twiggy. And Pan AM. But we had race riots, wrenching social upheval, burning inner cities, a horrific war in South East Asia. Yes, income inequality was much less an issue in the 60’s. CEO multiples were far far lower than they are today. So from a middle class perspective, one might argue that this was some kind of golden era. But it was also the golden era of union jobs too. You think this is the ideal Ricardo? Who knew?
    1980’s. Yeah, I was one of those waiting for trickle down to trickle down to me. I waited a long time – until the 90s in fact! Now I am a card carrying memeber of the upper middle class! Yay me! But back in the 80s I remember I always had 2-3 part time jobs none of which had any future or payed a damn
    I want to go back to the 1990s myself.
    Regards.

  23. Frank in midtown

    I guess Ric didn’t see that nasty, nasty NYFed paper http://www.nber.org/public_html/confer/2011/JPMs11/Eggertsson_Krugman.pdf .”In this paper we present a simple New Keynesian-style model of debt-driven slumps – that is, situations in which an overhang of debt on the part of some agents, who are forced into rapid deleveraging, is depressing aggregate demand. Making some agents debt-constrained is a surprisingly powerful
    assumption: Fisherian debt deflation, the possibility of a liquidity trap, the paradox of thrift, a Keynesian type multiplier, and a rationale for expansionary fiscal policy all emerge naturally from the model. We argue that this approach sheds considerable light both on current economic difficulties and on historical
    episodes, including Japan’s lost decade (now in its 18th year) and the Great Depression itself.”

  24. jonathan

    Let’s see:
    1920’s: prohibition. Government telling people they couldn’t drink. Biggest government intrusion in private life in US history. In economics, a boom following WWI which led to massive union movements – a good thing but countered by violent management run thuggery. (Look up Ford’s goons beating up Walter Reuther in public.) Overseas, Fascism in Italy, the disintegration of democratic Germany, the military takes true control of Japan, etc.
    1960’s: I lived through them. Race riots. Murder of civil rights activists. Bombing of black churches killing little girls. Fire hoses and police dogs turned loose on peaceful protestors. The Cold War: tanks facing off in Berlin, the “missile gap” and commitment to MAD – mutually assured destruction – through multiple targeted warheads. We had fallout drills in elementary school. Much good of course, as in any decade, but it often felt like the world was coming apart. Oh, I almost forgot, my camp counselor was killed in Vietnam. Houses in the neighborhoods had small signs in front with the name of their dead or missing son.
    1980’s: much better trend because the USSR ran out of gas. Significant investment in cities as we adjusted to the oil shocks of the 1970’s and much lower interest rates. Bad things included AIDS and the beginning of the abortion wars. But not a bad decade, except for the music. The lowering of marginal rates in 1981 was an important signal – though it was followed in 1982 by the largest tax increase in US history and then was followed by tax increases in 1983, 1984, 1985, 1986, 1987. The 1981 changes were bipartisan; the Democrats controlled the House, which is where tax bills originate. Bigger signal was the deregulation of the financial markets, both here and in the UK. Fixed commissions went by the board, along with many other restrictions. That remade the world by giving birth to the massive shadow banking system which nearly collapsed in the crisis.

  25. Ricardo

    So random worker and jonathan prefer the Great Recession to the Roarin’ 20s, Kennedy’s Camelot, and the great 1980’s recovery from the Great Inflation. Anyone else so in love with the Great Recession?

  26. tj

    you guys and gals are getting off point. The point is that the Obama budget will make everyone better off, except the top 1% and anybody that works for a living.

  27. 2slugbaits

    tj the Obama budget will make everyone better off, and anybody that works for a living
    So you are suggesting that if you “work for a living” the Ryan budget will make you better off than the Obama budget? Is that what you’re telling us? In a strange sense there might be some truth in what you say. If you never plan to retire, never plan to need health insurance or medical care, never plan to need the federal court system, never want to think about food safety, never want the US military to defend US interests, never expect bankers to be corrupt, never need government statistical data, and never need one of the millions of things that government does, then I suppose the Ryan budget might be better. If all you expect to do is “work for a living” 24/7 and not much of anything else, then by all means support the Ryan budget. But if you have the misfortune to live into you 70s or 80s you might come to regret your support for the Ryan budget, except of course you won’t have time to regret it because you’ll still be working. And if you have a heart attack while you’re working in your 80s, good luck finding health insurance with Ryan’s voucher. Ryan’s budget plan ought to be “stay a working man until you drop.” Sounds like a winner to me.

  28. 2slugbaits

    jonathan 4. While many apparently don’t care, a very large amount of money would come out of Medicaid. On the order of $800B over 10 years. It will not be good to be poor child in America.
    While that’s true, it’s even more the case that gutting Medicaid would be yet another slam at the elderly because two-thirds of Medicaid recipients are retirees on Medicare who cannot afford supplemental insurance. So when Ryan went around saying that his plan wouldn’t affect any current retirees or anyone currently over age 54, he was lying. His changes to Medicare did not affect those currently under 55, but his changes to Medicaid were immediate and applied to all age groups.
    Frank in midtown Just to follow-up on your point about he Eggertsson-Krugman (E-G) paper, the part that specifically addresses Ricardo’s “supply side” argument is something that a lot of people miss. E-G borrow (apparently without attribution…horrors!) a point made by James Tobin way back in the 1970s, and which is that a zero short term interest rate means there are only two forces left standing that determine the slope of the AD curve; viz., the Fisher effect and the Pigou “real balances” effect. Tobin (and now E-G) argue tha the Fisher effect was stronger. Tobin goes through the old IS-LM model to show why a dominant Fisher effect would translate into a positively sloped aggregate demand (AD) curve…or at least locally it would have a positive slope [note: this undercuts arguments about monotonicity of the AD function]. Now if you draw a locally upward sloping AD curve along with a conventional upward sloping aggregate supply (AS) curve, what you find is that “supply side” policies (even if they work as advertised) actually reduce total output along the horizontal axis. So even if you might agree with some of Ricardo’s supply side recommendations if the economy were not at the zero lower bound, those policies become perverse in a liquidity trap. But like a lot of Ricardo’s stuff, his economics suffers from a bad case of what econometricians like to call “time invariance.” One set of policies for all times, under all circumstances, and under all conditions. Supply side types always look for an economic north star.

  29. tj

    2slugs,
    You are wasting your virtual breath. Your error is assuming Harry Reid would allow Ryan’s plan, or any budget, on the floor of the Senate. Obama’s plan reminds me of the used car salesman who says, “We screw the other guy and pass the savings on to you!” Obama says, “We tax the other guy and pass the benefits on to you!”
    If he is re-elected and the dems manage to gain control of Congress we are all going to be giving much much more of our income to the federal government one way or another. At least college kids will no longer have to suffer the crushing burden of shelling out $10/month at Wal~Mart to buy birth control.

  30. jonathan

    If the Democrats do get elected or at least retain the Senate, then we’ll see a 3% rise in the top marginal rate for people making somewhere around $250k. This is of course the “Joe the Plumber” idiocy; a doofus asks about buying a plumbing business that makes $250k a year and confuses gross revenues with profits. We’ll hear lots of screaming about how this will take away the incentive of “job creators” to invest.
    As for college kids, the plans they have include birth control unless they live in a state in which a Catholic or other religious school doesn’t include that. I forget the numbers but some 20 states restrict what religious organizations can refuse to cover. Some of these, btw, are Southern GOP run states.

  31. 2slugbaits

    tj Right now Intrade gives the GOP a 57% chance of controlling the Senate in 2013, a 65.3% chance of retaining the House, and a 39% chance that the GOP wins the Presidency. So there’s ~15% chance of a worst possible outcome. If that happens, then the Ryan budget could very well become a reality. In fact, it’s hard to see how it doesn’t become a reality given that all of the GOP leadership including all of the GOP Presidential candidates have signed up to it. Even if Romney privately believes it’s hooey it’s a good bet that he would sign it anyway because Romney lacks what most mammalian animal forms have, and that’s a spine.
    If you think the Ryan budget reduces the tax burden on workers, then you’re smoking something that’s not taxed. The Ryan budget opens a huge fiscal gap that would be structural, as opposed to the Obama fiscal gap which is mainly cyclical. So before you fully convince yourself that the Ryan plan was designed with the benefit of the working man in mind, you might want to do a quick fact check:
    http://www.americanprogress.org/issues/2012/03/hanlon_ryan_column.html

  32. tj

    ummm…The Center for American Progress isn’t a good source for unbiased ‘fact checking’.
    Have you tried Fox News? Much more fair and balanced, or maybe Cato? ;)
    However, what he added now in this budget is a provision that if you want to choose the old traditional Medicare, you can do that. So now any Democrat who charges that it abolishes current Medicare is not speaking the truth. They will try that. They will say it. They said it today already. But it simply isn’t so. It’s one of the options that is offered.
    Read more: http://www.foxnews.com/on-air/special-report/2012/03/21/politics-behind-ryan-plan-lower-deficit#ixzz1q4DyojRm
    And don’t worry about not having all those government freebies you note above. Ryan’s budget is only 13% less than Obama’s in 2022 and it includes and average increase in spending of 3% per year. So I think we can all scrape by. http://www.cato-at-liberty.org/paul-ryans-spending-plan/
    There is a lot not to like in both Ryan’s plan and Obama’s plan. Maybe we need Nancy Pelosi to calm our fears with the soothing claim that we have to pass the bill to find out what’s in the bill. http://www.youtube.com/watch?v=KoE1R-xH5To
    Only a democrat could come up with that line.

  33. 2slugbaits

    tj That’s the same bait-and-swith that Bush tried with Social Security. He pretended to off up his privatization scheme as merely an option that people could choose or not choose. But the devil is in the details. Just as with Bush’s Social Security privatization plan, what gets swept under the rug is the transition cost. Keeping old style Medicare is not an option because it is a PAYGO system. You cannot have a PAYGO system in which some people have the option of paying into it when there are current subscribers who depend upon the revenue stream. That was the $2T transition problem with Bush’s SS plan and it’s the same problem here. The only way to get around this problem and offer folks a choice of which Medicare program they want is to force one generational cohort to pay into both systems but only receive benefits from one of those systems. That’s just an accounting reality. Looks like Fox News has snookered you again.

  34. 2slugbaits

    tj As to the substance of Ryan’s optional Son-of-Medicare plan, do you really think this is politically realistic? You would have to make a choice between the plans fairly early in life. Do you really think an 18 year old is likely to correctly evaluate his or her medical needs half a century away? There will be a strong temptation for free riders to select the low cost voucher program and then, when reality hits 50 years later, they will demand that the whole deal be renegotiated. Are you going to just let those folks die? Do you think any politician wanting to win re-election would let that happen? Look at today’s Tea Party demographic and the question answers itself. Pretending that the government could just take a “too bad attitude” is about as realistic as pretending that the government should just let investment bankers go off unregulated and then refuse to bail them out when it all comes crashing down. I think that’s the kind of thing that separates adult voters from deluded voters.
    And it’s funny that you referenced the Cato Institute because Cato is very much in today’s news. Cato was always big on tough, brave libertarian talk, but when those libertarian principles were put to the test and continuing to honor those principles effectively meant the end of the Cato Institute, well…surprise!!! Cato is now running to the government demanding protection from the contracts they made years ago. The lesson here: there are no libertarians in the foxhole. There also are no voters who will settle for Ryan’s vouchers when they’re in the hospital gasping their last breath because one of Ryan’s bureaucrats denied coverage based on some decision that the dying patient made 50 years earlier.
    At some point you have to ground public policy in certain realities about human nature. The Ryan plan is either hopelessly naive or cynically mendacious. You decide which.

  35. tj

    2slugs,
    My point in citing Fox and Cato was that your cite was at the other extreme. I agree with many of your points regarding the Ryan plan. Many of the same criticisms apply to Obamacare.
    For example, grounding Obamacare in reality means that most employees will not get to keep their current health plan, as Obama promised. Firms will pay a small fine and send employees to the government run exchanges. That’s the behavioral side of public policy that you correctly point out as an aspect that our policy makers overlook.
    I agree with you that the young are getting the shaft. Under Obamacare they are going to be forced to pay health care premiums that cover both their claims and the claims of the elderly, or face an IRS penalty. When I was young and not forced to buy healthcare, I did not buy health insurance and spent the money on necessities. If I am in that situation today and the government tells me I have to shell out thousands of dollars for insurance, I would not be a happy constituent.
    This is the problem with government granted rights or ‘entitlements’. Statism forces less efficient outcomes than a properly regulated market. Statism combined with human nature leads policy makers to shower constituents with subsidized services in the name of equality, but eventually the system crumbles under the weight of unsustaianble government debt and fraud.
    I think it’s obvious that the U.S. is in the middle of a policy shift toward greater government involvement in our daily lives. If that is what U.S. voters want, then so be it. Their is a huge organizational and leadership void in the conservative movement right now. If conservatives can not come up with more robust policy than the Ryan plan, and other recent policy, then they get what they deserve.

  36. 2slugbaits

    tj Most people will not get to keep their current healthcare plans irrespective of whether Obamacare is upheld in the Supreme Court or not. The reality is that one-sixth of those who had a traditional employer sponsored healthcare plan 10 years ago do not have that coverage today. Krugman had an interesting graph showing that the trend would be even worse if you took out government employees. Blue Cross/Blue Shield in all its various forms depends primarily on government employee subscribers. Basically government employment is subsidizing private healthcare insurance provided by private companies. Look, there’s plenty wrong with Obamacare and it’s not what I would have wanted; but it’s better than any of the other politically viable alternatives that were being floated around at the time.
    As to generational unfairness, remember that Obamacare reduced Medicare entitlements by $500B and used some of that savings to offset burdens on younger workers who could not afford mandatory health insurance. And Obamacare did this in a way that did not really hurt the elderly so much as it hurt the wallets of rich doctors. Remember that the GOP demagogued the issue and this was something that energized the Tea Party. CoRev is a good example. He talked a tough game about the exploding costs of government entitlements and then was one of the loudest voices against the ACA redirecting $500B in otherwise useless services. Cognitive dissonance.
    Conservatives have a strange reading of the history of government involvement. Historically the federal government had limited involvement, but state and local government intervention was more onerous in the past than it is today but yet conservatives long for the days of states’ rights. With the exception of mountain state libertarian types, the heart and soul of the GOP is not against activist government…only an activist federal government. Romney had no problem with Romneycare in principle; only with Romneycare applied at the federal level…except of course at one time he also supported it at the federal levels. Etch A Sketch Man. The only group really opposed to government intervention in principle are those folks living out in the mountain west where they don’t have to deal with 21st century problems. There is a reason why support for Democratic policies increases with population density.

  37. tj

    2slugs
    I think Ryan relies on a similar 1/2 trillion cut in medicare as Obama, but Ryan relies more on competition while Obama relies more on Central Planning.
    Obama uses “expert panels” to determine when a cure or service is cost effective. Also, Ryan doesn’t create a new entitlement.
    Like I said, there is a lot to dislike about both plans. I lean toward reforms that rely more on competition while you prefer Central Planning.
    Similarly for government control. I prefer that my city/county council raises taxes to cover the costs of providing health, shelter and food for the less fortunate, rather than a cram down from D.C. At least I can go to the meeting and be heard. I can’t do that with my representative in D.C.
    In some cases, local control is not as efficient as federal control due to redundancy, but local control is more efficient in terms of being able to target funds to where they are most needed.
    Local control also increases personal responsibility. I don’t know which union or special interest has the ear of my senator/representative, but my local officials are relatively more accountable because I know who receives payments from local government.
    Of course a free and unbiased press is a necessary condition for accountability. These days, my local press seems to do a better job of ferreting out corruption in local government compared to the national press doing the same for federal officials.

  38. Menzie Chinn

    tj: Local control also meant things like poll taxes and suppression of minority rights and segregation were tolerated. Maybe that’s fine with some.

  39. tj

    Menzie,
    What’s your point? The U.S. would be better off with Central Planning? Federal laws can be just as abhorrent as local laws. Not saying local control is a utopia and that we must unite and organize to push an agenda that achieves that end.
    The earlier Fugitive Slave Act of 1793 was a Federal law which was written with the intention of enforcing Article 4, Section 2 of the United States Constitution, which required the return of runaway slaves. It sought to force the authorities in free states to return fugitive slaves to their masters.
    Many Northern states sought to circumvent the Fugitive Slave Act. Some jurisdictions (

  40. Menzie Chinn

    tj: Man, it’s a binary world with you. All I’m saying is that there are trade-offs between local and national control. And for that, I’m characterized as head of Gosplan?

  41. jonathan

    Just a note of thanks to 2slugbaits for the info about Medicaid and how the cuts affect the elderly. That had slipped my mind.

  42. Ricardo

    Menzie,
    Your do realize that poll taxes and back of the bus laws were actually government mandates. Had the government not been empowered to use this kind of force the bus companies would not have cared where people sat. Only the nanny state politicians who wanted to run people’s lives. The difference between a poll tax and back of the bus laws was the party…Oh, No, that’s right those were Democrat initiatives just like the health care mandate is a Democrat initiative, and something most of you probably don’t know, Prohibition was also a Democrat mandate, a la William Jennings Bryan!!!
    It is just amazing how those Republicans are so mean because they always seem to support liberty and freedom.

  43. Menzie Chinn

    Ricardo: Thank you *so* much for reminding me of the long history of discriminatory actions against minorities. I was completely unaware of them (!). There has been, of course, a long history of private sector measures aimed at individuals of different ethnic backgrounds, in terms of employment and housing, which were not implemented or required by the government. I am therefore thankful that “state’s rights” and local sensitivities did not dominate when those activities were outlawed. Perhaps you think the magic of the marketplace would have eventually eliminated them; I am not so sanguine about that prospect (at least when not talking about geological time).

  44. Anonymous

    Ficardo wrote:
    “But he knows that if his economic and tax policies are adopted the economy will far out pace his modest projection.”
    How sad. One cannot “know” something like that. One can either believe or not. In the intellectual pick slime that is right-wing economic thinking, it is impossible to know whether Ryan believes what he says, or just says it for political reasons, but if we give Ryan the benefit of the doubt, he is still just operating on ill-founded faith.

  45. 2slugbaits

    tj In contrast to the Fugitive Slave Act, many northern states enacted laws that gave liberty to runaway slaves. Funny that southerners didn’t feel “states’ rights” was an important issue when it conflicted with the Fugitive Slave Act. But this isn’t a history of the Civil War. When I said that state and local governments invoked laws that were far more onerous than anything coming out of Obamacare, I had in mind current things. For example, just the other day the NY Times had an article about some states (guess which ones!) that prohibit the making of beer in your own home. The Alabama politicians that support this old law are the very same ones who are telling us how intrusive Obamacare is in our daily lives. Really? And those Alabama politicians want to keep home brewing illegal…not because they have anything against beer, but because state and local governments like to issue small fines for the revenue stream. So “freedom loving” Tea Party types find Obamacare onerous, but have no problem with fining you if you brew beer in your basement. Excuse me if I don’t take that nonsense about the virtues of state and local government too seriously. It’s 99% bunk.
    And no one is talking about having the government provide healthcare or health insurance, so your comment about preferring local control doesn’t make a lot of sense. I wish we were talking about single payer, but we’re not. We’re talking about requiring people to buy health insurance if they engage in interstate commerce (hence the 1040 Form filing requirement). But the reason you would prefer local control is that it gives you the ability to shift costs onto other communities. Afterall, Obamacare does not prohibit state and local governments from going beyond what the ACA requires. The ACA only sets a minimum standard. In fact, the ACA explicitly encourages state innovations if they want to go further than is required. So all of this talk about local control is just code for “a race to the bottom,” which is what inevitably happens.
    Finally, Ryan’s plan does not achieve fiscal savings through competition. Ryan’s plan achieves a fiscal savings by giving you a voucher that depreciates over time. That’s the Ryan trick. You pay “X” amount for the voucher and in the future it buys you some fraction of “X” in coverage. In short, Rep. Paul Ryan is a con man, plain and simple.

  46. Ricardo

    Menzie wrote:
    There has been, of course, a long history of private sector measures aimed at individuals of different ethnic backgrounds, in terms of employment and housing, which were not implemented or required by the government.
    Sorry but maybe I just didn’t study it in history. Could you tell me about the great “private sector measures” that equaled the Dred Scott decision or the Poll tax?
    I am aware that some businesses have engaged in descrimination, but none that have lasted, certainly none that grew into national prominance(if you know of one please enlighten me). Most individuals in business hide their prejudices so that they do not drive off customers.
    The market reduces prejudice, but it is not even a close rival to the government’s coercive power to institutionalize and enforce prejudice.

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