Simon Johnson Confirms the New House Budget Committee has a Bad Start
November 8, 2010 Leave a comment
Seems like it is very hard to find a fiscal conservative who will take on the continuing problem of the “too big to fail banks” and failure to confront escalating Medicare (the program we all love) costs.
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:
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.