Congressman Paul Ryan (R-WI), golden-boy accountant of the Republican party, released his spending plan for the budget last week. It set out to slash $5.9 trillion over the next decade. In a previous blog post, I railed against nonsense budgets, targeting Rand Paul's (R-KY) proposed cut of $200 billion over the fiscal year. Not only was this unreasonable, it would have led to unprecedented job loss and economic instability.
Ryan's plan, while not as ridiculous as Paul's, is as unrealistic. The plan is 60 pages long, and purports to drive down the deficit and reign in the high cost of entitlements, healthcare and government spending, in general. While it provides no specific claims, it does put the burden of spending reductions on the poor and elderly. Here are the limitations of Ryan's entitlement strategies:
- Government will provide subsidies instead of footing the entire cost - it would allow current seniors to keep their plan, but give the next generation of retirees subsidies to help them "shop around" for the best cost with private insurers. These subsidies would rise with the cost of inflation.
Reality 1: Insurance markets are vastly different than basic commodity markets. While competition in the market drives down cost, insurance markets will use the Walmart Model (my characterization) in pricing. Walmart was the first major multinational to force suppliers to compete for their business and make big concessions to be able to have their product on Walmart shelves. Walmart had the power to choose the best bargain for itself, as opposed to suppliers shopping around. This plan will create a glut of private insurers, and hospitals will look for the highest payout to doctors (most are private, after all). Thus, the cost will increase - increase faster than inflation. And, if the subsidies only increase with inflation, there will be higher costs to seniors and the poor.
Reality 2: Having competition does not necessarily mean better care. If private insurers compete to get the most efficient system, with the biggest payout it means the quality of care will suffer. If will be a "race to the bottom." This is also a limitation of allowing people to shop across state lines.
-The plan turns federal money that funds Medicaid into block grants for states. This will allow for more flexibility and efficiency in how the money is spent, as opposed to the "one-size-fits-all" government approach.
Reality: It does not outline any enforcement, oversight or measurement as to gauge how efficient a state is using the block grants. If he thinks the federal government is inefficient with money, he surely assumes the states are much better.
-Social Security - "force policymakers to come to the table and enact common sense reforms"
Reality: This statement translates to "I'm not going to touch Social Security" The Bowles-Simpson Panel explicitly stated that any debt reduction cannot come without reform to Social Security. And, since Ryan leaves that up to "policymakers" and "congressional leaders," it won't get done.
Paul Ryan, like Rand Paul, is doing the country a great service by pointing out that we have to reign in on our increasing national debt. But, none of their plans should be taken seriously. We cannot punch $1 trillion in debt out of existence with simple solutions like "reduce waste, fraud and abuse" or "enact common send reforms." Like Michael Kinsley pointed out, Ryan mine as well put "there shall be a balanced budget" and saved us the paper.
We also cannot count ourselves as the most prosperous and free nation while putting a huge burden on those who are the least prosperous and free. Cutting taxes while increasing the cost of entitlements only creates economical inequality. Ryan should take a page out of the playbook of his colleague Mitch Daniels, Republican governor of Indiana:
"We must display a heart for every American, and a special passion for those still on the first rung of life's ladder. Our main task is not to see that people of great wealth add to it but that those without much money have a greater chance to earn some."
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