Paul Ryan's Speech to the Economic Club of Chicago: Changing the Debt Arc
Rep. Paul Ryan is giving a speech to the Economics Club of Chicago this morning, and in it he strikes two main themes. First, he has not wavered a bit from his plan, giving critics back the burden of finding a way to simultaneously grow the economy and tackle runaway government spending. From the speech:
“…[M]any in Washington – including the President – are really arguing over who to hurt and how best to manage the decline of our nation. It is a framework that accepts ever-higher taxes and bureaucratically rationed health care as givens. I call it the shared scarcity mentality. The missing ingredient is economic growth… [Our plan] aims to do two things: to put our budget on a path to balance, and to put our economy on a path to prosperity. These goals go hand in hand. Stable government finances are essential to a growing economy, and economic growth is essential to balancing the budget.”
It is worth two pictures to tell the story. As most Ricochet readers will know, even with all the assumptions made by the president of higher taxes after the Bush tax cuts expire, our debt-to-GDP ratio will grow over the next decade. Economic researchers (see this, for example) believe when we reach a ratio of 90%, our economy will slow down.
In every other case where those numbers have risen, eventually they stabilized and began to fall. There is no sign this will happen with the current Obama administration projections.
Our debt-to-GDP ratio grows whenever the primary surplus -- the budget surplus net of interest payments -- is negative. The easiest way to think of it is like your credit card. If you make a minimum payment on the card that doesn't cover your finance charges for the month, your balance next month will be higher than this month even if you don't charge any more to the card. You can only make your card balance less if the amount you pay on the card is greater than the sum of the finance charges and any charge you make to the card for gas, groceries, clothing, etc. Likewise, when we're below the zero line on the primary surplus/deficit graph, our debt is growing. We are just putting this in terms of a ratio to GDP to make the graph easier to understand.
The historical data shows that at the very worst point of the Reagan-era deficits this primary deficit was 3.4% of GDP, and for only one year. By 1988 we were back to about zero. The 1990s saw a surge in tax collections from the tech bubble. and restrained spending from a Republican-led, Gramm-Rudman-Hollings-constrained Congress. Even spendthrift Bush43 had a primary surplus and a decline in the debt-to-GDP ratio in 2007.
The Obama deficits, however, never manage a primary surplus in any year (see the shaded area, which I've drawn from CBO data.) Ryan aims to change that.
The House-passed budget doesn’t just put the budget on a path to balance – it actually pays off the debt over time. We can’t achieve this goal by simply rubber-stamping increases in the national debt limit without reducing spending in Washington.
If the debt ceiling has to be raised, then we’ve got to cut spending. The House-passed budget contained $6.2 trillion in spending cuts. For every dollar the President wants to raise the debt ceiling, we can show him plenty of ways to cut far more than a dollar of spending. Given the magnitude of our debt burden, the size of the spending cuts should exceed the size of the President’s debt limit increase.
Raising the debt ceiling less than the proportionate increase in GDP is OK if the goal is to at least stabilize the ratio -- but the reductions are large. Just to stabilize the deficit at the expected 2012 level of 74% -- which is still quite large -- would require a cut in the FY 2013 deficit of $661 billion, more than half of all discretionary spending (including defense.) That is why the mandatory programs are on the table: There is no other place to find the money you would need to do it.
Ryan makes it clear that the cuts are needed to help those dependent on the mandatory programs...
Mounting debt also threatens our poorest and most vulnerable citizens, because those who depend most on government would be hit hardest by a fiscal crisis. We have to repair our safety net programs so that they are there for those who need them most.
...and that tax increases are not an option that will help them:
It’s time to clear out the tangle of credits and deductions and lower tax rates to promote growth. The House-passed budget does that by making the tax code simpler, flatter, fairer, more globally competitive, and less burdensome for working families and small businesses. By contrast, the President… wants to impose a $1.5 trillion tax increase on families and job creators.
That path includes removing tax expenditures that favor businesses with K Street connections; Ryan addresses corporate welfare in the speech, something that libertarian-minded Republicans will embrace gladly and confound his critics. And he notes that class warfare politics helps no one, adding that "redistributing wealth never creates more of it."
There's much to like in it. Rather than focusing on whether the Obama stimulus helped or hurt, he argues for an economy that can grow faster (which would reduce the debt-to-GDP ratio on its own) while making the case for a market-oriented solution over any state planning. He echoes that in his comments on the federal health care reform:
Our plan is to give seniors the power to deny business to inefficient providers. Their plan is to give government the power to deny care to seniors.
But the biggest threat is, undoubtedly, the arc of debt that grows well into the next generation. Our chore is to change the arc, and Ryan's call for a larger private sector and smaller public sector are the first attempts to get it done.
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Apr '11
Re: Paul Ryan's Speech to the Economic Club of Chicago: Changing the Debt Arc
Thanks for highlighting the main points of the speech. I wish the MSM had a stomach for facts and figures so the public might know the danger we are in financially. One of the Sunday talk shows made the point that only the one who truly holds your debt can raise your debt limit.
The President believes that his sarcastic rhetoric and demagoguery will win the day. It amazes me that in a country founded on the principle of God given equality that we have a leader who constantly pits one group against another, promotes class warfare and treats american citizens as a benighted class unable to see the recklessness of our current spending climate.
I praise Mr Ryan for his display of courage in not wavering in his message given the attacks that have come. My prayer is that he would display greater courage in seeking the republican nomination.
Tom Clancy's novels have sometimes proven to be prophetic in their story lines. One novel has a President Ryan but his first name is Jack. I hope for a future Ryan named Paul before it's to late.
Run Paul, Run!
Mar '11
Re: Paul Ryan's Speech to the Economic Club of Chicago: Changing the Debt Arc
"Economic researchers (see this, for example) believe when we reach a ratio of 90%, our economy will slow down."
Uh - I am guessing that we may be there already - maybe not at 90%, but certainly at the economic slow down part. Who knows how much poison is bad - and define "bad" or "economic slow down" compared to what?. We can argue the practicalities all we want, but the fact is that it is immoral to extract resources from the citizenry at the point of a gun. And it doesn't work if happiness and prosperity is what you want. Most in government are interested in neither of those, unless it is for themselves or their buddies.
The revolution is coming. I eagerly await our new overlords - each one of us, over ourselves.
Dec '10
Re: Paul Ryan's Speech to the Economic Club of Chicago: Changing the Debt Arc
"...and Ryan's call for a larger private sector and smaller public sector are the first attempts to get it done."
For which he shall be punished and excoriated, when not ignored.
Sep '10
Re: Paul Ryan's Speech to the Economic Club of Chicago: Changing the Debt Arc
I think Ryan is making a semi-honest attempt at addressing the debt problem. But I cannot see how relying on growth and a reduction in the rate of growth of deficit spend is adequate. When the debt was 6T., and 20% of GDP it was a workable formula, ie: late 90’s, but now that the debt is 14T, and north of 50% I cannot see how this is any longer feasible. Ryan’s plan does not reduce the actual size of the government it just assumes that the public sector will grow at a much more rapid pace making the relative size smaller. One should note Ryan assumes no recessions and no dramatic uptick in inflation. These assumptions make for nice looking charts but are not realistic. But, he is a Republican so advocating for an actual reduction in the size of the Federal Government would risk the establishment labeling him a nut job like they have with Ron Paul.