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Paul Ryan Is Not A Fiscal Conservative
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By Simon Johnson

Writing in the Financial Times today, Paul Ryan – the incoming chair
of the House Budget Committee – presents himself as a fiscal
conservative, primarily focused on bringing the budget deficit and
government debt under control. He is not.

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.

Mr. Ryan has an important job in the next Congress and will no doubt
have great influence on Republican policy in the run up to the 2012
presidential election.

The White House would do well to take him and his colleagues on
directly. We should have the debate about our long-term fiscal future
and lay out a path to sustainability that is consistent with an
economic recovery.

It is up to the Obama administration to explain clearly and widely why
Mr. Ryan’s proposals do not deal with the first order problems that
have increased government debt dramatically in the past decade and
that threaten future fiscal stability. Let us hope the White House
has learned from the midterms that there are dire electoral
consequences when the president shrinks from directly confronting
misleading ideas.