Reality-Based Budgeting

The budget and related issues (the continuing resolution, the debt ceiling) will likely receive a good deal of attention in the weeks months years to come. Congressman Paul Ryan (R-WI) has released his Path to Prosperity and generated the expected responses.

Believe it or not:

Nancy Pelosi presented it as “path to poverty for America’s seniors & children and a road to riches for big oil.”
New DNC Chair Wasserman Schultz called it a “death trap for seniors.”
Paul Krugman presented it as : “a budget of a deficit exploiter, someone who is trying to use fears of red ink to push through a political agenda that includes major losses of revenue.”

Quite honestly, anyone who has been tuned into politics for the past quarter century could have written these scripts in a nanosecond. Yet, one would nonetheless be at a loss to identify what the Pelosi-Wasserman Schult-Krugman alternative might look like. This is the problem.

Having looked briefly at Ryan’s proposals, I have some grounds for concern (largely connected to the rather anemic reductions in defense spending, the lack of attention to middle class tax expenditures, and some rather rosy assumptions about economic growth and unemployment). But I nonetheless credit him for having put forth a rather clear statement of the core problems and some important solutions. It would be a useful starting place for honest debate (a similar thing might be said about the Bowles-Simpson report).

With current levels of deficit spending, the growth of the debt relative to the economy, and the composition of the budget, it would seem any credible solution would have to include the following:

  1. Significant restructuring of Medicare that would stem long-term growth
  2. Significant restructuring of Medicaid
  3. Changes in Social Security that would reduce benefits via increases in the retirement age and some form of progressive indexing
  4. Significant reductions in defense spending (which would necessitate a serious rethinking of our global security commitments)
  5. Elimination of all tax expenditures benefiting corporations and those in the top half of the income distribution (e.g., favorable treatment of home mortgage interest, employer provided health care and retirement contributions)

The primary goal is to reduce the deficit/debt and prevent the collapse of debt markets and the dollar. Ideally, we would reduce levels of debt to the 2000 levels (around 56 percent of GDP), but I could be corrected on whether this is too high or too low.

Key point: any credible path forward, would seem to necessitate the components listed above. Any objections to reforms along the above lines would seem to lack in credibility unless accompanied by a serious alternative. I wish that our elected officials could accept the following statement: Given the current fiscal state of affairs, there is no viable solution that will not

  1. Result in painful reductions of social benefits (given that the elderly are the largest beneficiaries of current entitlement spending, one should not be surprised that they will bear some of the costs);
  2. Force significant reductions in defense spending; and
  3. Force higher taxes (don’t get me wrong, I hate taxes. But rate reductions should follow–not lead–reform).

Is there any chance that elected officials will accept this statement and begin serious discussions of how to bring about the needed changes in a humane but honest fashion before change is forced upon us?

I remain skeptical. Please, convince me why I am wrong in my assumptions about the necessary components of reform OR my skepticism regarding the willingness of our elected officials to suspend the little arts of popularity until we have returned to a sustainable course.

2 thoughts on “Reality-Based Budgeting

  1. Paul Krugman is probably my least favorite economist in the world. I can honestly say I am disturbed more when reading him than Marx, because at least Marx knew what he stood for. But let me answer for Krugman. “You’re mean-spirited.”

    How’s THAT for a budget solution, right? Gosh I just love reading the New York Times because of that lovable economist!

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