Wednesday, April 6, 2011

Tyler Cowen on the Paul Ryan Plan

With apologies* to Tyler, I am including his entire post. It is worth your time to read this.

The Paul Ryan budget plan — Marginal Revolution
I’ve now read it and here are a few comments:

1. The macro projections are very weak, not worth the time of criticism (more here).

2. Ryan nails our dysfunctional, “who is really responsible for paying for Medicaid?” structure. That said, I’ve long preferred the federalization of Medicaid. Block grants to the states may be better than the status quo, however (the size of those grants is a logically distinct question). Within state budgets, police and education are often the alternative to Medicaid costs. Are we so sure that Medicaid produces the maximum benefit for the money? Low-quality moralizing about the poor is not an answer to this question.

3. That said, Medicaid should be one of the last parts of the health care budget to cut. More of our health care aid should be like Medicaid, which is relatively cheap and also targeted at those who really need the assistance. The correct Medicaid decisions depend on other budget choices, but ideally Medicaid is low on the list of recommended cuts, even if it may require some cuts.

4. With either the block grants or the Medicare vouchers, I would urge maximum transparency. Health care costs are increasing by about five percent a year. That means a fixed value voucher loses about half its real value, in terms of command over health care resources, within fourteen years. (It’s a bit more complicated than that, since not all health care costs are proportional price increases to currently available services.) If that is the decision we are going to make, let us understand it as such. I would add that Ryan’s opponents don’t avoid this kind of dilemma nearly as much as they think they do.

5. It would be nice to have a scientific estimate of how much fixed value vouchers would lower the rate of growth of health care costs. I’m not convinced the effect here is large, but I’d like to see it studied more closely.

6. Ryan’s budget repeals ACA and thus in the semi-short run it could considerably increase Medicare costs. There is no reason why Ryan’s plan shouldn’t keep the most fiscally responsible aspects of ACA. Ryan exempts the current elderly from any Medicare cuts at all, see David Leonhardt’s remarks.

7. Over a ten-year time horizon, the Ryan plan increases the debt rather than decreasing it. Take that as a sign of how hard fiscal reform is going to be.

8. As I’ve already blogged, the vouchers idea won’t help cut health care costs. Let’s create some multiple public options within Medicare, some of which would allow people to trade health care benefits for cash. Democrats are supposed to be “pro-choice,” right? Or is that only for abortion?

9. I’m all for cutting the corporate income tax, but 35 to 25 percent isn’t impressive. Let’s eliminate it altogether.

10. There’s not nearly enough on reforming the dysfunctional supply-side of our health care institutions. Nor does science or basic research receive much discussion.

11. The plan does some strange things, such as repeal Dodd-Frank resolution authority, which most people, even Dodd-Frank critics, think is a good idea. Ezra summarizes the entire list of budget changes.

12. The more the Democrats criticize this plan, the more it helps Ryan and the more it hurts the Democrats. It reframes sticker shock, and the entire debate, simply to argue about $6 trillion in budget cuts.

13. #12 is the bottom line here, since the plan is not intended to be enacted into law. Points #1-11 pale in comparison to #12-13.
*Given the relative prominence of our two blogs, I think it is fair to say that I am not stealing any of Tyler's traffic. If anything I may be expanding his audience, at least marginally.


J. Strupp said...

From what I've seen, I'm in agreement with Cowen on the Ryan Plan with the exception of #12 (and #9 which is just assinine). The liberal blogospere is in the process of dismantling the Ryan Plan because 1,3,7, 8 and 9.

Even Ryan's pal Rivlin is panning this budget plan as unrealistic.

Bottom line: We have a long term health care spending crisis in this country. Issuing vouchers at an amount that doesn't come close to keeping up with overall long-run health care costs is not fixing the crisis. It's simply transferring the same costs from the public to private sector and telling Americans to "make it work", while he uses about half the health care "savings" to fund a major cut in corporate income taxes. Surprise, surprise.

The thing is one giant transfer of wealth and it's all there in writing. If the Democrats can't use this "plan" to their advantage than they should just give it up and get into another line of business.

Josh said...

According to the CBO, if Ryan's Plan were to go into law, I would need to plan on saving enough to cover about $42,000/year in health care costs when I'm in my 70's for the same medicare coverage I would get if I was eligible today. At 32 years old, I currently invest about 15% of my total household income and the wife and I do well at our age. You think I'm saving enough to cover these costs? Not even close.

You think anyone under 40 votes for this guy in 2016 if they catch wind of this?

J. Strupp said...

Whoops that's me up there too. Used the google account name.

J. Strupp said...

And let's just keep going. Supposedly Ryan wants to slash Fed. aid to states so I can plan on doubling my 529 investment for both of my kids to cover the spike in tuition costs due to the Fed. aid reduction. But I guess I should consider myself lucky because if I was poor I wouldn't even be able to get a Pell Grant for my kids to go to college anymore because that program would be pretty much dismantled.

You add in major cuts to Medicaid, food stamps and low income housing and it's pretty clear who's getting the short end of the stick in this proposal. Gosh, why don't we just rename this thing the, "Making rich folks tax cuts affordable" program and be done with it.

J. Strupp said...

I encourage everyone to read the CBO assessment of this proposal.

From CBO:

"The proposal specifies a
path for all other spending (excluding interest) that would cause such spending to decline sharply as a share of GDP—from 12 percent in 2010 to 6 percent in 2022 and 3½ percent by 2050; the proposal does not specify the changes to government programs that might be made in order to produce that path."

Magic pixie dust maybe?

My favorite:

"The proposal also specifies a path for revenues relative to GDP—rising from 15 percent in 2010 to 18½ percent in 2022 and 19 percent in 2030 and beyond."

Wow! Almost a 25% increase in tax revenues/GDP in 20 years! And all this by cutting the corporate and personal income taxes of rich people by 35%. Maybe Ryan is thinking that GDP will collapse so much as we pull the rug out from non-rich people that revenues as a share of GDP rise?

O.K. I'll give you your blog back Jeremy. Sorry buddy. End of rant.

Jeremy R. Shown said...


Feel free to rant away.

Re #9 if some GOP'er offered a grand bargain to eliminate the corporate income tax and raise equivalent revenue through an increase in the estate tax would you take it? Just curious.

J. Strupp said...


Let me rephrase that part of my rant. #9 is just assinine, assuming that this revenue isn't offset with tax increases elsewhere (you know what the GOP would do). I would definately be open to eliminating the corporate income tax IF we could find a way to offset this elimination by taxing the top income level almost all of the difference in lost revenues. That may mean increasing the estate tax or simply raising the top income tax rate (which we should do anyway). My beef still rests mostly with regressive income tax since corporate taxes are a rather small piece of the pie.