Saturday, August 18, 2012

Paul Krugman on Paul Ryan

First of all, I love the Paul Ryan pick.  I agree with David Brooks here, this presidential campaign has been pretty boring.  Largely because both candidates have been unwilling to offer any specific solutions or ideas to solve the very real problems we're facing:
Has there ever been a campaign with so few major plans on the table? President Obama’s proposals are small and medium-size retreads, while Mitt Romney has run the closest thing to a policy-free race as any candidate in my lifetime. Republicans spend their days fleshing out proposals, which Romney decides not to champion.
When Romney selected Ryan as a running mate, he selected a man with a pretty specific plan.  The reason why presidential candidates avoid doing this, though, is because these plans become fodder for the other side to rip into.  Of course, they do so from their own perspective without thoughtfully considering why the other side might think these ideas were good ones.

Paul Krugman has spent some time on his blog critiquing Paul Ryan's plan.  Consider this post a small defense of Paul Ryan.  First of all, Krugman believes at this point in time, all Republicans are currently unreasonable idealogues:
It’s kind of the “treason never prospers” argument (“for if it prospers, none dare call it treason”); if someone declares that tax cuts don’t pay for themselves, or that printing money when you’re in a liquidity trap isn’t deeply inflationary, or that fear of Obamacare isn’t holding the economy back, he ceases to be considered a member in good standing of the GOP. There are, therefore, no reasonable Republicans on these issues.
My impulse is to completely agree with this, to post this on facebook with a commentary lamenting how terrible the Republican party has become.  But smart, reasonable, even Nobel prize winning economists have supported Romney along with all of these seemingly unreasonable policies.  There has to be a reason.  The reason I think is Krugman just shares a different worldview from most Republicans, for which I'll use Paul Ryan and his plan as a proxy.

First, the Republican mindset consists of a strong distrust in government to manage economic affairs.  This comes out indirectly in Ryan's economic plan.  Paul Ryan wants to make the income tax code less progressive, giving the top earners a significant tax cut as a result.  Consider also, that since the US has among the highest corporate tax rate in the world, Ryan's plan also wants to cut this rate with the hope of leveling the competitive field and enticing more business back to the US.  He balances these pretty substantial revenue cuts by removing many, perhaps all, of the current deductions and loopholes in the tax code.  He hand-waves on this, but to make the tax cuts revenue neutral, basically all deductions must go.  The end result is a lower, flatter tax code.

But, this does not get us to a balance budget.  To get us there, he has to do something about our spending and entitlement reform.  He protects defense and social security (in the past he was a proponent of social security privatization), but he basically cuts nearly everything else practically to zero.  He doesn't explicitly say this, but he does provide target spending as a percentage of GDP and to get to those targets, while preserving the programs he's intent on preserving, discretionary spending is cut to the bare bones.

Finally, medicaid spending, much of which goes to the elderly in the form of long-term care support, is reduced and controlled.  Rather than an open-ended federal entitlement, they turn it into a fixed block grant that is transferred to the states.  The states, then are free to meet the health care needs of the poor and the elderly in the ways that make sense to them.

This all sounds harsh, but consider the worldview.  First, it gives the states the opportunity to step up.  States can increase taxes and spending to compensate for the tax and revenue cuts at the federal level.  This moves spending from the federal to the local levels, providing the benefit of localizing problem solving.  Further, and perhaps more profoundly, reduced federal tax obligations on those with higher income, free them up to direct those funds to local charities, churches and other institutions.  Providing wage earners greater opportunity to control how these funds are used and to hold the recipients of those funds more accountable.

 Providing less federal support also, in theory and perhaps counter-intuitively, has the potential to decrease inequality.  As corporations get big and as they lose corporate welfare support, smaller businesses have better opportunities to compete, spreading the wealth as they compete and win in the marketplace.

Ultimately, conservatives have a general impulse to distrust federal politicians, who tend to insulate themselves from the larger population.  Folks in Congress rarely lose re-election as they harness powerful money to shoot down challengers.  The lose accountability and as a result use their power to benefit their friends both in business and in politics.  Ultimately, federal funds are used inefficiently and hurt our economy.

I understand the impulse and I share some of these concerns.  But I have to say, I think much of this is  libertarian fantasy in much the same way socialists in the 1920's believed they could create an egalitarian utopia through managed government initiatives.   I'm a proponent of a mixed economy. A free market, balanced by a social safety net. Federal, state and local levels of government have important roles to play, but this is a subject for another post.


Derek said...

Interesting thoughts.

The first thing that comes to mind, for me at least, is how does one turn these things over to the states in a transient society such as we have?

Also, the GOP has had their radical group/wing/whatever drag them so far to the right, that people running for office have to attempt to tow the line, in essence, keep the radicals appeased, and still appeal to the rest of the party, AND also try to, at least attempt, some compromise with the Democrats.
This is a generalization, which you've probably heard far too many times...

In any case, taking certain actions that shrink national government, thus putting more responsibility on local government, and that as a result this puts more responsibility on the wealthy, I'm not entirely sure that would be what happens. Who's to say they wouldn't just go to greater extents to store their money in "tax havens," even more so than currently?

I would like to hear more about your "Free market balanced by a social safety net," because based on what I know (and, as you know, I know a lot...har har...) those two can't really co-exist in a very functional way.

tempe turley said...

In your last paragraph, I mean we have a free market, but we also have a federally funded social safety net. The consequences of the free market can be harsh and we should provide a soft landing for those who are most vulnerable, temporary if possible, permanent if we must.