The President's Speech and the Ryan Budget: Two Very Alternative Visions

Jared Bernstein
Posted: 04/ 4/2012 8:53 am
I've written that Rep Paul Ryan did the world a favor by not trying to hide the ball with his budget -- now adopted by House Republicans and endorsed by Gov. Romney. Their vision for America is clear, a vision that we at CBPP have been elaborating through a set of publications in recent days (see here, here, here, and here).
President Obama made a similar point Tuesday in a speech here in DC:

"I can't remember a time when the choice between two competing visions of our future has been so unambiguously clear."

So what's the best way to most succinctly describe these visions? At On The Economy, I've tried to do so by examining the role of government. We should do our best to understand what the private market does best and what it does least well. The latter should be considered as a role for government.

The president made a similar point citing another president, and a Republican at that. Abraham Lincoln believed that "through government, we should do together what we cannot do as well for ourselves."

This is, of course, an ancient argument, dating back to Hamilton and Jefferson, but it is crystallized in the House budget in a way that one might view as the logical realization of the 2010 midterms, where a bunch of members were sent to DC to vastly shrink the role of government.

I'll speak to that role in a minute, but there's another dimension to this -- it's not simply a debate on what "we cannot do as well for ourselves." It's also about further enriching the wealthiest households. The Ryan budget solves the problem that the poor have too much and the rich have too little... that is, if you think that's the problem.

That aside, here's one economist's list of the functions better accomplished at least in part by government than wholly left to markets. I tried to keep this list quite spare, listing only those functions agreed upon by most folks who think about this pragmatically, as opposed to ideologically:

-Social insurance for retirees: Health and income security for those past their working years cannot efficiently and universally be offered at affordable rates and are therefore at least partially provided by governments in every advanced economy.

-Public infrastructure: Private commerce depends on the provision of public goods including roads, bridges, rail to move goods and people. Households and businesses depend on public infrastructure to accommodate the provision of safe water, energy, communications, air travel -- much of which is privately provided but could not exist without public coordination and support.

-Barriers to production, trade, and technology that markets don't solve. No single firm can support early stage research and development into a new technology, like the internet or advanced batteries, because returns are too uncertain and start-up costs too steep. Private firms need help negotiating the rules of trade with other nations or coordinating large infrastructure projects, like a smart grid.

-Public education (including preschool), worker training, and support for those trying to access and complete higher education (e.g., college) but who lack the means. These functions are increasingly important in an economy characterized by increasing inequality and stagnant or diminished mobility, because absent public provision, society risks under-investment in human the capital development of all its citizens.

-A safety net against recession, unemployment, poverty and falling onto hard times.

-Regulation of potentially harmful outcomes and markets, from food and air safety to financial market regulation, consumer protections, and so on. Some economists argue that this function could be accomplished by self-regulation -- if a food company's products killed people, or a bank sold toxic assets, they'd go out of business. But few people have that kind of faith in markets (actually, former Federal Reserve chair Alan Greenspan did so regarding financial regulation... but he was... um... wrong).

-Health care. This one's controversial these days, but it shouldn't be. The fact that it's not a normal market has led every other advanced economy to at least partially take this function out of the market, to avoid the "externalities" that arise when people forego coverage yet need care (which turns out to be a much bigger problem for society then if people forego the broccoli course).

I left out military defense and a judicial system because they're not controversial. No private firm could adequately provide them.

Now, where does Rep Ryan's budget come down on these functions? Other than strengthening the military, from what we can tell as elaborated in the CBPP links above, it severely diminishes each one.

According to the President today, 19 million would be cut from the Medicaid roles, and the program would lose its countercyclical function (the ability to expand in recessions). Medicare would become increasingly expensive as costs are shifted onto beneficiaries and the healthiest seniors are incentivized to leave the program.

The safety net could not be sustained, nor could R&D, infrastructure investment, the FAA, veterans services, Homeland Security, educational support, and pretty much everything else outside of interest on the debt, defense, and the scaled-down entitlements providing health coverage and Social Security.

And remember, all of these spending cuts are accompanied by trillions in new tax cuts -- on top of making the Bush tax cuts permanent -- that disproportionately benefit the wealthy.
That's it. That's what's on offer here. We can and will have good arguments about the facts of the case, but our work at CBPP, along with that of many others, including CBO, find this to be the inexorable logic of the R's platform. And again, to their credit, it's not like they're trying to hide it.

They can, will, and should invoke their explanations as to why such critiques are wrong. They've already been touting supply-side rationales as to how the tax cuts for the wealthy and their deregulatory agenda will unleash growth to offset the costs of the cuts. They claim that they'll close unspecified tax loopholes to prevent the deficit from worsening.
They'll claim that President Obama's vision to address those functions elaborated above is misguided, unaffordable, and impossible to accomplish without ruining the economy, over-regulating industry, and discouraging entrepreneurs from creating jobs.

Those issues will form the arguments we'll be having in coming months. But we mustn't allow that noise to obfuscate the starkly different vision of government on offer. I'm not saying the decision is necessarily a simple one. But I very much am saying that the choices are clear.