Sunday, January 30, 2011

Paul Ryan's Response to the State of the Union

I had promised to take a look at this earlier this week and have finally found the time to take a look at it (after being distracted by Tyler Cowen's new book, more on this later). Recently, I've been avoiding commenting too much on the immediate political statements of people I disagree with for fear of appearing too biased or angry. While I hope I manage to avoid those things I will be taking the gloves off here to say what I really feel about the statements made by Ryan, I really couldn't disagree with his vision of government more. I think his policies would do little but exacerbate current problems in the medium to long term and achieve the opposite of their intended effects, though likely with a short term boost and a short term reduction in political tensions. On to the meat of the speech however.

We face a crushing burden of debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead.

On this current path, when my three children — who are now 6, 7, and 8 years old — are raising their own children, the federal government will double in size, and so will the taxes they pay.

No economy can sustain such high levels of debt and taxation. The next generation will inherit a stagnant economy and a diminished country.

I had wanted to compile this in a chart, and there's probably a very small possibility that if I finish some other tasks earlier than expected I'll revisit this. For now you'll have to eyeball the figures for proof. Most of these are from Wikipedia, unfortunately not all are the same year but the numbers haven't been so inconsistent over the time period to prevent comparisons, output from the IMF I checked would take too long to format. So, public debt by state (UN not US state), per capita GDP, GDP growth rate, and overall tax burden.  I don't have time to tease everything out here, but it's pretty clear that debt ratios aren't the most critical thing for the success or troubles of a state.  It's certainly an issue but not one that has a direct relationship of particular strength to a "stagnant economy and a diminished country."  There are clearly issues of much greater importance and we can make this particular bad bogeyman go away if we only raised taxes, which, given the international comparisons, are unlikely to lead to sharply lower growth (there may likely be a strong correlation with lower growth, but given international comparisons there isn't a strong reason to believe growth will be much lower).  I'd like to pay down the debt, but it's hard to look at the international seen or the history of the past decades and conclude the problem is anything other than taxes.

The facts are clear: Since taking office, President Obama has signed into law spending increases of nearly 25 percent for domestic government agencies — an 84 percent increase when you include the failed stimulus.
All of this new government spending was sold as "investment." Yet after two years, the unemployment rate remains above 9% and government has added over $3 trillion to our debt.
I think it's common knowledge that more of the stimulus spending was to either tax breaks or maintenance of transfer payments, very little was investment, with or without the quotes.

What we already know about the President's health care law is this: Costs are going up, premiums are rising, and millions of people will lose the coverage they currently have. Job creation is being stifled by all of its taxes, penalties, mandates and fees.
 These trends all existed well before the ACA and there's no convincing proof that there's a link to job creation.  Cites please.

Health care spending is driving the explosive growth of our debt.

This is true, and why we need more centralized provision of health care, nothing else has a proven track record.

And the President's law is accelerating our country toward bankruptcy.


Our debt is out of control. What was a fiscal challenge is now a fiscal crisis.
We cannot deny it; instead we must, as Americans, confront it responsibly.

Like it or not, with one of the lowest tax burdens in the developed world there is a quite obvious macroeconomic solution to this.

We owe you a better choice and a different vision.

Please, pretty, pretty please (this is unfairly out of context, but I couldn't resist).

If we act soon, and if we act responsibly, people in and near retirement will be protected.
 There's a really, really, harsh reality contained here that, if confronted, would instantly make Ryan someone worthy of my respect.  The problems with our entitlement programs are largely attributable to a shift in the dependency ratio due to the retirement of the baby boomers.  While this is grossly unfair and too late to do anything about without putting a large burden on people with little room to change plans, this is the stark reality of what we're facing.  The dependency ratio for my generation will be much better suited to supporting existing social programs, it's just not adequate to support the baby bulge.  It's tough, but we can't have an honest conversation about this if we don't confront this.  For integrity's sake I have to admit I don't expect either party to confront this honestly.

So I'd like to share with you the principles that guide us. They are anchored in the wisdom of the founders; in the spirit of the Declaration of Independence; and in the words of the American Constitution.
They have to do with the importance of limited government; and with the blessing of self-government.

We believe, as our founders did, that "the pursuit of happiness" depends upon individual liberty; and individual liberty requires limited government.

There's a huge issue here.  The original Articles of Confederation were reflective of the level of centralization (in the sense of an integrated government and the relative weight of the center to provincial administrations) that was standard in the period contemporary to America's founding.  The Constitution was a very centralized document with powers that were, if not unprecedented, highly unusual in their scope for the period.  Section 9 sets very few limits on the powers of Congress, and what limits there are seem clearly designed to promote centralization and to prevent Congress from becoming a vehicle for the states.  Most of the enumerated powers represent issues that in some contemporary societies the center was prohibited from adjudicating or that constituent territories in states also possessed.  In the context of contemporary societies it's hard to see this as having been meant to do anything but expand powers, rather than limit them.  I just don't get the limited government meme, all I see in our history is that the government is checked by the will of the people and the structure as laid out in the Constitution.  Beyond the checks inherent in its structure, I don't really see the intended limits in it.

We are at a moment, where if government's growth is left unchecked and unchallenged, America's best century will be considered our past century. This is a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency.
The Swedes, among others, defy the notion that a social safety net leads to complacency and dependency.  There's just not any evidence for these claims, no matter how much these ideas conform with our prejudices and how pretty and elaborate the semantic arguments behind them.

Just take a look at what's happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn't act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.

This is adequately covered at Democracy in America and on Krugman's blog.  Just to be silly, I did catch it first in comments.

We believe a renewed commitment to limited government will unshackle our economy and create millions of new jobs and opportunities for all people, of every background, to succeed and prosper. Under this approach, the spirit of initiative — not political clout — determines who succeeds.

I've wasted a lot of words making it clear I believe the opposite will happen in comments at the Economist.

We need to reclaim our American system of limited government, low taxes, reasonable regulations, and sound money, which has blessed us with unprecedented prosperity.

Let's be clear about something.  In our best years, at our height (1965 is the year available, good enough for me), our taxes were pretty much in line with the rest of the rich world.  A bit lower than some, but  it isn't hard to think of reasons for this that have nothing to do with growth.  I think there are vastly better explanations for our success than low taxes, which I'll be expanding on later.  I have no idea what sound money has to do with anything.  I'm currently writing a paper on the history of our currency devaluations, this idea is nonsense.

These are not easy times, but America is an exceptional nation. In all the chapters of human history, there has never been anything quite like America.
This is true (enough), and the constant refrain by some to disavow this and instead claim that we're exceptional only in the sense that every state is exceptional (especially common on the left) annoys me.  There's a number of ways that we're quite distinct from other societies, this doesn't give us any special claim to truth or justification for ignoring world opinion or make us incomparable in relation to other societies, but differences should be acknowledged where they do in fact exist.  I believe there are a number of different examples that can show how we are exceptional.

When the rest of the world was ruled by notions of various ideas of the need for divine legitimacy, such as Divine Right (including the Holy Alliance to oppose "democracy, revolution, and secularism."), the Mandate of Heaven of the Qing Empire, ideas of Chakravartin in Southeast Asia, as well as others, we rejected the idea of a divine sanction to rule and introduced, for the first time in history, the notion that divine will was not necessary for legitimacy which instead arose from the consent of the people and not from God.  Which is what you'd expect from a document written by Enlightenment deists somewhat obsessed with the powers of reason.  Throughout our history we have been uniquely eager for change and have borrowed the best ideas from across the world, no nation has ever been so dynamic or unafraid to take advantage of foreign innovations.  No country has ever had a form of identity so open to accepting anyone that shares our values, regardless of origin, creed, or status.  We are so devoted to this that we have a grand honkin 150+ foot statue with the words "Give me your tired, your poor/Your huddled masses yearning to breathe free" inscribed on a plaque at its base.  No state has ever fought so hard for the ideas of multi-lateralism and formed institutions such as those of the Bretton Woods system and UN.  There is no precedent for these things.  We are truly exceptional, in the sense of there being no state that has ever possessed all these attributes and to have been the innovator of a number of these ideas that have been borrowed by others.

However, I often hear these terms used to mean nothing but bog standard nationalism.  Virtually every state on earth at some point believed it had a unique mission from God, a sense of destiny, and unique cultural habits that made it unusually successful.  This is the most tired and boring sort of nationalism and is present everywhere, there is absolutely nothing exceptional about believing these things.  These beliefs are common as dirt.

Despite all the harsh words above, Ryan's speech avoided many of the more egregious errors and historical revisionism that drives me absolutely nuts.  I think he's completely wrong, but I don't think he is being dishonestly so.  I agree our debt is a concern, I just see no reason to believe that spending, and in particular, federal spending is to blame.  If our tax burden and government spending as percentage of GDP were in the high end for wealthy countries, or other wealthy countries had remarkably slower growth rates (especially after taking demographics into account), this would be plausible.  But our taxes aren't high and our growth isn't better.  There's just no way of avoiding the fact that comparisons between us and others don't back up Ryan's claims.


  1. Hey Tz,

    Great as always, but it would be helpful if you changed the sentence "This is true, the constant refrain, especially on the left, against this annoys me." to "This is true, and the constant refrain against this (especially on the left) annoys me." since the original wording is very confusion.

    Thanks for the post! :-)

  2. Thanks for the editing tip, change made.

  3. Hey Tz, I must confess to having overindulged and suggested changing a few things to sound the way that I wanted rather than focusing on the most important thing: you should add the word "and" to change the phrase "This is true (enough), the constant refrain [...]" to "This is true (enough), *and* [emphasis mine] the constant refrain [...]". This is because the original problem that I had (which I think will be shared by others) was that I had to read the sentence a few times in order to figure out how to parse it.

  4. Thanks for pointing the unclear writing out, I tried to revise it more substantially to address the issue.

  5. Ahh! Now that sentence is crystal clear. :-)