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. Its vision for America is clear, a vision that we at CBPP have been laying out in recent days (see here, here, here, and here).
President Obama made a similar point yesterday in his speech:
"I can’t remember a time when the choice between two competing visions of our future has been so unambiguously clear."
The two visions don’t even agree on the nature of the problem they're out to solve.
According to Rep. Ryan’s plan, the trouble is this: The poor and middle class have too much and the rich have too little. And his budget solves this problem very effectively, by eviscerating government programs that benefit the non-rich and using the "savings," mostly via tax cuts, to further enrich the wealthiest households.
The contrasting vision recognizes that the wealthiest households are doing great, while the poor and middle class are still struggling with high unemployment, stagnating incomes, insecure health coverage, and just the basic squeeze of trying to make ends meet, save for the future, help the kids get ahead, and so on.
And this vision sees government as having a role in correcting, at least in part, this imbalance. As Obama said in yesterday’s speech, citing a Republican president, Abraham Lincoln, "Through government, we should do together what we cannot do as well for ourselves."
According to today’s conservatives, leaving aside military defense and the judicial system there’s virtually nothing that we – that is, the private market – "cannot do as well for ourselves." And so the Ryan plan wants to vastly shrink the role of government.
Now, the private market does some things very well. No question. But it does others very poorly; and where the market falls short, the government ought to step in to pick up the slack (or, if you like the economic terminology, "to internalize the negative externalities"). There are plenty of functions better accomplished at least in part by government than wholly left to markets. Like what? My partial list would include:
• Social insurance for retirees: Health and income security for those past their working years cannot efficiently and universally be offered at affordable rates by the private market 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 pubic 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 startup 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).
Now, where does Rep. Ryan’s budget come down on these functions? Other than strengthening the military, it severely diminishes each one.
According to the President today, 19 million people would be cut from the rolls of Medicaid, the health insurance program for the poor, and the program would lose its ability to expand in recessions. Medicare, health insurance for seniors, 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.
Sure, conservatives will invoke (evidence-free) supply-side rationales for why their tax cuts for the wealthy and 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 is misguided, unaffordable, and impossible to accomplish without over-regulating industry, discouraging entrepreneurs from creating jobs, and, basically, ruining the economy.
Those issues will form the arguments we’ll be having in coming months. But we mustn’t allow that noise to obscure the starkly different vision of government on offer. The choices are clear.
Cross-posted from jaredbernsteinblog.
You can email me at firstname.lastname@example.org. I look forward to your feedback.
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities. From 2009 to 2011, he was the Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team.
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