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Mankiw Admits GOP Policies Are “Repellent”

April 14, 2011 Leave a comment

In his recent New York Times piece Harvard economist Greg Mankiw envisions a presidential speech in 2026 if we don’t do something now to fix our fiscal crisis.

If we had chosen to tax ourselves to pay for this spending, our current problems could have been avoided.

The odd thing about Mankiw’s formulation is that the “current problems” are basically his preferred solutions so we’re not really avoiding anything. I’m not denying that taking early action to fix these problems is sensible – the problems are real. But I’m not sure if conservatives fully recognize that it’s difficult to scare people into action by arguing that our only solutions to long-term problems is to embrace them earlier. A voter might reasonably ask, “if we’re going to face these difficulties no matter what, why not just wait?”

Economists like Mankiw recognize that a dollar today is worth more than a dollar in the future – so even if the difficulties intensify later it might seem that putting them off is “worth it.” But Greg Mankiw, Paul Ryan, and other conservatives argue that in order to prevent the destruction of our current policies we must… destroy all our current policies. You’ll notice that in all of Mankiw’s doomsday scenarios his proposed fix is not to adjust our commitments and tax code in creative ways to preserve the basic structure of our welfare state but to preemptively implement the pain now. It’s as if consent to misery somehow makes it more palatable. Also, conservatives’ policy preferences aren’t merely acquiescence to some Calvinistic political inevitability – they frequently argue the moral superiority of their policies.

In 2026 Mankiw imagines that “we have to cut Social Security immediately, especially for higher-income beneficiaries.” His solution to this in 2011 is to… cut social security.

In the future we’ll be forced “to limit Medicare and Medicaid.” To save us from this problem, the GOP plan is to have people “pay for these treatments on their own or, sadly, do without.”

Republicans including Mankiw favor repealing Obamacare. We better cut middle-income subsidies so we don’t have to cut them later!

Forthcoming budget realities ensure that “subsidies for farming, ethanol production, public broadcasting, energy conservation and trade promotion” must go. As expected, Mankiw thinks we should do that regardless of the bond markets (e.g. here, here, and here).

On taxes, Mankiw predicts the budget will force us to broaden the tax base and eliminate deductions. Of course, economists like Mankiw already want that.

Watch out in 2026: we’ll have to raise the gas tax “by $2.” As a champion of the Pigou Club, Mankiw has been arguing for years that raising the gas tax is a great idea.

His hypothetical president believes these changes are “repellent.” Does that mean that Mankiw, the conservative economist that favors all these changes on their own merits, thinks his own policies are repellent? He’s right that if we choose them earlier they’d be less immediate and “draconian” but if they’re harsh then aren’t they detestable now?

I don’t dispute that doing something soon is essential. I actually support a version of many of the policies Mankiw advocates. But conservatives have been advocating that cutting social security, slashing medicare and medicaid, removing all subsidies, and broadening the tax base are morally preferable. Paul Ryan doesn’t require his staff to read Ayn Rand because he thinks her policies are unfortunate inevitabilities; he considers them optimal and just.

No one believes that our current welfare state and tax policies are sustainable or flawless, but progressives at least attempt to preserve and improve them. It’s possible Paul Ryan and Greg Mankiw are right that all progressive policies will eventually collapse. I just can’t understand the rush to get there.

(photo credit)

[update 04/15: Greg Mankiw responds]:

I emailed Professor Mankiw asking what he thought about his policy preferences seeming to mirror the “repellent” and “draconian” view his column imagined.

That wasn’t me speaking. It was a hypothetical future president. 😉

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When Unbearable Debt Meets Unsustainable Political Support

April 13, 2011 Leave a comment

Many idealists think we can just inform the public enough to understand the best policies to govern ourselves. Unfortunately tilting at windmills seems more productive. Policies gain and maintain support not by voter knowledge but by voter experience. I don’t care how many TV specials or column inches get devoted to explaining that congestion pricing is better for drivers – it will only reach a critical mass of support when drivers experience the benefits outweighing its costs.

As a pure political argument, do you think hugely slashing defense spending is a winner? Maybe right now. What about the months after 9/11? Voters have no idea what the practical differences are of a few hundred billion more or a few hundred billion less in spending on the military. If the country feels safe they’ll support a low level of defense spending (assuming that the level is compatible with actual and perceived safety). Are high tax rates politically sustainable? If there is strong economic growth, yes. Of course if they’re too high and they weaken growth they’re not sustainable. Bill Clinton easily won reelection and somehow maintained higher tax rates that many currently think would be politically reckless to advocate. Those tax rates even gave us a surplus and would do a lot to balance our budget. What’s the difference? Clinton didn’t explain it better – he presided over a growing economy. Clinton even won large percentages of wealthy voters (not majorities though). Today, growth is anemic.

What does this tell us about any debt reduction plan? Since future congresses will have to keep any policies in place that balance the budget, the policies can’t be incompatible with voters’ improving experiences. Paul Ryan’s medicare “fix” isn’t bad because it is unfair or ideologically conservative – even if you forced everyone to read and love Atlas Shrugged it wouldn’t fix the deficit. When the elderly start getting vouchers that decrease in value (they grow at the rate of inflation but healthcare grows faster) they’ll see their situation as steadily deteriorate and vote to change the policy.  That doesn’t mean that benefits need exponential growth to maintain support, but shifting the cost to consumers also doesn’t work. Public debt means higher taxes and less ability to spend elsewhere while private debt directly consumes personal wealth that reduces demand and economic growth. That’s why costs need to be contained not payments. Ezra points out that smaller versions of Ryan’s plan failed:

Various states have gotten waivers to radically remake their Medicaid program, and the consumer-driven model that Ryan is proposing for Medicare has been attempted in the Federal Employee Health Benefits Program and Medicare Advantage. None of these programs have worked, which is why we’re in our current predicament.

Voters need to feel that their overall well-being is improving which means holding down costs in a way that doesn’t prevent economic growth. A growing economy makes every policy sustainable; the trick is to pick solutions that don’t kill economic growth. Paul Ryan correctly realizes that medicare can’t be an open-ended commitment because doing so would eventually harm the economy. His numbers don’t add up, the distribution is unjust, and its prospects are inconceivable but we can debate the merits of it as policy. He should be commended for offering something tangible even as we reveal its flaws. Are there other solutions?

The Kaiser Family Foundation compares some proposals. Many Democrats think strengthening the Independent Payment Advisory Board holds promise. Introducing a dedicated VAT to government healthcare spending always made sense to me – that way it explicitly ties what we’re willing to spend to what is politically sustainable.

Politicians should remember that the single best thing they could do to reduce the deficit is choose policies that maximize economic growth (even if that means taking advantage of cheap borrowing now). Yet, our debt is so large more must be done. Since the major problem is too many retirees relative to able workers, we could change one policy that no one seems to notice would dramatically help. Increase the number of young workers… otherwise known as immigrants. Obviously immigrants age too so it’s not a magic bullet, but anything that keeps the dependency ratio at a reasonable level would be enormously helpful.

Another aspect of immigration policy that needs consideration (since we can’t feasibly let in enough migrants completely solve everything) are temporary workers. Temporary workers are great because they come at almost no cost to the taxpayer. We don’t have to educate them and we don’t have to pay for their retirement, but they grow the economy and pay taxes. As Matthew McConaughey might observe, high school girls and temporary immigrants have a lot in common: they “stay the same age.”

Much more needs to be done, but anything that passes must maintain support.

A Republican Not Interested In Policy

August 10, 2010 Leave a comment

John Boehner gives us an example of the mainstream GOP that refuses to offer actual policy proposals. This is the House Minority Leader and he’s not willing to answer a simple question. Republicans want to cut the deficit but won’t say what they’d cut or admit that tax cuts don’t pay for themselves. Explain to me again why Paul Ryan is the “flimflam man?”



[update]: Dylan Matthews on Ezra Klein’s blog compiles experts and opinion-writers views on “Where does the Laffer Curve bend?”

Can You Deserve Respect But Be Wrong? ctd

August 9, 2010 23 comments

Here’s a bit of a roundup from around the web on Paul Ryan and his budget plan.

Read more…

Can You Deserve Respect But Be Wrong?

August 3, 2010 2 comments

I think Kevin Drum and Matthew Yglesias are a bit too hard on Paul Ryan praisers (people like me). They basically argue against the efficacy of his policies – fair enough and keep it up. I know it’s a low bar but at least Ryan is making actual proposals to criticize. I’m not kidding when I say I’m thrilled a Republican is actually doing this. The modern Republican party and its supporters are so devoid of substance that being able to engage them on policy would help the country. Our political system is set up in such a way that it can’t function unless legislators are willing to compromise on policy disagreements. If the minority party doesn’t have any policies and just opposes everything the majority does the legislature becomes paralyzed. Do Drum and Yglesias really think that if we replaced all the Michele Bachmanns with Paul Ryans we wouldn’t be better off? It’s sad but it’s the best we can hope for right now. 

[Update: 4 Aug] Clive Crook weighs in.

Ryan is a good thing, and his Roadmap is very interesting. He is grappling with specific proposals, and his plan for long-term entitlement reform deserves a serious look. Note, though, that on plausible assumptions, it is not a deficit-reducing proposal: revenues would fall even more than spending.

More to the point, the party is not backing Ryan’s proposals. If conservatives who say, “Don’t raise taxes, cut spending,” were willing to contemplate Ryan’s approach to entitlement reform, well and good. Few are. The party as a whole is scared of it. Republicans in Congress understand how difficult it would be to get the country behind it. (If George Bush’s plan for Social Security privatisation, timid by comparison, got shot down, what hope is there for Ryan’s ideas?) Right now the party’s position is to reject every meaningful spending cut and any and all tax increases. That is not fiscal responsibility. It is complete nonsense.

Intervene Now, Fix for Later

August 3, 2010 Leave a comment

I’m sorry I missed this piece from early July. Conservative/Libertarian economist Edward Glaeser, who I’ve always been a big fan of, makes the case that the federal government should send aid to the states. He and I disagree with Rep. Paul Ryan on this issue, but Glaeser proposes a solution that maybe Ryan could compromise and sign onto – I wish I thought of it. It uses the same logic that says we should spend now during the recession and cut spending and reform entitlements later.

Given the current system, federal stimulus aid for states makes sense. There is no better use for public funds than making sure that schools remain strong and streets remain safe. But a system that uses Texas’s taxes to pay for California spending is badly flawed. Just as the International Monetary Fund has made aid conditional upon political reform, federal aid to states should be tied to reforms that would make future federal interventions less necessary.

[…]

It is easy to envision state systems that allow more budgetary flexibility during downturns, while still maintaining fiscal discipline. Instead of a strict balanced-budget system, a better rule might require the state government to save significantly when the unemployment rate is below the historical norm and allow borrowing when the unemployment rate is above the historical norm. States can either borrow on the private market, or, as Chris Edley has suggested, the federal government could lend to states during downturns. (my emphasis)

Ezra Klein interviews Paul Ryan

This blog has covered a fair amount of Rep. Paul Ryan, 1 Republican I know of who is willing to be serious even if I disagree with much of his short-term prescriptions. Here’s his interview with Ezra Klein.

Do you worry that even if you got your spending cuts, the American economy will suffer? A report released by the National League of Cities, the National Association of Counties and United States Conference of Mayors said they’ll have to lay off 500,000 people in the next few years if they don’t get some fiscal relief. That’s 500,000 people on the unemployment rolls.

I’ve always believed we need automatic stabilizers. We need a safety net. But I think it’s becoming equally important to show we’re not going to borrow endlessly. I also think it’s a bad idea to bail out states from making the necessary decisions they need to make to increase and fix their structural deficit problems. All you’re doing then is putting their liabilities on the federal books. And I assume those jobs are mostly public sector jobs. If you focus on those, that money comes from the private sector. The money isn’t free. It’s being taken out of the private economy and pumped through the private sector. The right path is to keep the money in the private sector and so they have money to invest. We should focus on growth in the private sector, not growth in the public sector.

I disagree on transferring aid to the states, but if more Paul Ryans populated the Republican Party we’d all be better off.


(image by Joshua Roberts/Bloomberg)

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