Paul Ryan on Deficits and Debt

Paul Ryan, chairman of the House Budget Committee, gave a talk and took questions this morning at an event organized by the American Council on Capital Formation. In his opening remarks he restated his basic, familiar position: the recovery is slower than it should be, and the country's longer-term economic prospects are blighted, because of bad economic policy. Good economic policy, he said, means four things.

First, get government spending and deficits under control, to restore fiscal certainty and allay fears of higher taxes down the road. Second, tame the regulatory state. Third, increase tax revenues through higher growth. (Especially, stop putting US firms at a disadvantage with higher taxes than their international competitors face.) Fourth, ensure sound money. (He said he was worried about the scale of the Fed's recent interventions and where they might lead. He drew from his wallet his portable collection of worthless hyperinflated currency from Zimbabwe, Weimar Germany, and other bankrupt nations, given to him by voters he has met.)

Then he was asked about the current talks over raising the debt ceiling.

Republicans have ruled out simply raising it without conditions, which is what the Treasury wants. But recently the two sides have been moving towards a deal. This could involve another "down payment" on spending cuts; agreement on caps or targets for future deficits or spending; and commitment to some kind of automatic action if those caps are breached. President Obama mooted something of the sort in his recent speech on budget policy.

Ryan was asked a key question: whether the automatic action might include tax increases. No, he said.

He was asked if he thought the Gang of Six talks in the Senate were making progress. He said he didn't know--he thought they might have slowed down. He was asked about talks that Joe Biden is currently chairing. He said it was a forum for talking about the debt ceiling, but not to expect agreement there on larger budget issues. At the outset, in fact, he warned against expecting any kind of grand budget settlement before the next election. In the current talks, he was hoping for "a single or a double," as he has said before, not a home run.

More than once he mentioned Obama's rejection of the Bowles-Simpson plan, implying this had been a missed opportunity--almost as though Ryan and other House Republicans on the commission had voted for it themselves, which they didn't. So I asked him to remind us why he opposed the Bowles-Simpson approach as a possible compromise.

His answer slightly surprised me, because he said nothing about taxes. (Bowles-Simpson includes tax increases, though they come from mainly from narrowing tax expenditures, not through higher rates; the plan actually cuts income tax rates.) He said the problem was health care. Bowles-Simpson leaves the administration's health-care plan intact, and Ryan said that cannot work. So I asked a follow-up. In his view, can there be a compromise on long-term fiscal policy that does not include the dismantling of the Democrats' health-care reform. His answer was no. The gulf between Democrats and Republicans on this is so wide, he said, that it will take another election to resolve the matter.

Does the US have that long to fix this problem? Say the debt ceiling is lifted soon and fiscal policy is patched--but not fully repaired this side of the election. That would lessen, but it would not remove, the risk of abruptly higher bond rates between now and then, especially if markets took the view that the underlying problem was getting worse. The US might not have two years to put this issue aside. Also, why think that the next election will resolve anything? Did the election of 2008, which gave Democrats control of both chambers and the White House, settle the health-care debate? Bipartisan compromise is required to resolve these issues; it is either that, or they remain unresolved.

As a paid-up Bowles-Simpson subscriber and advocate of compromise, I do not like Ryan's "Path to Prosperity". But I always find him impressive. He has thought hard about the issues, and he is a formidable politician. His manner is excellent: serious, sincere, self-deprecating, down-to-earth. His views have substance, and ought to be met with substance. Democrats would be fools to ignore him, or to try answering him with disdain or mockery (as some do). If that is the turn the fight in the country takes on Ryan's ideas, then (sanctity of Medicare notwithstanding) I can see him winning.