Working the Refs

I feel like I've already written too much — probably way too much — about Paul Ryan's budget proposal. But Ezra Klein makes a point today that's been in the back of my mind too: Ryan's plan is not only not bipartisan, it's deliberately constructed to be as offensive to Democrats as it's possible to be:

Ryan’s budget adds a bunch of extraneous, ideological priorities into the deficit reduction talks. He privatizes Medicare, which costs money. He repeals the resolution authority in Dodd-Frank. He reorients our energy strategy away from renewables and toward domestic production of fossil fuels. He locks in the Bush tax cuts. Most of these decisions are largely unrelated to the deficit, and/or increase it. But they’re polarizing — Republicans love them and Democrats hate them — and by bringing them into the discussion, it’ll make it ultimately harder to come to a deal. Both sides are only willing to compromise on so much, and when you add a lot of items that should [not] have been included in the first place, you run the risk of hitting people’s limits before you’re able to deal with the core issues.

In any kind of serious proposal, you'd expect the author to at least make a few nods in the direction of bipartisanship. They might be fake, but at least they'd be there. But not Ryan. His proposal is a 100% tea party wet dream: Do away with one of the Democratic Party's signature achievements of the 20th century. Slash spending on social programs for the poor. Use the reduced spending to make room for tax cuts on corporations and the rich. Put a hard cap on federal outlays that's almost absurdly low. Give the Pentagon everything it wants. And stitch it all together with supply-side voodoo economics and budget projections so laughable they're almost designed to be insulting.

But as Ezra points out after reading through the details, it's even worse than that. Just in case any moderate Democrats might be inclined to tentatively say something nice about his plan, it's studded with other calculated insults. Repeal Dodd-Frank! Repeal Obamacare! Drill baby drill!

I don't know what motivates Ryan, but it's certainly not a genuine search for plausible grounds for negotiation. Instead, he's produced a document carefully crafted to produce a universally negative reaction from Democrats, presumably because he thinks that will make Democrats look intransigent while the Beltway press is busily thinking up new ways to praise Ryan for his courage and gutsiness.

So far that calculation seems to be paying off. For more, see David Corn on what you get when you Google "Paul Ryan budget serious."

The ECB Cries Uncle

Portugal more or less declared bankruptcy yesterday. Here's how the ECB responded today:

Worried about rising prices, the European Central Bank raised its benchmark interest rate for the first time since 2008 on Thursday, risking damage to weaker economies like Portugal, which only a day earlier became the third country to request an international bailout....The bank president, Jean-Claude Trichet, and other members of the governing council had warned repeatedly over the past month about the risk that higher oil prices would fuel a general increase in prices.

This is nuts. Inflation is a monetary phenomenon. Surging oil prices are a supply and demand phenomenon. Oil prices aren't going up because there's too much money in circulation, they're going up because supply is limited, there's unrest in the Middle East, and demand keeps rising inexorably upward.

I have some sympathy for bond hawks who say that although bond prices aren't currently showing any fear of either inflation or financial collapse, markets can turn quickly and it's best to keep from ever getting to the point when that turn might happen. Still, a little more inflation right now would be a good thing, not a bad one, and economic growth would be a really good thing. Anything that gets in the way of growth is just begging for bigger trouble down the road. This panicky action from Trichet is a big mistake.

Beck's Brain

I happened to tune into Glenn Beck for a few minutes today, and I really think the guy is losing his mojo. He was going on and on about how he was going to put everything together for us today and tomorrow, but I found myself just yawning through the whole thing. (Though the image of Samantha Power "whispering in Obama's ear" was sort of amusing. I don't imagine that Power is the whispering sort.)

Anyway, I had just tuned out because Beck wouldn't get to the point and life is too short for this kind of rambling. I want mainlined conspiracy theorizing! I want a direct look into Beck's brain! Luckily, when I returned to my computer, I learned that Steve Brodner has given us exactly that for the upcoming issue of the magazine: a schematic breakdown of Beck's brain. Click the thumbnail on the right to see it full size.

Eat the Rich

Megan McArdle:

As the angry debate over Ryan's budget plan wears on, one suggestion I'm seeing over and over is that we should just raise personal and corporate income tax rates back to where they were in the 1950s, when marginal tax rates were 50% on corporate income and up to 90% on personal income.

Really? Who's saying that? Anybody of any significance?

Bold Thinking on Climate Change

Medicare and the federal deficit are long-term problems. Global warming is also a long-term problem. Paul Ryan has been widely hailed as courageous for proposing a 100% conservative solution to the former, so Matt Yglesias wants some props for proposing a 100% liberal solution to the latter:

Yes this is a “politically unrealistic” agenda, but why is that different from the widely praised “boldness” and “bravery” and “adult” nature of various deficit hawk concepts? Can’t we get a commission? A grant from Pete Peterson? Something? It seems to me that a politician who wrote down a Ryan-style “Climate Roadmap” would find him or herself dismissed as a leftwing crackpot pushing wishful thinking rather than a bold thinker. It’s infuriating.

Yes. Yes it is.

The Algebra II Blues

This story has been tickling the back of my mind ever since I first saw it, but I haven't blogged it yet. So here it is. I knew that many school districts have started requiring kids to pass algebra in order to get a diploma, and I've always had mixed feelings about this. But a few days ago the Washington Post informed me that things have gone far beyond that:

Of all of the classes offered in high school, Algebra II is the leading predictor of college and work success, according to research that has launched a growing national movement to require it of graduates.

In recent years, 20 states and the District have moved to raise graduation requirements to include Algebra II, and its complexities are being demanded of more and more students.

....One of the key studies supporting the Algebra II focus was conducted by Anthony Carnevale and Alice Desrochers, then both at the Educational Testing Service. They used a data set that followed a group of students from 1988 to 2000, from eighth grade to a time when most were working. The study showed that of those who held top-tier jobs, 84 percent had taken Algebra II or a higher class as their last high school math course. Only 50 percent of employees in the bottom tier had taken Algebra II.

....But not everyone is convinced that Algebra II is the answer. Among the skeptics is Carnevale, one of the researchers who reported the link between Algebra II and good jobs. He warns against thinking of Algebra II as a cause of students getting good jobs merely because it is correlated with success. “The causal relationship is very, very weak,” he said. “Most people don’t use Algebra II in college, let alone in real life. The state governments need to be careful with this.”

This is one of the things that makes me so dubious of the ed reform community. Algebra II! As a minimum requirement to hold a high school diploma! We're literally saying that if you can't factor polynomials, manipulate complex numbers, do matrix arithmetic, and understand basic trig, then you can't get a high school diploma? Really?

This effort is apparently being spearheaded by Achieve, "a group organized by governors and business leaders and funded by corporations and their foundations, to improve the skills of the workforce." OK. But I'm willing to bet a significant amount of my income that there's no causal relation at all between Algebra II and success in holding a top tier job. The only correlation is that smart kids tend to take Algebra II and smart kids also tend to go to college and end up in top tier jobs. Algebra II itself has nothing to do with it.

I'm a math nerd — or at least I used to be until I discovered I wasn't as smart as I thought I was — but this seems crazy even to me. What say you, commentariat?

Grasping Reality For Real

Ezra Klein makes an important but wonky point today about Paul Ryan's plan to cap Medicare costs: instead of capping growth at GDP + 1%, it caps growth at the rate of inflation:

Here’s the catch: The way GDP gets calculated includes inflation. So think of GDP+1% as the rate of inflation plus the rate of productivity growth plus one percentage point. With me so far?

....So let’s say that in 2024, inflation was 2 percent, productivity growth was 2 percent, and health-care costs grew at 6 percent. Under Ryan-Rivlin, Medicare and Medicaid would grow at 5 percent — a bit less than health-care costs in general, but not that much less. Under Ryan, Medicare and Medicaid would grow at 2 percent — beneficiaries would have to make up the difference.

This can all seem like so much gobbledygook, so here’s the bottom line: it’s totally unrealistic — and I say that as a cost control optimist. Look at the other health-care plans that have been proposed: none of them suggest they can get the growth of Medicare or Medicaid down to inflation*. But that’s where a lot of Ryan’s savings come from. Which is to say, either those savings aren’t real or we’re assuming America is going to abandon seniors and the disabled in a way that has no recent precedent.

This is all in service of Ryan's real goal. His document isn't primarily concerned with the federal deficit or with Medicare reform. The key goal in his budget is to reduce federal spending to 18% of GDP. Everything else is simply shoehorned in to meet that goal.

But it's an absurd goal. Over the past 30 years, federal spending has averaged about 21% of GDP. And since America is aging, even if we control costs carefully we're going to need to spend more money on the elderly. This isn't because we're being wildly generous toward them, it's simply because there are going to be more of them. So any realistic budget needs to assume that spending will slowly increase over time, ending up at maybe 25% of GDP a couple of decades from now. Ryan's 18% goal is just pie in the sky pandering to his tea party base.

Matt Yglesias agrees, "But I think it does set the stage in which the White House or someone in congress ought to produce a pie-in-the-sky counter budget." But why follow Ryan's pie-in-the-sky approach? Call me a crazy idealist, but why not propose something genuinely serious instead? Start with letting the Bush tax cuts expire. Add in Social Security reform that increases payroll tax revenue by about 1% of GDP and trims benefits by about 1% of GDP. Set a goal of cutting defense spending to 3% of GDP. Federalize Medicaid. Build on the reforms of ACA to rein in Medicare growth in a reasonable way starting now, a la Ryan-Rivlin. Raise additional revenue via a carbon tax and revenue positive tax reform. Agree on some genuinely bipartisan program cuts in areas like ethanol subsidies, farm support, and some of the least effective social programs. Keep PAYGO in place to restrain the growth of discretionary spending.

Something along these lines would be a genuine proposal. It takes from both left and right, it's not balanced entirely on the backs of the poor, and it deals realistically with the needs of an aging nation. And there are plenty of blueprints to pick and choose the details from. Politically it might be wiser to either stay quiet or else just throw out a Ryanesque piece of PR bait. But it would be more responsible to actually tackle the problem. If not now, when?

UPDATE: Ryan's plan caps Medicare growth at the rate of inflation, not inflation + 1% as I originally wrote. I've corrected the text.

How to Be Serious (Really!)

Just as a willingness to tackle Medicare (and healthcare costs in general) is the litmus test for being serious about the long-term federal deficit, there's a litmus test for being serious about the medium term deficit too. Here it is: you should be in favor of letting the Bush tax cuts expire in 2012. All of them.

There was a case for keeping them in place last year since the economy was still fragile. By 2013 this won't be true any longer, and letting the cuts expire would wipe out half of the federal deficit at a stroke over the next decade. What's more, since we'd just be reverting to the same tax rates we had in the 90s, when the economy boomed, we know that this would do no harm to economic growth.

This ought to be the first question you ask any deficit hawk. If they're OK with letting the cuts expire, then the conversation can continue. If not, they're just preening.

The Relentlessly Orthodox Mr. Ryan

Rep. Paul Ryan (R-Wisc.).

It's a bit of a fool's errand to think anyone is going to take this seriously, but I'm glad David Leonhardt brought up an obvious point today: if the federal deficit is truly an "existential crisis," and everyone has to sacrifice to get it under control, then there's no reason the elderly shouldn't have to sacrifice too:

There is nearly a bipartisan consensus that any cuts to Medicare and Social Security should spare the baby boomers and the elderly. And, certainly, retirees or people on the verge of retirement shouldn’t have their benefits changed radically. But the consensus, like Mr. Ryan’s plan, goes too far.

The reason is partly political. Older people vote in larger numbers than younger adults. And children, of course, can’t vote at all. But beyond politics, Washington’s age bias depends on a basic misunderstanding of the budget — namely, that older people have already paid for their Medicare benefits.

They haven’t. For most Americans, Medicare resembles a giant welfare program. They receive far more in government benefits than they ever pay in taxes and premiums. The gap for a typical household runs to several hundreds of thousands of dollars.

This is a point that few people ever make explicitly: today's retirees aren't merely getting benefits that they've paid for their entire lives. They're drawing way, way more from Medicare than they ever put into it. To make this concrete, here's an estimate from the Urban Institute of how much a single man who retired last year will get in lifetime Medicare payments. (All of this has been adjusted for inflation.)

This retiree is going to get three times more out of Medicare than he ever paid in. So if it's really true that everyone needs to sacrifice, then why should current retirees, who are getting such a sweet deal from the rest of us, be excluded from the pain?

This is just one of many ways in which Paul Ryan's budget plan is the farthest thing imaginable from courageous, even though that seems to be the most common adjective to describe it. Ryan ignores Social Security because he knows privatization won't fly and he doesn't have the courage to propose a mainstream reform of the system that would be unpopular with conservative mandarins. He exempts seniors and baby boomers from his Medicare plan because he doesn't have the courage to take on a powerful Republican voting bloc. He eschews details, basing the bulk of his plan on little more than theoretical spending caps, because he doesn't have the courage to explain what his spending reductions would actually mean. He focuses most of his cuts on programs for the poor because he doesn't have the courage to tackle weak claims rather than weak claimants. He gives the Pentagon a pass because he doesn't have the courage to stand up to hawks in his own party. And above all else, he refuses to consider tax increases of any kind because he doesn't have the courage to take on Grover Norquist and tell his own caucus what every genuinely serious analyst already knows: the only way to tackle the long-term deficit is with both tax hikes and spending cuts.

So explain to me: what's courageous about a Republican congressman proposing spending cuts for the poor, entitlement cuts only in the far future, tax cuts for the rich today, and hands off the Pentagon forever? Nothing I can think of.

The Future of China

A new paper suggests that countries start to experience growth slowdowns when their per capita incomes reach $17,000, a level that China will reach in about five years. Ryan Avent:

The story this suggests is one that's quite at odds with the prevailing view in much of the world—that China's relentless growth will continue until it dominates the global economy. Another possibility arises. Within a few years, we may be reading "What's the matter with China?" stories. A growth slowdown and demographic difficulties will challenge the policy status quo and could potentially expose serious weaknesses in the growth model (as Warren Buffet says, when the tide goes out, one sees who's been swimming naked). India, on the other hand, will be ascendent. And that could make for a very different set of policy challenges and priorities within the rich world.

I agree, and I'm surprised this isn't a more common narrative. Demographic problems alone put serious limits on China's future growth path, and the slowdown in productivity once they hit the $17,000 income level will make things even worse. China will plainly be a big player on the global stage for the rest of this century, but they're not going to take over the world quite as quickly as folk punditry often has it. This is something to keep in mind the next time some hawkish outfit releases yet another study trying to scare everyone into big Pentagon budget increases in order to stave off the future red menace.