(rather than several links and excerpts, we thought Keith Hennessey’s post here was so great that we would just post it in it’s entirety)
Congratulations to Governor Romney for his superb choice of Rep. Paul Ryan as his VP candidate. I propose increasing the number of vice presidential debates from the one currently planned for October 11th.
The selection of Paul Ryan is about much more than just fiscal policy. Nevertheless much of the campaign politics over the next three months will be about the budget he proposed and then passed through the House. Here are a few thoughts as campaign attacks on the Ryan budget accelerate.
The fiscal politics are the inverse of the macroeconomic politics. So far the Romney campaign has framed the election as a referendum on President Obama’s economic record, while President Obama has been framing a contrast between his vision and his straw-man characterizations of the Romney/Republican vision. I expect the Obama campaign will now seek to highlight the pain in the Ryan budget while minimizing discussion of the President’s alternative budget proposal. The Romney-Ryan campaign needs to highlight the contrast with President Obama’s unsustainable proposed fiscal path.
Micro vs. macro framing – The Obama campaign and its allies will focus on micro-issues, telling horror stories of cuts to specific popular government programs. This dovetails with their constituency-based messaging so far. The Romney-Ryan campaign should try to zoom out and highlight (1) the macro effects of the unsustainable current/Obama spending path and (2) the irresponsibility of President Obama’s refusal to propose a long-term fiscal solution and his legislative party’s refusal to pass a budget. Team Obama will highlight the pain the Ryan budget would cause to targeted constituencies. Team Romney-Ryan needs to explain that the Obama budget and a failure to govern would lead to economic disaster for everyone.
Bogus spending cut numbers – Every “cut program X by Y%” quote about the Ryan budget will be relative to an unsustainable spending path. The irresponsible part isn’t the proposed spending cut, it’s the promise to keep spending growth going without specifying how you’ll pay for it. If President Obama were proposing tax increases to match his future spending growth, then this would be a fair attack. But he is not.
Incremental vs. structural change – More generally, the Obama fiscal path and campaign message rely on the false presumption that everything will be OK if we raise tax increases only on the rich and make small, mostly painless spending cuts. This is incorrect. Whether you support spending cuts, tax increases, or a combination, you need to make big, structural fiscal policy changes to get on a long-term sustainable fiscal path. Our federal government spending path is seriously out of whack and minor adjustments won’t fix it.
If you don’t want to make big “cuts” and structural changes to government spending, then the President’s current set of proposed tax increases are, at best, only a short-term fiscal band-aid. You mathematically force yourself into supporting income tax increases on the middle class and big value-added taxes. Tax increases only on the rich won’t suffice no matter how high your rates go. You are also choosing to keep raising taxes, repeatedly and forever, because the spending line slopes up while the tax line stays flat. This is an arithmetic result that is independent of my policy preferences.
It is unfair to compare a legislative end-product with an unsupported proposal. The Obama campaign will attack the specifics of the House-passed budget and attribute them all to Rep. Ryan. It is apples-and-oranges to compare the result of a House-passed budget with the President’s proposal. The House-passed budget includes compromises needed to garner the support of a majority of the House, while the Obama budget is a proposal. The Obama budget was not supported by a single Member of Congress, and the President’s party neither offered it nor an alternative in the Senate where they have a majority. Because they are the products of compromises and votes, legislative results are always messier and less intellectually coherent than any one person’s starting proposal.
Don’t forget the facts. In March I compared the deficit and debt effects of President Obama’s budget proposal with Chairman Ryan’s in both the short and long run. Here are the conclusions from those posts.
Short run comparison (10 years)
- In the short run the Ryan budget proposes lower deficits and less debt than President Obama’s budget.
- Under the Ryan budget debt would peak at 77.6% of the economy in 2014. Under the President’s budget, debt would peak at 80.4% of the economy in that same year.
- The Ryan budget would cause debt to steadily decline to 62.3% of GDP by the end of the decade. Under the Obama budget debt would flatten out by 2018 and end the decade at 76.3% of GDP, 14 percentage points higher than under the Ryan budget.
- At the end of 10 years, debt would be declining relative to the economy under the Ryan budget, while it would be flat under the President’s budget.
- For comparison the pre-crisis (1960-2007) average debt/GDP was 36.3%.
- Chairman Ryan proposes stable deficits of a bit over 1% of GDP, below the historic average deficit, followed by a gradual path to balance and eventually to surplus.
- President Obama’s budget would result in deficits that are always greater than the historic average, and that would cause debt/GDP to increase again beginning about 10 years from now.
- President Obama’s proposed deficit path is unsustainable. Our economy can tolerate high and even very high deficits for a short time. High and steadily rising deficits like those in the President’s budget cannot be sustained. Something in the economy will break.
- Chairman Ryan’s plan would result in debt/GDP steadily declining over time. It would take decades to return to a pre-crisis average.
- President Obama’s plan would result in debt/GDP stabilizing by the end of this decade, then growing steadily and forever thereafter. At some point, and no one knows when, that growing debt becomes unsustainable. If we’re lucky the resulting economic decline is gradual. If not, we have a financial crisis.
Keith Hennessey has done a great job here. His original work can be found on his website. His emails are definitely worth signing up for.