The Awful Ryan Budget

While I have already blogged about this, the cacophony of voices against the Ryan budget as harsh, I felt that talking about it again is needed. 

Here is an example:

Mr. Ryan’s proposals would substantially phase out the federal government’s role in providing basic social insurance for older people by sharply reducing Medicare and by eliminating almost all nonmilitary discretionary spending.

No, that was the Rand Paul proposal. The Ryan budget grows government spending by 4% a year while the Obama budget, voted against in rare unanimity by the House and the Senate, grows the budget at 5% a year. Neither is sustainable. Here is the Veronique de Rugy Chart I used before. 

The Ryan budget does NOT cut spending, it reduces the increase in spending. 

The problem in the long term is health care. The cost of health care grows each year by about 7%. 

The projected growth rate of 7.5 percent for overall healthcare costs contrasts with expectations for growth of 2.4 percent in gross domestic product and a 2.0 percent rise in consumer prices during 2013, according to the latest Reuters economic survey.

Look at this chart and think about what that means for a minute. 

Most developed countries spend 8 to 12% of GDP on healthcare. The US spends 15%. If health care costs continue to grow at 7.5% then in ten years the cost will double. Since the economy is also growing at 2% this will not result in a doubling of the percentage spent on health care. This will take longer, 15 years or so. Does anyone think that 15 years from now the United States will spend 30% of GDP on health care? As Herb Klein, advisor to Nixon, once said, if it can't continue it won't continue. 

Here is how the NY Times blogger I quoted earlier put the Ryan proposal:

On Medicare, Mr. Ryan’s proposal is very simple. He wants to cap increases in spending on Medicare below the rate at which health care costs increase. By his own estimates, the share of Medicare spending relative to the size of the economy would shrink sharply over the coming decades.

What the blogger fails to realize is that we have no choice. Yes this means Dad may not get that second double bypass operation; Mom may not get her new knee. The reason is simple. We do not have the money. In fact Obama's proposal for health spending and Ryan's proposal are almost identical in terms of total growth. 

Here is the conclusion to the blog post:

Under such a Ryan-Romney approach, big risks – such as severe ill health and the danger of other calamities – would be shifted from society to individuals. Large corporations in health care and finance and perhaps in other sectors would benefit. So, too, would the people who control those favored legal entities.

This is the exact opposite of the truth. The Ryan proposal would keep the health care for large expenditures but reduce everyday health care expense. In fact the Ryan proposal is woefully inadequate. We do not have the money even for his proposal. Using false optimistic economic assumptions the Ryan proposal balances the budget in 26 years—in other words, not at all. 

Large cuts in spending now are better than draconian cuts later. I am not sure why so few can see this. Each party has their own ideological blinders. As much as I dislike tax increases, the choice we face is large tax increases, even larger budget cuts, or societal chaos when investors quit buying government bonds. Yes those cuts must include defense. 

Remember, what can't continue won't continue. Act now or suffer later.