The Paul Ryan Roadmap To Fiscal Solvency

by Pejman Yousefzadeh on February 4, 2010

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Paul Ryan is one of the most substance-oriented members of Congress around; a respected and admired voice on budget and economic issues. He has put forth a plan to get rid of the long-term fiscal deficit, which he discussed at length with Ezra Klein. You are, of course, encouraged to read the whole thing, but a few passages stand out:

I had lunch with a bunch of manufacturers yesterday. One gentleman had a 20-minute cataract procedure that cost $14,000. He couldn’t understand why it cost so much. In Milwaukee, the price of the same MRI ranges from $400 to $4,000. So you have a system in place that doesn’t function like a marketplace. You need to inject those market principles and an economic incentive to act on them. Then you have to break the insurance monopolies. That’s why I’m a fan of risk pools to subsidize people with preexisting conditions. I have a Medicare exchange to set up a certified Medicare system so people can select among those plans.

The whole point I’m trying to make here is that we have to understand these programs are growing themselves into extinction. The question, at the end of the day, is who’s going to be in control of this system. Is it the individual or the government? I don’t want the government more in control of the system.

[. . .]

So what I’m saying is that rather than having government ration care to manage decline, let’s take those market signals that work in every sector of the economy to reduce cost and improve competition. I got Lasik in 2000. That’s a cash surgery. It cost me $2,000 an eye. Since then, it’s been revolutionized three times and now costs $800 an eye. This sector isn’t immune from free-market principles.

[. . .]

In Milwaukee, the price of bypass ranges from $47,000 to $100,000. Nobody knows where to go for quality, or the prices. So wouldn’t it be good for the prices and quality metrics to be publicized? And let people make a decision. There’ll always be some level of co-pay or deductible or co-insurance that’s going to push people towards the best value. Then, when you have those chest pains and you’re being rushed in the ambulance, you’ll be rushed to a hospital that’s all along been competing for business and has been improved by that process. You’ll get better health care than you otherwise would. That’s how you improve the system.

[. . .]

. . . I don’t know anything about cars. I look at Consumer Reports and their ratings. What matters is that someone who knows about cars went and figured this out. The car company is competing for the really tough customer who goes under the hood. I’m not saying every American has to be that consumer. But enough people have to so the rest of us can benefit.

Again, read it all.

Ryan’s plan has attracted criticism too–from liberals who think that his plan is cruel. What they seem to forget, as they warn that “People Will Die,” is that if the deficit is not addressed, then we will end up paring back entitlement spending in a sudden, brutal stroke, when the deficit problem becomes absolutely unsustainable (and by “absolutely unsustainable,” I mean politicians running out in the street, tearing the hair out of their heads, screaming that the deficit problem had to be solved the day before). One way to respond to these people, of course, is to point out that at least Ryan has a plan, while the Obama Administration and the Democratic Congress are content to let net entitlement spending grow, while peddling the fiction that if only we increase taxes on rich people, we will right our fiscal ship.

But there is more to the Ryan plan than that, as Ross Douthat points out:

Liberals are giving Ryan his moment in the sun — or, if you prefer, his moment as a lightning rod — because they think that his small government plan makes big government look good. To a point, they’re probably right. The Ryan plan achieves a balanced budget, in large part, by transforming Medicare into a voucher program, with subsidies for the poor and means-testing for the better-off, and then holding the growth of the voucher below the projected growth in health-care costs. This would not be immediately popular with seniors, to put it mildly: It’s hard to imagine any scenario in which such a voucher could be kept low enough to achieve the kind of extraordinary savings Ryan has in mind (he envisions government spending dropping well below 20 percent of G.D.P.) without inspiring a full-scale revolt from the old-age lobby.

But the size of Ryan’s proposed voucher could be increased, to accommodate political realities, without doing violence to his overall vision of what government should be doing, and where it could be cut. And that vision is more appealing, I think, than many liberals are giving it credit for. What Ryan is proposing, ultimately, is a comprehensive blueprint for a conservative welfare state. A simplified tax code, consisting of a two-bracket income tax with a large standard deduction and a business consumption tax, would pay for a means-tested safety net, and a system of tax credits, risk pools and low-income subsidies would underwrite a free (or, well, somewhat freer) market in health care. In other words, Ryan would balance our books by shifting away from programs that shuffle money around within the middle and upper-middle classes — taking tax dollars with one hand and giving health-insurance deductions, college-tuition credits, home-mortgage deductions, Social Security checks and so forth with the other — and toward programs that tax the majority of Americans to fund means-tested support for the old, the sick, and the poor.

The only thing I would disagree with in this analysis is Douthat’s labeling of Ryan’s plan as a “blueprint for a conservative welfare state.” Quite the contrary, it is a blueprint for a responsibility state.

To close out this discussion, I highly recommend Ryan’s response to Peter Orszag, who tried to put his own spin on the plan.

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