I’ll confess to being a little surprised by Mitt Romney’s pick of Congressman Paul Ryan for Vice President. I really thought that he would go with someone older and weightier, perhaps with some experience on the international stage.
I agree with Jonathan Bernstein at the Washington Post: ultimately, the VP pick probably won’t matter very much and Ryan is in particular a “high-risk, low-reward” choice.
Ryan will likely fare fine in debates. He’s attractive and a good speaker (although he’s going to look a little too much like a long lost Romney son in campaign ads). His presence might inject into the campaign some real discussion about the federal budget and how to avoid the upcoming fiscal cliff — but the majority of voters will disagree with Ryan’s specific prescriptions. The more they hear, the less they’ll like.
Some of the obvious drawbacks to the Ryan pick:
- Ryan is very young, just 42, and represents a single Congressional district.
- The choice would seem to do nothing to broaden the GOP’s appeal to minority groups.
- He is untested on issues outside of budget debates and has very low national visibility outside the chattering classes.
- The details in his budget show him to be a small government conservative (aside from defense spending) much more than a fiscal one. His budget proposal would not achieve balance until 2040 and even then assumes absurdly optimistic scenarios for economic growth. More on that in a moment.
- He would dramatically transform Medicare into a system that’s quite similar to the individual mandate in the ACA: seniors would get “premium support” and buy their own private plans from a variety of allegedly competitive options. From Politico:
The idea is to turn Medicare into a program that subsidizes private insurance plans. A voucher would do that by sending the money to seniors, and theyâ€™d go out and buy the plan. With premium support, Medicare pays the money straight to the plan that the senior chooses.
So yes, thereâ€™s a difference â€” but itâ€™s hairsplitty. What worries people about vouchers is the idea that the money will be limited, and it wonâ€™t cover their costs. Will the payments be limited in premium support? Of course. Thatâ€™s how it saves money.Competition among the new private plans is supposed to contain costs. But if that doesnâ€™t work, thereâ€™s a Plan B. Medicare spending wonâ€™t be able to grow more than the Gross Domestic Product plus 0.5 percent. Thatâ€™s pretty tight, but Obama himself has set the same goal. [. . .]
The health care law sets up new marketplaces for private health insurance, called health exchanges, in every state. (If the states donâ€™t build them, the feds will set them up.) Ryanâ€™s plan would get rid of the insurance exchanges and the subsidies that would help people shop in them.
But then it would set up its own health exchange â€” for Medicare. Thatâ€™s where private health plans and traditional Medicare would compete for seniorsâ€™ business.
Clearly, going forward, America has to figure out how to contain the costs of Medicare. Many seniors are in a position to pay a bigger share for services and/or higher monthly premiums. There are all sorts of models around the world for moving away from fee for service models that encourage procedures that might be unnecessary. I could go on and on about that. But my main problem with Ryan’s Medicare plan is this: I don’t want older Americans — like my parents who have been incredibly well served by Medicare as it is — being burdened with the stress of dealing with the private insurance market while facing life-threatening illnesses.
Finally, I’m going to paste here an entire post that I wrote back in May 2011, detailing the absurd economic projections for housing in Ryan’s budget plan, which not only slashes government spending but also slashes revenues. If you want critiques of other parts of the plan, check out the full article that I cite below: The Economic Effects of the Ryan Plan: Assuming the Answer?
Congressman Ryan’s plan to slash federal spending, which drew the votes of almost every House Republican, doesn’t just rely on dramatic spending cuts. The math behind the plan also assumes that the decreases in federal spending and in taxes will provide an impressive boost to the economy. The rosy economic analysis by the conservative Heritage Foundation upon which the plan relies has been criticized by many economists; in an upcoming post, I’ll look more broadly at some of those critiques.
For this post, I just want to look at one area of the economic analysis: Heritage’s projections for residential investment under the Ryan plan.
The National Journal summarizes the issue pretty succinctly:
The tax and spending roadmap put forth Tuesday morning by Ryan, the Wisconsin Republican who heads the House Budget Committee, is backed by a set of extremely optimistic assumptions about how the budget would stimulate private investment, hiring, and broad economic growth.
[. . .] The forecasters say Ryanâ€™s plan would result in the creation of nearly 1 million more jobs next year, above and beyond the jobs that would be created by normal growth. And that surge would continue, they say, adding 1.3 million jobs above business as usual for each of the next 10 years.
In the near term, many of those jobs appear to be the direct result of a new housing boom: The analysts project an additional $89 billion in residential investment in 2012 under the Ryan plan, and a total of more than $1 trillion in additional housing investment for the next decade. This would be despite the housing market’s continuing litany of post-bubble woes: falling prices, a backlog of foreclosures, and a glut of unsold homes.
We have a huge overhang of existing homes. Vacancy rates are far higher than historical averages. Even if household formation returns soon to its historical average, it will be 2014-2016 before we’ve whittled the inventory of homes down to the point where residential investment can return to its historical average.
Still, the Ryan plan assumes an additional 75,000 households will be created in 2012 above the baseline projections, and that there will be an $89 billion increase in residential investment above the baseline (which is almost certainly itself too high because there is still so much slack in the housing market). That works out to an investment of almost $1.2 million per additional unit added under the Ryan plan. Look at the numbers here.
For 2013, the economic analysis of the Ryan plan assumes a yearly increase of about 1.9 million households and a total residential investment in structures of $621 billion (about 19% higher than in 2012). Those increases are similar to the ones in the baseline projections, but the Heritage Foundation’s numbers are layered on top of the huge boost in residential investment in 2012.
Macroadvisors, the blog for Macroeconomic Advisors LLC, coldly picks apart these absurd predictions in “The Economic Effects of the Ryan Plan: Assuming the Answer?”:
In the simulation, the component of GDP that initially increases most, both in absolute and in percentage terms, is residential investment. This is really hard to fathom. Thereâ€™s no change in pre-tax interest rates to speak of, hence the after-tax mortgage rate presumably rises with the decline in marginal tax rates even as the proposed tax reform curtails some or all of the mortgage interest deduction. Itâ€™s hard to imagine the financing cost of housing not rising, at least initially. True, the simulation shows the number of households increasing 75 thousand in the first year, but the simulation also shows residential investment jumping $89 billion, or 21%. Given the size of this increase, we can suspect that residential investment was also adjusted up directly. In any event, at todayâ€™s real value of approximately $210 thousand per newly completed housing unit, the extra investment is enough to build roughly 425 thousand units in 2012, of which 350 thousand would be empty at a time when we estimate there already is an excess of more than a million units that could be absorbed by new household formation.
And this imbalance only worsens through time. Cumulating the increases in residential investment by perpetual inventory using a 1.5% annual depreciation rate, we calculate that by 2021 the real residential housing stock is up $1.023 trillion. At a decadal average of roughly $234 thousand per newly completed housing unit, this translates into an additional 4.4 million units. By the end of 2021 households are up only 379,000, so that 4 million unoccupied housing units have been built, creating an overhang as large as we estimate developed at the peak of the recent housing boom.
Macroeconomic Advisors is not some fly by night group, but a serious investment consulting firm that is serious about advising (and keeping) clients.
Why would almost 100% of House Republicans vote to end Medicare as we know it (that may sound trite, but the system that Ryan sees really is so different that it needs a new name), when the entire economic plan on which they are voting has not been thoroughly vetted? Is it “courageous” or “bold” to vote for such a dramatic plan if its implications and assumptions are not well understood?