James Pethokoukis

Politics and policy from inside Washington

The debate has shifted …

Nov 23, 2010 15:55 UTC

James Capretta is dead on:

But what’s really important about the last month is not that any reform plan is about to pass. It’s that the terms of the budget, entitlement and health care debates have shifted dramatically, and very likely on a permanent basis. The fundamental elements of the Ryan Roadmap are sweeping tax reform; changes in health care which emphasize a marketplace and consumer choice; and modifications to retirement programs that reflect demographic reality. All of these elements can now be found in budget plans endorsed by prominent Democrats, including Democrats the president himself turned to find solutions to the nation’s budget problems. Consequently, it will be much harder in the future for Democrats to demonize these ideas as they have tried to do in the past.

COMMENT

Well, spending cuts are necessary… but it’s really the revenue side that’s hurting right now, and that’s a direct reflection of the housing situation (granted 8m fewer workers paying taxes – because they have been let go in the recession – makes a difference but not nearly as much). I think that a new revenue stream has to be discovered; cleaning up the tax code will help a lot, but honestly I think the rich owe it to America to be willing to do their part… not the marginally rich, but those earning more than $2m per year. Cuts, yes absolutely, but more revenues too… BOTH need to happen or we just need to cross our fingers that the housing market will go to the moon again.

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Just how much defense spending can be cut?

Nov 23, 2010 15:38 UTC

This chart from the Committee for a Responsible Federal Budget shows that while there may be some room to reduce defense spending, the instrument of choice should be a scalpel rather than a hatchet:

defense

COMMENT

Seems like 1% of GDP (from your chart) is going to war spending… so that’s $150B savings once the wars stop. Plus, pulling down troop numbers in Germany, Japan, South Korea are probably worth another $50B/yr. That’s an easy $200B a year savings. Seems worth it and easy to me… Maybe cutting back on building new/more aircraft carriers and submarines would knock off another big chunk of change too.

Also, I find it more than slightly disingenuous to compare current defense spending to Reagan-era defense spending, when the govt was actively and purposefully increasing military spending to intimidate Russia. I’d be curious to see how that chart looks going back to the 30s, through the depression, through post-Korea/pre-Vietnam decade, etc.

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Paul Ryan and the conservative economic mind

Nov 23, 2010 15:24 UTC

A member of the Bush White House once told me that the two key influentials when it came to conservatives/Republicans and economics were the Wall Street Journal editorial board and CNBC’s Larry Kudlow. Well, I think you can add a third name to that list: Rep. Paul Ryan. In a newspaper chat,  the GOP budget guru gives his two cents on the Fed:

Ryan is regarded by many as a rising star in the GOP and a Republican point man on economic issues. The controversy allows him to showcase his fascination with the arcane business of central banking. ”Monetary policy was always my first love,” he said.

Asked if the industries in his district have contacted him in favor of a cheaper dollar, Ryan said: “I’ve heard from manufacturers who want that. But it’s from people pursuing sort of a narrow view of interest. I had some manufacturers say it to me a couple of weeks ago in Kenosha, steel manufacturers.”

There’s no question that Ryan’s district is hurting. It includes three of the highest unemployment areas in the state, all with 10% unemployment or higher: Racine; Kenosha, where Chrysler shut an engine plant last month; and Ryan’s hometown of Janesville, where General Motors shuttered an assembly plant two years ago. The state’s only metro area with higher unemployment is Beloit, at 14.4%, which borders Ryan’s district. ”I won’t dispute that a cheaper dollar can help boost exports in the short term,” Ryan said. “But I don’t think it’s a good tradeoff to do so at the expense of inflation.”

To Ryan, the root of the problem is the Fed’s dual mandate, which calls on the central bank to promote employment as well as throttle inflation. Ryan said he has pushed for years to rewrite the Fed’s statutes in favor of a single mandate to control inflation and preserve the dollar as a store of value, making the Fed more like the European Central Bank.

Fighting inflation and boosting employment often are diametrical goals, he said. ”Basically the Fed is driving a car with two feet, one on the brakes and one on the gas pedal, and it’s a real jerky ride,” he said.

What’s fascinating about Ryan is that he keeps saying things that should get him into political trouble, but they don’t. He wants to rework Social Security. He wants to restructure Medicare. He  thinks a cheaper dollar is a bad idea.  And he won reelection with 68 percent of the vote in a district that Obama carried by four points. Good ideas expressed well and with conviction are powerful things.

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