Fantasy Politics In An Age Of Austerity

I was reading Ross Douthat this week and this observation struck me with some force, He wrote, “Policy innovation always creates losers as well as winners and earns adversaries as well as supporters. But policy innovation in an age of austerity tends to be politically perilous, because the pie seems to be shrinking and everyone’s worried about losing his or her own piece.”  I think that is true if we are talking about “policy innovation” as a blueprint for actually governing.  Any real plan for a sustainable budget (whether right or left) will mean that a lot of people will be getting less, some (or many) will be paying more and relatively few will be getting more than what has already been promised.  But if an age of austerity puts limits on what can plausibly be promised by those who hope to govern, it liberates those who are interested in brand building.  They can promise what they can’t deliver, and make a buck when they fail to attain office.

The risks and rewards of policy innovation can be seen in this year’s Gingrich campaign.  Gingrich had a chance to embrace a real policy innovation in the form of Paul Ryan’s premium support Medicare reform.  He didn’t.  That is okay in itself.  The Ryan Medicare reform isn’t perfect and some constructive policy criticism would have been even more worthwhile than an outright embrace.  But that isn’t what Gingrich did.  Gingrich called Ryan’s plan “right-wing social engineering.”  That was ugly enough but it was the next step that was truly disgusting.  Gingrich’s alternative proposal was to cut down on Medicare fraud.  Now here is a man who recognizes that “policy innovation in an age of austerity tends to be politically perilous.”   He obviously thought it was better to avoid talking about a Medicare reform made up of actual spending cuts and structural reforms and figured it would be easier to sell people on a something -for-nothing Medicare reform where the only losers would be “crooks” who defraud Medicare.  And it would have worked too, except that most conservatives had already bought into the Ryan Medicare proposal and were outraged at Gingrich’s obviously self-serving and fantasy-based posturing.  To Gingrich’s dismay, conservatives had exceeded his expectations.

Gingrich hasn’t stopped offering fantasy-based economic solutions (but he had learned not to take on Ryan head on.)  I take the Ryan budget as containing the most budget cuts we can plausibly hope for our political system to produce.  There is good reason to think that Paul Ryan doesn’t budget enough for Medicare, but that let us put that to the side and assume that the plan is truly realistic.  The Ryan budget cuts $5 trillion dollars over the next ten years, but even with all of those cuts, the government still has to borrow $5 trillion just to pay the bills.  This is with a “revenue neutral” tax reform.  When you look at the likely revenue impact of Gingrich’s proposed tax cuts, it becomes obvious that government revenue will be reduced by who-knows-how-many hundreds of billions or even trillions of dollars over the next ten years.  No one with the requisite skill has done a revenue analysis of Gingrich’s tax plan, but eyeballing the Tax Policy Center’s analysis of the Perry Plan, I would be surprised if the Gingrich plan didn’t reduce federal revenue by at least $3 trillion dollars over ten years.  That means that either Gingrich would have to find huge new spending cuts over and above those in the Ryan budget (which he has shown no inclination to do) or else borrow more money that we don’t have.

There is a similar problem with Gingrich’s proposal to transition Social Security to a system of  optional private accounts.    Gingrich’s plan is based on the Ryan-Sununu Plan.   It is nice to see Gingrich borrowing Ryan’s ideas rather than slandering them, but there is a problem.  There is no surplus from Social Security payroll taxes and you can’t spend the same dollar twice.  Redirecting payroll tax funds to private accounts would create an even bigger deficit in the short and medium-term.  The only alternatives are to either raise other taxes, cut Social Security benefits to current and soon-to-be beneficiaries or find cuts elsewhere in the budget.  I suppose you could try to offset the cost of private accounts while maintaining benefits by cutting elsewhere, but let’s look at some numbers.  The Ryan-Sununu Plan would have required a new transfer of  $1.3 trillion  (look at Table 1a) to Social Security from the general fund in the first ten years.  That was in 2004 dollars.  That doesn’t mean it is a bad plan.  It does mean that implementing the plan would mean some hard choices.  So if we take Gingrich seriously and assume he wants to get to a sustainable budget, he would have to take the Ryan spending cuts, then pile on top the spending cuts it would take to offset his tax cuts and then pile on the spending cuts it would take to offset his Social Security reform plan.  I’m afraid he would find that too much like right-wing social engineering.

But it is never going to get that far.  This isn’t about governing when things have to add up in the end or you end up like Greece.  This is about thrilling an audience for money.  So, in the face of enormous budget deficits, you offer huge tax cuts for high earners and a Social Security plan that (if you don’t reduce benefits for current and soon-to-be retirees) costs the government more money.  When it comes to spending cuts you offer getting rid of fraud and adopting Lean Six Sigma. In an era when “ the pie seems to be shrinking and everyone’s worried about losing his or her own piece”, that can sound really good for a while.  The best news is that this approach won’t face contact with a CBO score or an incredulous bond market.  Other politicians will be out there struggling to offer a real world policy agenda that pays the bills but “ creates losers as well as winners and earns adversaries as well as supporters.”  The self-interested policy innovator can get huge paydays for speeches about his plan for An Opportunity Society For 21st Century Prosperity or  Building A Prosperity Society Through Opportunity.