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BUDGET: Ryan’s way: Stop government excess

by Arnold Steinberg

April 15, 2011 | 4:27 pm

House Budget Chairman Paul Ryan of Wisconsin. Photo by Jeff Malet/Newscom

House Budget Chairman Paul Ryan of Wisconsin. Photo by Jeff Malet/Newscom

We pretend. And Paul Ryan says, get real.

Does anyone dare ask how the government can spend ever more on, say, education, health and poverty, when schools decline anyway, health care becomes more chaotic, and the dependent class grows exponentially … and then liberals predictably claim the only problem is we’re not spending enough? 

What’s wrong with this picture?

We now know, through the late Milton Friedman, the Nobel laureate economist, and other economists, that government intervention exacerbates the otherwise largely self-correcting, mild economic cycle. Yet, ever since the founding of the Federal Reserve, we’ve opted for government to continue to make things worse, as it did with the recent economic disintegration, via its sponsored monstrosities — especially Freddie Mac and Fannie Mae, in collusion with Wall Street. Just as the government’s excess credit expansion helped set the stage for the Great Depression, and its contraction of the money supply helped prolong it, ironically it’s the alphabet of government agencies founded by Franklin Delano Roosevelt in response to that Depression era that have slowed our once-powerful economic engine — the same free market celebrated by President Obama in his speech on April 13.

But President Obama doesn’t get it. We pay for the programs he wants not by government fiat, but by a growing economy, which he would suppress. Government is largely mischievous, and its calamitous offenses are cyclically exploited to justify cures (greater, yet more complex regulation) that surely are worse than the disease (government condoned, subsidized credit fraud). 

When FDR created Social Security, it was a tiny tax on a small base payroll. Over the years, the base payroll (on which the tax is based) and the tax rate have grown exponentially, but the distribution of benefits grew even faster still, as politicians pandered for high-turnout senior voters. And, for the successive preretirement generations, which morphed into café latte aficionados on 26 percent credit card debt, savings rates have declined precipitously. In the old days, people saved for their senior years, and for the proverbial rainy day. Paradoxically, as life spans lengthened, prolonged by new, costly medical technologies, we have actually discouraged needed saving and broadened unfunded entitlements; Social Security and Medicare today comprise the mother and stepmother of all Ponzi schemes, borrowing heavily from future generations to pay for people who want to believe their relatively modest payroll deductions somehow have financed — for them and unforeseen octogenarians-to-centenarians — forever-indexed pensions and open-ended, if not open-heart, surgery. 

Today, large banks — fed by the government’s long-term growth of the money supply — continue, in our credit-card-fed fantasy world, to lend to people money they cannot afford to borrow. Save money for your kid’s college? Why? We have a dysfunctional student loan program for you, which, incidentally, raises the demand curve for “college” so high, that tuition rates have become prohibitive, because university bureaucrats and faculty earn, in effect, government-subsidized salaries. They “teach” students who will be graduated with unsustainable student debt and face limited job opportunities. Either the graduates are in hock to the future or we taxpayers pick up the pieces.

Is it any wonder that the Ivory Tower thinks Paul Ryan (R-Wis.) is a crackpot, and that President Obama chose a university venue for last week’s talk? We’re not borrowing, as Obama claims, to “invest in people” or “bridges.” For the last couple of years, he has been borrowing from China to give money to state and local government to pay members of the government unions who helped elect him. Forget the federal debt we inevitably must pay; consider that today, interest payments on government debt, at all levels, already cuts deeply into vital services. 

Unemployment insurance payments were supposed to be temporary. Over the years, as union power has mandated prevailing wages, and government has extended these payments, the American work ethic is long gone. Seemingly long ago, when times were tough, the breadwinner accepted, at least temporarily, a lower-paying job, and society benefited from that productivity. Now, we subsidize people who choose to seek only a particular job — and under the misconception (shared by ignorant politicians) that “workers” have paid for their unemployment insurance, when it is actually funded entirely by the employer, and then extended with government-borrowed money.

If we are giving food stamps to a vast and growing segment of the American population, many of whom are truly needy, is it unreasonable to ask why economic growth is still lacking? History, not mythology, shows the greatest alleviation of poverty came, more than a century ago, when government taxed and regulated little, amid an unprecedented creation of wealth, even as the United States absorbed large numbers of immigrants. 

The solution, Obama now tells us, is to tax the privileged. But, as we know, he defines the line that separates the wealthy as ever lower, while the policies of liberalism produce a contraction of the middle class, separated from the larger (and growing) number of alienated Americans who simply pay no income taxes at all and, naturally and readily, as the entitlement class then vote reliably for the enabling politicians. That is, they vote for the usual suspects, who, in turn, get campaign money from Big Business interests, which seek the crony (and phony) capitalism that Ryan, who favors a real entrepreneurial free market, would eliminate.

And what of the hidden, postponed tax of inflation? Through past policies — including those of George W. Bush and, particularly, Obama — we are headed into an economic abyss that may threaten the social fabric of our increasingly fragile nation. The wild spending spree funded by massive borrowing has led to the Federal Reserve Board’s electronic equivalent of printing money, which makes economic calculation and planning difficult, then nearly obsolete. And why should anyone save, if money is moving toward becoming worthless? Instant gratification is nothing more than a repudiation of the future, which, absent the vision of Ryan, we will sacrifice.

There is no ambiguity here. Such increases in the supply of money can produce rapid, even geometric increases in the prices of goods and services. Here is the dirty little secret that the well-paid professional anti-poverty consultants do not tell you: The staples of life — food, energy, necessities — they go up, and a lot.  The rich make do, but the poorest, for whom Obama professes concern, are hit hardest. 

And this debt preoccupation is why Ryan is the compassionate one. He wants also to do away with corporate welfare, the very bogeyman against which the liberals crusade. But when it comes to votes in Congress — the liberals have been in the majority for nearly all the years of the last half century and more — they have supported the special interests, including, for example, agri-business, which we taxpayers pay to grow less, to keep food prices high and, yes, also including Wall Street, which, in fact, mostly favored Obama. Ryan would end those absurd business subsidies.

We live in a politically correct society that is over the top — on regulation, taxation, litigation. Compare us, the once proud leader in capitalism, to the still low, by our standards, but upwardly mobile, emerging markets. What do you think it’s like for the aspiring American entrepreneur when politicians like Henry Waxman, who knows nothing about economics or business, devise regulations that put you out of business, or keep you from creating a business? What about the people who lose jobs, or don’t have the chance to get them?

Just add them to the growing ranks of food stamp recipients. That’s easier than finding out why they are jobless, or looking into fraud among able-bodied, educated food stamp recipients.

I remember, a couple of decades ago, a doctor urging my dying mother to pursue a dubious treatment. “It’s free,” he argued to her. “No,” she said. “Someone is paying. The taxpayers.” But she was from another era. She arrived, legally, a Jewish immigrant from Poland; strangely, oddly, there was no bilingual-Polish program. Somehow, she learned English, attended night school and became a citizen. And millions did the same, without taxpayer-funded entitlements, now provided even to people here illegally. Even before the Depression, she did something weird. With meager earnings in the garment district, she saved for the future. When she married, her husband, my father, worked two shifts, then sold door-to-door at night. If he couldn’t get a job, he offered to work for less, until things got better, the same way, in recent years, landlords have lowered rent, and stores have discounted merchandise.  But we as a society encourage unproductivity and inefficiency

Surely, we can do better with a revamped Medicare, so that Uncle Sam is not saddled with paying for every medical test under the sun, contingent on the whims of trial lawyers for whom the Democratic Party fronts. And why not give states the flexibility to administer Medicaid? We call this federalism; it is grounded in the U.S. Constitution, and it means we can hold our state legislators accountable for screw-ups, not amorphous “Washington.” The Ryan plan for Medicare is similar to President Clinton’s replacement of federal welfare with bloc grants to the states, which saved money by incentivizing states to make welfare more efficient.

Ryan has insight into all of this. You may not completely agree with him, but he is the only guy willing to say, stop the shell
game.

Arnold Steinberg is a political strategist, analyst and author.

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