(On Monday, May 16, Congressman Paul Ryan (R-WI) addressed the Economic Club of Chicago. Due to the length of the speech, we will post it in two parts. Below is part one. – Ed.)
As chairman of the House Budget Committee, I stand ready to do whatever it takes to help you re-sign Jay Cutler. I’m here to talk about the economy today – about the need to get four quarters of strong, consistent performance. That wasn’t another Jay Cutler joke, I swear. It could be, but it’s not.
I’ll come to the point. Despite talk of a recovery, the economy is badly underperforming. Growth last quarter came in at just 1.8 percent. We’re not even creating enough jobs to employ new workers entering the job market, let alone the six million workers who lost their jobs during the recession. The rising cost of living is becoming a serious problem for many Americans. The Fed’s aggressive expansion of the money supply is clearly contributing to major increases in the cost of food and energy.
An even bigger threat comes from the rapidly growing cost of health care, a problem made worse by the health care law enacted last year. Most troubling of all, the unsustainable trajectory of government spending is accelerating the nation toward a ruinous debt crisis.
This crisis has been decades in the making. Republican administrations, including the last one, have failed to control spending. Democratic administrations, including the present one, have not been honest about the cost of the tax burden required to fund their expansive vision of government. And Congresses controlled by both parties have failed to confront our growing entitlement crisis. There is plenty of blame to go around.
Years of ignoring the drivers of our debt have left our nation’s finances in dismal shape. In the coming years, our debt is projected to grow to more than three times the size of our entire economy. This trajectory is catastrophic. By the end of the decade, we will be spending 20 percent of our tax revenue simply paying interest on the debt – and that’s according to optimistic projections. If ratings agencies such as S&P move from downgrading our outlook to downgrading our credit, then interest rates will rise even higher, and debt service will cost trillions more.
This course is not sustainable. That isn’t an opinion; it’s a mathematical certainty. If we continue down our current path, we are walking right into the most preventable crisis in our nation’s history. So the question is, how do we avoid it?
The answer is simple. We have to make responsible choices today, so that our children don’t have to make painful choices tomorrow.
If you look at what’s driving our debt, the explosive growth in spending is the result of health care costs spiraling out of control. By the time my children are raising families of their own, literally every dollar we raise in revenue will be paying for three major entitlement programs. Some of this is demographic – every day, ten thousand baby boomers retire and start collecting Medicare and Social Security. But a lot of it is simply due to the fact that health care costs are rising faster than the economy is growing. Revenues simply cannot keep up.
It’s basic math – we cannot solve our fiscal or economic challenges unless we get health care costs under control. The budget passed by the House last month takes credible steps to controlling health care costs. It aims to do two things: to put our budget on a path to balance, and to put our economy on a path to prosperity.
I am here today to stress the point that these goals go hand in hand. Stable government finances are essential to a growing economy, and economic growth is essential to balancing the budget.
The name of our budget is The Path to Prosperity. See, right now, we’re finally having a debate in Washington about how to address our fiscal problems. But we’re still not having the debate we need to have.
To an alarming degree, the budget debate has degenerated into a game of green-eyeshade arithmetic, with many in Washington – including the President – demanding that we trade ephemeral spending restraints for large, permanent tax increases. This sets up a debate in which we are really just arguing over who to hurt and how best to manage the decline of our nation. It is a framework that accepts ever-higher taxes and bureaucratically rationed health care as givens.
I call it the “shared scarcity” mentality. The missing ingredient is economic growth.
Shared scarcity represents a deeply pessimistic vision for the future of this country – one in which we all pay more and we all get less. I believe it would leave us with a nation that is less prosperous and less free.
To begin with, chasing ever-higher spending with ever-higher tax rates will decrease the number of makers in society and increase the number of takers. Able-bodied Americans will be discouraged from working and lulled into lives of complacency and dependency.
Worse – when it becomes obvious that taxing the rich doesn’t generate nearly enough revenue to cover Washington’s empty promises – austerity will be the only course left. A debt-fueled economic crisis will force massive tax increases on everyone and indiscriminate cuts on current beneficiaries – without giving them time to prepare or adjust. And, given the expansive growth of government, many of these critical decisions will fall to bureaucrats we didn’t elect.
Shared scarcity impedes economic growth, results in harsh austerity, and ends with lost freedom.
In a recent speech he gave in response to our budget, President Obama outlined a deficit-reduction approach that, in my view, defines shared scarcity. The President’s plan begins with trillions of dollars in higher taxes, and it relies on a plan to control costs in Medicare that would give a board of 15 unelected bureaucrats in Washington the power to deeply ration care. This would disrupt the lives of those currently in retirement and lead to waiting lists for today’s seniors.
Now in criticizing the President’s policies, I should make clear that I am not disputing for a moment that he inherited a difficult fiscal situation when he took office. He did. Millions of American families had just seen their dreams destroyed by misguided policies and irresponsible leadership that caused a financial disaster. The crisis squandered the nation’s savings and crippled its economy.
The emergency actions taken by the government in the fall of 2008 did help to arrest the ensuing panic. But subsequent interventions – such as the President’s stimulus law and the Fed’s unprecedented monetary easing – have done much more harm than good, in my judgment.
In the aftermath of the crisis, we needed government to repair the free-market foundations of the American economy, as it did under Reagan in the early 1980s, by restraining spending… keeping taxes low… enforcing reasonable, predictable regulations… and protecting the value of the dollar. Instead, leaders in Washington embarked on an unprecedented spending spree… enacted a deeply flawed overhaul of financial rules… passed a new health care law that raised taxes by $800 billion… and encouraged a sharp departure from a rules-based monetary policy, which created even more economic uncertainty. In the 2010 election, the voters sent a message: This isn’t working. Washington needs to try something else.
We know what that something else must be, because we know what has always made growth possible in America. We need to answer that call for new economic leadership by getting back to the four foundations of economic growth:
First, we have to stop spending money we don’t have, and ultimately that means getting health care costs under control.
Second, we have to restore common sense to the regulatory environment, so that regulations are fair, transparent, and do not inflict undue uncertainty on America’s employers.
Third, we have to keep taxes low and end the year-by-year approach to tax rates, so that job creators have incentives to invest in America; and
Fourth, we have to refocus the Federal Reserve on price stability, instead of using monetary stimulus to bail out Washington’s failures, because businesses and families need sound money.
Tomorrow’s article will expand on each of these foundations.