Ezra Klein Asks Paul Ryan 8 Questions

This is another one of those instances in which there is a really interesting conversation on the blogosphere.

It begins with Ezra Klein asking Paul Ryan 8 questions about his plan to transform medicare from a defined benefit program into a voucher program (Ryan prefers to call it "premium support", but that semantic difference is not important in the context of this exchange.).

Ryan was nice enough to respond to Klein's questions.

Finally, Klein responds to Ryan's response.

This is a fascinating exchange and says a lot about the Ryan plan and its critics, of which Klein is certainly one.

Paul Ryan Inspires a Return to Goldwater 1964

The blogosphere is alive today with commentary on the Democratic victory in the special election in the heavily Republican district of NY 26.

Despite initial Republican denials, the key factor clearly seems to have been the losing Republican candidate's public endorsement of Paul Ryan's plan to finance marginal tax cuts for the wealthy by privatizing Medicare and substantially reducing benefits.

From the left-of-center Chait explains this huge blunder by the Republicans. From the right-of-center, David Frum offers similar remarks here and here. For a good sense of how delusional the conservative movement has become on this, please read Jonah Goldberg's NRO article that advocates doubling down on the Ryan plan.

The contemporary conservative movement offers a peculiar mix of blind partisan hackery devoid of any interest in public policy (Health Care Reform, Cap and Trade, Climate Change, etc.) along with a suicidal devotion to politically toxic policy prescriptions.

Tea Party Economics

There seem to be four persistent economic myths among tea party types and other populist conservatives. Unfortunately, none of them of true.

Myth 1: We should be worried about inflation. Here's a chart plotting the consumer price index all the way back to 1985.

 

Yes, inflation is up from the depths of a profound deflationary recession, but by historic standards inflation is quite mild. Responsible conservative economists, such as Greg Mankiw, acknowledge as much. Sometimes this argument goes on to criticize the way in which core inflation is calculated. It is the core inflation rate that the Fed uses to guide monetary policy, and core inflation excludes volatile items, such as energy and food. The problem with using energy and food prices to calculate the inflation rate is not just that they are extremely volatile. It also worth remembering that prices in these areas are often controlled by international events beyond the reach of governmental fiscal or monetary policy.

Myth 2: The current deficit is because the government is spending too much. This is intended as a swipe against Obama fiscal profligacy. However, what is actually the source of the current deficit?

As you can see, about half of the deficit is caused by a drop of tax receipts brought on by a weak economy in crisis. What about the remainder, all that excess spending?

Here's where the extra spending comes from: increased outlays for income security (food stamps, unemployment insurance, etc.) and Medicaid, both of which have increased also because of the financial crisis. The deficit is almost entirely due to the effects of the recession, not current fiscal policy.

Myth 3: We are harming the economy because the dollar has gotten so weak. Well, how weak is the dollar relative to historical standards?

 

It is about as weak as it was in 1995 and the current decline is not nearly as dramatic as it was during the Reagan administration.

Myth 4: "We have a spending problem not a tax problem." This bromide is trotted out routinely by conservatives as a way of explaining why deficit reduction policy cannot include even the smallest increase in revenues.

As the data clearly shows, the surpluses of the Clinton administration were caused by less spending AND higher taxes. Similarly, our current predicament is the result of both higher spending AND lower tax receipts. Furthermore, current tax receipts as a percentage of GDP are the lowest they have been since the Truman administration.

All of the myths are the result not of a serious analysis of the current economic conditions, but from partisan hackery from Obama's political opponents.