Grasping Reality on TypePad, by Brad DeLong

Josh Barro says that Mitt Romney's selection of Paul Ryan isn't all bad--that Ryan "has also been willing to go out on a limb for useful but unpopular fiscal ideas". In the past thirty-five years I have seen lots of Republican "willing to go out on a limb for useful but unpopular fiscal ideas", but in each case the problem is that the limb they go out on does not add up arithmetically. They propose unpopular but useful fiscal ideas in the overall context of a plan that is best summarized as: 2+2=576.

That never works.

It did not work in 1981. It did not work in 1989. It did not work in 2001. It did not work in 2003. It did not work in 2005.

Arithmetic has to be primary. And, with Ryan, it simply isn't.

Josh Barro:

Romney-Ryan: The Bain & Co. Ticket : At first glance, Mitt Romney’s choice of Paul Ryan as his running mate pick is baffling. For months, a key component of Romney’s strategy has been policy vagueness -- avoiding specific, attackable proposals and keeping the focus on the unpopular incumbent. Now he has chosen a running mate with his own detailed, and easily attacked, fiscal plan. I can only conclude that… Romney… probably believes Ryan would help him be a more effective president…. Paul Ryan reminds me of people I know at Bain and McKinsey who thrive on… analytical teams. The other possible picks for vice president do not…/

And a major fiscal adjustment is likely to be the most important economic policy made during the next administration. Ryan is the most important Republican policymaker on fiscal policy in Washington, and he could lead the Romney administration’s efforts in the area.

The key question is, would Ryan be a good fiscal czar? The answer isn't obvious. Ryan’s brilliance, and the soundness of his fiscal plans, is vastly overrated on the right. But it’s become fashionable on the left to say he’s a charlatan, which isn’t right either.

The various incarnations of Ryan’s plans for fiscal reform suffer from a lot of the same problems as Romney’s fiscal plans: excessive vagueness and blanks left in the hard parts. For example, Ryan’s last budget had $389 billion in unspecified Medicare savings over the next decade, on top of President Barack Obama’s proposed cuts, while repealing some of Obama’s cost control mechanisms.

But Ryan has also been willing to go out on a limb for useful but unpopular fiscal ideas. One is Medicare premium support…

But here Barro needs to say: "unfortunately, Ryan's Medicare Premium Support proposal is arithmetically incoherent"--which it is.

As Peter Orszag writes:

Paul Ryan Is Thoughtful, Handsome and Misguided - Bloomberg: Ryan’s approach to health care is somewhat akin to a doctor observing that an arm is finally showing some signs of healing -- and then deciding to amputate it. Over the past several years, health-care costs have decelerated dramatically -- suggesting our broken arm may slowly be starting to heal. But rather than reinforcing that progress, Ryan would chart a drastically different course, one that would not only shift substantial risk to beneficiaries but also, according to the Congressional Budget Office, actually raise health-care costs….

I have put forward numerous proposals to reinforce [recent favorable healthcare cost growth] trends. Our proposals have three core attributes: They build on recent progress, they recognize there is no one simple solution to increase value in health care, and they emphasize the role of providers rather than insurance companies in improving that value.

Ryan, by contrast, ignores the recent progress -- which in some sense is understandable, lest he diminish the energy for his own radically different course. Ryan is enamored with one big but wrong idea: that all we need to do is reshuffle risks and health-care costs will magically decelerate. He would shift risk onto Medicare beneficiaries through his premium support proposal and onto state governments by block-granting Medicaid. Both would rely substantially on insurance companies to make them work, and neither is likely to turn out the way he says.

Let’s start with the Medicaid proposal. Under the Ryan budget, states would receive a fixed grant to run Medicaid programs, rather than sharing in the cost with the federal government. The grants would not keep pace with economic growth, let alone with projected health-care costs. Voila! Problem fixed, right? Under current law, federal Medicaid spending is projected to rise from about 2 percent of GDP today to about 4 percent by 2040. Under the Ryan budget, it is instead projected to fall from 2 percent of GDP today to about 1 percent by 2040.

But how will this change reduce total Medicaid spending by anything like 75 percent of projected expenses? One explanation is that states will turn to insurance companies to help manage more of their beneficiaries. That is unlikely to produce anything like the necessary savings. And if it doesn’t, states will find themselves ever more on the hook for the difference. Ryan provides no explanation for how state governments, already facing threatening fiscal gaps, will be able to handle the growing gap…. [Ryan's] whole Medicaid proposal appears as a massive magic asterisk rather than a bold idea.

What about Medicare? Under the Ryan budget, after some time, the government would issue payments that would allow new Medicare beneficiaries to purchase insurance from private firms. The payments would not keep pace with currently projected health-care spending (notice a theme here?), and as a result would appear to reduce costs for the federal government…. CBO’s analysis, not surprisingly, confirms that federal expenditures under the Ryan Medicare plan would be reduced sharply…. But CBO also analyzed a more relevant question: What would happen to total health-care costs, including the extra costs for the beneficiaries as the federal share was reduced? Total costs are what matters, since simply shifting costs around without altering the total does not accomplish much. According to CBO, Ryan’s plan would… increase the total [of health-care costs], because more cost-sharing for consumers doesn’t do that much to constrain spending and because private plans have higher administrative costs and less negotiating leverage than the federal Medicare program.

You read that right: According to CBO, the Ryan Medicare plan would increase health-care spending. In 2030, total health- care spending for the typical beneficiary would be more than 40 percent higher under the Ryan plan than under existing Medicare.

Again, I like Paul Ryan. But that doesn’t mean his Medicare and Medicaid ideas make any sense. They’d shift too much risk to individuals and states at a time when we’re finally making solid progress in slowing health-care costs, and the rhetoric surrounding them claims savings that are never going to materialize. That makes Ryan’s proposals problematic, unnecessary and misleading.

The big problem, I think, is that budget policy has to be policy: your changes in proposed spending levels have to be created by changes in what the government does and how the government does it. Ryan, by contrast, thinks budget policy is made by having somebody on Capitol Hill decree that a line on a graph will have a different slope.

We have seen Republican politicians do this a lot over the past thirty five years--the infamous pioneer of this was, of course, David Stockman, back in 1981.

That trick didn't work then. That trick is very unlikely to work now. That trick never works.