Heartland Institute Experts React to Rep. Paul Ryan’s Speech to Economic Club of Chicago

Published May 16, 2011

Rep. Paul Ryan (R-WI), chairman of the House Budget Committee, delivered a speech Monday to the Economic Club of Chicago in which he defended his Medicare reform ideas and proposed deep spending cuts as a condition to raise the federal debt ceiling.

The following statements by budget experts at the Chicago-based Heartland Institute may be used for attribution. For more comments, see the contact information below.

“Paul Ryan’s Medicare reform plan is better for seniors than Medicare under Obamacare, which cuts payments to doctors and hospitals so severely that seniors won’t be able to get good health care under the program in the future. Obamacare also takes away seniors’ control over their own health care and gives it to an unelected board of Washington bureaucrats called the Independent Payment Advisory Board, with the power to cut Medicare even more and ration and deny health care.

“Ryan by contrast gives more power, control, and choice to seniors, as in the highly popular Medicare Advantage program, where more than 10 million seniors are getting better coverage and care than under Medicare alone.”

Peter Ferrara
Senior Fellow, Entitlement and Budget Policy
The Heartland Institute
[email protected]

(Mr. Ferrara is author of The Obamacare Disaster, available from The Heartland Institute, and America’s Ticking Bankruptcy Bomb, available from HarperCollins in June.)

“Congressman Ryan was correct to blame Republicans and Democrats for spending decades putting the nation in the fiscal mess it’s in. But color me skeptical when I hear him speak of the need to make ‘responsible’ choices. The Ryan plan would add trillions of dollars to the national debt in coming years. It would leave government in charge of a huge swath of health care spending, albeit in a different way than the Democrats want to control the spending. And it pegs the size of the federal government at about 20 percent of gross domestic product.

“At the end of the Clinton administration the federal government made up 18 percent of the economy, and I don’t recall people accusing President Bill Clinton of presiding over a stingy government that was failing to fulfill the nation’s needs.”

Steve Stanek
Research Fellow, Budget and Tax Policy
The Heartland Institute
Managing Editor
Budget & Tax News
[email protected]

“Chairman Ryan is correct when he makes the following statements: ‘This [government spending and debt] crisis has been decades in the making’ and ‘There is plenty of blame to go around.’

“According to my economic research, if Congress continues to raises tax burdens, trend growth in real GDP will fall further in the U.S. economy – to no more than 2.5 percent annually. This is less than the 3.2 percent trend rate in GDP growth over the second half of the twenty-first century. To return to such a growth rate, Congress would have to actually lower current tax burdens to 17.4 percent of GDP. This is unlikely to happen given current 2010-2014 spending plans of 22 percent to 27 percent of GDP and the ensuing federal deficits.”

John Skorburg
Lecturer in Economics
University of Illinois at Chicago
Associate Editor, Budget & Tax News
The Heartland Institute
[email protected]

“Paul Ryan made an excellent speech to the Economic Club in Chicago. The focus was his debt reduction plan. In it, Ryan observes that government spending has increased at a record rate, but the economy has not recovered to any substantial degree.

“Control of government spending, according to Ryan, is crucial for a solution. Ryan emphasizes health care costs must be controlled by restructuring the health care bill passed Democrat controlled Congress in 2010. However, Ryan absolves the original Troubled Asses Relief Program (TARP) initiated in 2008 during the Bush Administration by Treasury Secretary Hank Paulson (the former CEO of Goldman Sachs).

“The TARP was promoted as a way of unfreezing the credit market by cleaning up the balance sheets of banks that had over-invested in subprime mortgages. But that proved to be too difficult, according to Paulson, so the program was changed to a bailout of the large Wall Street investment banks. Did this keep the financial markets from collapsing? Exchange traded contracts were never in danger as was pointed out by Leo Melamed, Chairman Emeritus of the Chicago Mercantile Exchange in his 2009 book For Crying Out Loud.

“Some have claimed Ryan made a mistake in criticizing the Federal Reserve for increasing the money supply in an attempt to stimulate employment. On this issue Ryan is right on target. According to Milton Friedman in his 1994 book, Monetary Mischief, when the money supply is increased at a greater rate than the growth in overall economic activity, the eventual result is rampant inflation 24 months later. But first, in six to nine months, comes a modest boost in economic activity. Friedman wrote: ‘The increased quantity of money enables whoever has access to it—nowadays, primarily the government — to spend more without anybody having to spend less. Jobs become more plentiful, business is brisk, almost everybody is happy — at first.’

“After the inflation and stagnation kick in, economic activity and employment decline. To reverse the inflation, the growth in the money supply has to be slowed, and with it comes a 24-month recession with a much larger decrease in employment. At the end of the day, a modest increase in employment in the short run, if it occurs at all, is overwhelmed by the huge decrease in employment due to the recession.

“However, so far this year there has been no boost in economic activity in the nine months after the increase in the money supply began. This suggests to me that businesses are not fooled into believing that even a short jump in economic activity will happen.

“Paul Ryan is mostly right on the debt and monetary issues. As for those of us living in Illinois, we should consider moving to Kenosha, which is in Ryan’s Congressional district.”

Jim Johnston
Senior Fellow
The Heartland Institute
[email protected]

“Paul Ryan’s diagnosis of America’s economic problems is right on. So are many of his solutions. I’m afraid, however, that parts of the speech, particularly his dismissal of monetary policy’s role in creating jobs, will play directly into the Democrats’ hands to the long-term detriment of the country.”

Eli Lehrer
National Director, Center on Finance, Insurance, and Real Estate
Vice President, Washington, DC Operations
The Heartland Institute
[email protected]

The Heartland Institute is a 27-year-old national nonprofit organization with offices in Chicago and Washington, DC. Its mission is to discover, develop, and promote free-market solutions to social and economic problems. For more information, visit our Web site at http://www.heartland.org or call 312/377-4000.