Paul Ryan and the Beast That Didn’t Starve

Paul Ryan will be retiring after this session of Congress. The former Vice Presidential Candidate and current Speaker of the House shot to fame during the Obama Administration for his touting of conservative fiscal policy and government reform. Many things will be written about his legacy, but one of the first shots across the bow comes from Ezra Klein:

House Speaker Paul Ryan’s legacy can be summed up in just one number: $343 billion.

That’s the increase between the deficit for fiscal year 2015 and fiscal year 2018 — that is, the difference between the fiscal year before Ryan became speaker of the House and the fiscal year in which he retired.

If the economy had fallen into recession between 2015 and 2018, Ryan’s record would be understandable. But it didn’t. In fact, growth quickened and the labor market tightened — which means deficits should’ve fallen. Indeed, that’s exactly what happened in each of the five years preceding Ryan’s speakership; from 2011 to 2015, annual deficits fell each year.

As he prepares to leave office, Ryan says that debt reduction is one of those things “I wish we could have gotten done.” Ryan, the man with the single most power over the federal budget in recent years, sounds like a bystander, as if he watched laws happen rather than made them happen.

Klein goes point by point at how bad Ryan’s fiscal legacy is, and I can not but agree. Under Paul Ryan, we have seen the federal deficit swell during an economic boom. That’s not what’s supposed to happen, whether you believe in Keynesian economics, Austrian School economics or upside down pineapple cake economics.

Now I know you’re thinking, “Duh, tax cuts”. And that has played a role. But it’s dwarfed by the massive spending increases we have had. When Ryan took over as Speaker, the Republicans and President Obama had engineered a hard-fought fiscal sanity. Taxes went up, yes, but the big driver was spending discipline. During Obama’s presidency, federal spending increased, on average, 1.6% per year, one of the lowest sustained rates of spending growth in the last half century. By FY 2016, spending was several hundred billion lower than had been projected in 2009. There were many reasons for this: healthcare spending was less than expected, our wars ramped down, the economy recovered, the stimulus spending and anti-recession spending faded. But a large part was the sequester — the much-hated rule that forced Congress to keep spending under control. Under the so-called “surrender Caucus” — the House under Boehner that supposedly gave Barack Obama everything he wanted — federal spending was basically flat.

Paul Ryan became Speaker in October of 2015. In FY 2015, spending had increased by 5%. Federal spending has increased over 20% since then, soaring by nearly $800 billion, given FY 2019 estimates (which are almost certainly low). The Trump tax cut has hurt — to the tune of $100-200 billion a year. But it is peanuts compared to the spending. Hell, Congress just passed a gigantic bloated farm bill that no one even talked about.

At one time, I was a big fan of Paul Ryan. He had a Reagan-esque way of explaining complex concepts so that people could understand them. And he did lay out fiscal plans that brought the budget back into balance. But I was fooled. Ryan’s plans always had one important feature: immediate tax cuts followed by spending cuts — mostly from entitlement reform — down the road. I didn’t realize it at the time, but I was falling for the “Starve the Beast” theory of fiscal policy.

“Starve the Beast” refers to the idea that, to limit government spending, we should limit government revenue. As it turns out, cutting government spending is hard. It’s hard because the government doesn’t have a Federal Dog Beating Program or a National Book Burning Agency. Almost every program in the government has noble intentions, supposedly.

Moreover, government programs have concentrated gain and diffuse costs. The number of people who are supported by a government program is generally small but that funding is critical to them. The costs, by contrast, are spread out over 300 million people. The cost of any program outside the big ones like Medicare is small to the individual taxpayer. So what happens is that when Congress tries to eliminate programs that are wasteful, rife with abuse or just plain don’t work, they run into a firewall of opposition. Suddenly, the news is filled with weeping employees talking about how the mean nasty Congress wants to stop their (completely ineffective) program teaching poor children to read that costs the average taxpayer ten cents a year.

That’s where “Starve the Beast” comes in, at least in theory. The idea is that we should cut taxes first, like cutting the allowance of an unruly child. That will then force Congress to make the hard choices. It’s a good theory. There’s only one real problem with it:

It’s complete garbage.

First, there is no unruly child in this scenario. Congress is not trying to force some mysterious unknown entity to cut spending. They are trying to force spending restraint on themselves. Seen in that light, cutting taxes to try to force spending cuts is like eating a slice of cheesecake to force yourself to go to the gym. It’s giving yourself the satisfying bit of the deal before you do the hard work. Everyone who has tried to lose weight knows how that tends to work out.

Second, what we’ve discovered after four decades of trying to Starve the Beast isn’t that Congress can’t tolerate enormous debt; it’s that they can. It turns out that Congress has no problem racking up massive piles of debt because, as President Trump said recently, by the time it becomes a problem, they won’t be here.

Third, and most importantly, cutting taxes doesn’t make spending cuts easier; it makes them harder. Because suddenly, people are getting government cheap. Who doesn’t want a government program if no one has to pay for it? Who doesn’t want a tax cut if government services will be unaffected? Government spending should hurt. It should hurt right in the wallet. If the taxpayers want free healthcare or more education spending or a war or anything, they should have to see their taxes go up. And, on the flip side, tax cuts should hurt to. If people want a tax cut, they should see some government programs vanish.

(This reflects off of last week’s post about how Democrats are being coy about mechanisms to pay for Medicare for All because they know the big tax increases will be unpopular. You’ll find this pattern a lot — Policy X is popular, until it is married to payment scheme Y. Last week, a poll showed that support for Federal Paid Leave is at 74% … unless they’re told that it might mean slower salary increases, at which point support drops to 40%. I sometimes wonder if we would have started the War in Iraq if it had come with a hefty tax hike.)

This is Ryan’s legacy — a colossal failure of Starve the Beast. Proof, once again, that there is no magical elixir to balancing the budget. If you want to balance the budget, you have to … balance the budget. You have to raise taxes or cut spending or both. You can’t just cut taxes and then pray to the Supply Side Gods that some fiscal magic will happen.

If Ryan’s disastrous leadership had done only this, it would be something of a silver lining. But, unfortunately, the impact will be even larger. Klein again:

Ultimately, Ryan put himself forward as a test of a simple, but important, proposition: Is fiscal responsibility something Republicans believe in or something they simply weaponize against Democrats to win back power so they can pass tax cuts and defense spending? Over the past three years, he provided a clear answer. That is his legacy, and it will haunt his successors.

Exactly. I expect, once the Democrats take power back, the Republicans will suddenly discover the deficit again. But they will find that this political straw crumbles in their collective fist. They are now riding the most reckless and irresponsible fiscal period in American history and have absolutely no one to blame but themselves. After the last two years, who are they to lecture anyone on debt?

And that is Paul Ryan’s fiscal legacy: mountainous debt, discredited fiscal theories and disgraced fiscal hawks. Ryan’s legacy was supposed to be a return to fiscal sanity. But the numbers do not lie: Paul Ryan’s tenure as Speaker corresponds to the most fiscally irresponsible period in American history. I leave to others whether this is because he was a “fraud” — as most liberal pundits want to claim — or — as I suspect — he lacked the political skill to force Congress to cut spending.

But this is his legacy. And it will haunt him. And us.