By: AIF Staff
This week, American Idea Foundation President Paul Ryan served as a keynote speaker at the Calvin Coolidge Presidential Foundation’s conference entitled: America in Debt. Held at the Library of Congress, the conference gathered a bipartisan array of elected officials, senior leaders in recent Administrations, noted historians, policy experts, and economists for a discussion on how the lessons learned from America’s 30th President, Calvin Coolidge, could help solve our nation’s 21st fiscal challenges.
Concluding the conference with a panel on “Looking to the Future: Solutions to America’s Debt Challenge,” Ryan, along with Steve Forbes and Romina Boccia of the CATO Institute, outlined ways that policymakers can channel Coolidge’s approach to a fiscal discipline and balancing the budget.
In his remarks, excerpts of which are below, Ryan shared his experiences passing revolutionary balanced budget proposals through the House, making the case for sensible entitlement reforms, and developing a consensus on how to avoid a debt crisis.
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I sincerely appreciate Amity Schlaes, Bill Beach, and the Coolidge Foundation convening this gathering. It is amazing to see old friends like Congressmen Chris Cox and Jeb Hensarling, with whom I spent years working on these big, fiscal issues. The numbers have grown since then, but the fact remains that this is the most predictable economic crisis we’ve ever had.
We all know our debt is out of control. We all see a debt crisis coming. We don’t know exactly when it’s coming due. We don’t know the exact inflection point. If you ask an economist or a bond trader, they will give you different theories, but they all agree America’s fiscal path is unsustainable.
The problem that our nation has is, despite knowing a debt crisis is coming and would do bad things to our economy, our politics remain fundamentally unserious. It’s why I am glad you have focused on solutions today. I am hopeful that Steve and Romina will present some more because we have a backslid on this issue.
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In the good old days, like just ten years ago, Republicans used to offer comprehensive proposals to solve this problem. During the Tea Party era and after, there were different plans to balance the budget and save our safety net programs on the Republican side of the aisle. In the House Budget Committee, Jeb Hensarling and I helped author proposals every year, from 2007 to 2018, that paid off the debt and strengthened entitlement programs by putting premium support into Medicare and block grants into Medicaid. The proposals showed, using CBO supported baseline-scoring, that America could balance its budget. It took a major lift to communicate these policies and gain the support of our colleagues, but Congressional Republicans have done this before.
Those budgets had so many different elements to it, but in the interest of time, I’ll try to simplify the equation.
Basically, entitlement programs are driving out debt. Obviously, the federal government needs a discretionary cap number so there is a clear budget level set, year in and year out, for discretionary spending. Ideally, this topline discretionary cap number is set at the beginning of a year so Congress can have a budget process – and there was a failed attempt at doing that this year – but with that level set, Congress can focus on mandatory spending, which is the heart of the problem.
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Since we are at the Coolidge Foundation’s Conference, I would argue that many of the debates in America, from around the Coolidge Administration to the end of the 20th century, were debates over policies like the New Deal and the Great Society. At this point, it is safe to say that those debates are momentarily settled. Both parties tend to agree that the social contract, which can be described as health and retirement security and a safety net for those who slip through the cracks, is something America wants, needs, and wants to preserve.
Neither the Democratic Party or the Republican Party are looking to abolish this social contract. Republicans aren’t proposing to get rid of Medicare and retirement security programs.
So, knowing there is a consensus on having this social contract and safety net, policymakers need to also accept these programs were designed in the 20th century in a way that is unsustainable in the 21st century. Policymakers should accept that since these programs’ founding, we have had massive advancements in economics and technology, and we should apply those lessons so these programs can continue fulfilling their missions without bankrupting the country.
I believe there is a lot that technology and the markets can do to help with this, particularly as it relates to health care entitlements. Private competition and choice can do a lot to make these programs work better, deliver better services and lower costs. Congress also should consider converting these programs into effectively, defined-contribution programs that grow at fixed rates. Pick your rate, but this, in and of itself, can wipe out trillions in unfunded liabilities on an accrual basis.
On the policy side, our proposals were clear: Address challenges in Medicare by grandfathering the grandparents. Congress can grandfather existing seniors into the current program, so the government keeps the current promises made to them – promises which are unfundable right now. It can then put reforms in prospectively, for future seniors, allowing these new systems to grow at set rates and harnessing the power of choice, competition, and market delivery systems.
If programs are growing at fixed rates and utilizing better services and technologies at lower costs, America can avert a debt crisis. The bond markets would reward Congress for the effort, even though the debt would increase as Baby Boomers retire because it will come down once those defined-contribution programs kick in. This trend was always supported in our budgets and shows one way to step in front of a debt crisis and solve this problem.
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There are a few other closing points:
First, America can’t solve its fiscal challenges without economic growth. Congress needs to be careful what it does on economic and tax policy because economic growth is critical to fixing our problems. Growth is a necessary ingredient to America’s continued prosperity.
Second, America needs presidential leadership on this issue. Both frontrunners for the White House are actively campaigning against doing anything on the debt problem. Both Presidents Biden and Trump are campaigning against legislators who propose to solve this problem. This is not helpful and increases the possibility that, after the Federal Reserve is done cutting interest rates and after debt comes due in 1st world countries facing similar demographic issues as America’s, there could be an auction failure. I shudder to think what happens then, but this could happen in the next presidency. Either way, Presidential leadership is likely required to seriously tackle this problem.
Third, both parties have backslid on this issue in Congress so the most likely way to solve these programs’ looming insolvency and avert a debt crisis is through a Commission. As a former Member, it pains me to abdicate responsibility, but history has shown that a statutory Commission, which has teeth and enforcing mechanisms, is the most realistic way to solve this problem.