Here’s Part Two of my textual analysis of the deficit reduction portion of Paul Ryan’s Republican response to the SOTU.

Then the President and his party made matters even worse, by creating a new open-ended health care entitlement.

What we already know about the President’s health care law is this: Costs are going up, premiums are rising, and millions of people will lose the coverage they currently have. Job creation is being stifled by all of its taxes, penalties, mandates and fees.

Well, Congressman Ryan’s right about most of this. The Health Care Reform (HCR) bill doesn’t contain direct measures to prevent insurance companies from raising premiums. On the other hand, Paul Ryan and the Republicans wouldn’t support any measure that would be effective, such as, for example, prohibiting increases in premium costs greater than the rate of inflation in the rest of the economy, because the Republicans and Ryan himself, along with many Democrats are bought and paid for by the insurance companies and big Pharma.

Ryan’s claim that job creation is being stifled by the HCR bill, is currently unsupported by evidence. But this is pure theory, especially since most of the bill isn’t operational yet and its impact can’t be assessed. One thing’s certain, however, and that is that there’s no way this way will produce the 2.5 million new jobs predicted by the California Nurses Association study if the Democrats had rid themselves of the filibuster and passed Medicare for All, rather than collaborate with the Republicans and the Blue Dogs to cut the heart out of health care reform.

Businesses and unions from around the country are asking the Obama Administration for waivers from the mandates. Washington should not be in the business of picking winners and losers. The President mentioned the need for regulatory reform to ease the burden on American businesses. We agree – and we think his health care law would be a great place to start.

Health care spending is driving the explosive growth of our debt. And the President’s law is accelerating our country toward bankruptcy.

Health care spending is driving the explosive growth of debt, both public and private, but as we saw in Part One of this series, the public debt caused by health care spending is reducing debt in the private sector and also increasing demand. Unfortunately, the explosive growth of private debt from health costs visited upon individuals is causing great suffering in the form of bankruptcies and foreclosures. In addition, these costs result in deaths when people can no longer afford co-pays and decide to forgo treatment they need before illnesses or injuries get serious.

I don’t believe that Paul Ryan is right that “the President’s Law” is accelerating the Government towards bankruptcy, because it has no risk of “bankruptcy,” unless Congressman Ryan and his colleagues decide to force insolvency by not using their constitutional authority to appropriate Government spending or to raise the debt limit. The “explosive growth” of the public debt is, for reasons stated in Part One, of little or no concern. However, I do believe that the growth of private sector debt due to health care costs is a major issue, as is the portion of the US GDP spent on the health care sector, which is way out of line with other industrial nations, and which at the same time produces much worse outcomes for too many Americans whether they have insurance “coverage,” or not.

Of course, the Congressman is not concerned about these real problems, but only about his imagined “problem” of the Government becoming insolvent due to excessive spending. That is, one of the reasons, why, I suppose, he opposes Medicare for All. If he and his Republicans were to join with Democrats to pass that, it would relieve both the increasing private sector debt problem, and also reduce the GDP proportion of health care spending by perhaps one-third. But, I guess we just expect this kind of public service out of someone who proposes to return the United States back to 19th century economic rules.

Congressman Ryan, criticizes the waiver process, by saying that Washington should not be in the business of picking winners and losers. But, this is one of the most hypocritical remarks in the history of politics coming from Congressman Ryan, since he has gone out of his way to see to it that lack of regulation would ensure that the health insurance companies, big Pharma, the FIRE sector, and businesses in his and other Congressional Districts that wanted to move jobs to other nations would be big winners while American workers and people needing Medical insurance would be big losers. The Congressman has always picked winners and losers. Unfortunately, for America, however, he has never picked them in the public interest; but only to benefit his own political career.

Our debt is out of control. What was a fiscal challenge is now a fiscal crisis.
We cannot deny it; instead we must, as Americans, confront it responsibly.

If we act soon, and if we act responsibly, people in and near retirement will be protected.

As shown in Part One, the national debt isn’t out of control at all. But Ryan is right to think that we have a fiscal crisis that we have to confront responsibly. That crisis is that the Government including Congress, the Federal Reserve, and the Executive Branch isn’t using activist fiscal policy to achieve the public purpose, even though there is no solvency risk and little inflation risk in the United States doing so. The United States has so many problems right now that letting these problems go unsolved, by kicking them down the road is the real meaning of fiscal irresponsibility.

When it comes to fiscal irresponsibility no one is better described by that term than Paul Ryan. Of course, he has a lot of company in Peter G. Peterson, the Koch brothers, and all the advocates of balanced budget amendments, Republicans and Democrats who think it’s responsible to manage the US Government’s spending as though it were a household or still on the gold standard. These people, who have, apparently been joined now by Barack Obama, will destroy the economic foundations of the United States, and create a nation where everyday life is “nasty, brutish, and short,” and the sick “die quickly.”

Our nation is approaching a tipping point.

We are at a moment, where if government’s growth is left unchecked and unchallenged, America’s best century will be considered our past century. This is a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency.

Anyone who has experienced unemployment, or living on Social Security alone, or Medicare, not supplemented by other medical insurance, knows that the social safety net is no hammock, and that it is not nearly as generous as social safety nets in other industrial companies. Our social safety is the most frugal of all the industrial nations, and also the one most immersed in false economies that undercut demand and prevent the social safety net from doing its job of making recessions less punishing for poor people and people out of work and the sick. Congressman Ryan makes Mr. Potter, the banker in “It’s a Wonderful Life,” look like a generous man, for he means to drain America of real wealth so he can serve the job exporters he loves so well better. If he has his way, the social safety net will become a bed of nails. And if we simply leave it where it is, there’s no danger of hammocks anytime soon.

Depending on bureaucracy to foster innovation, competitiveness, and wise consumer choices has never worked – and it won’t work now.

That may be. But depending on the big banks and big US corporations to either get lending going again, or to being jobs to the United States also won’t work. What will work is for the Government to increase aggregate demand by Government spending in areas of the economy we want to grow.

“Bureaucracy” is just a scare term. The Big corporations that Ryan, the Republicans, and many Democratic Congresspeople serve are all just as bureaucratic, and in the case of the health insurance companies, even more bureaucratic than the Government. Bureaucracy comes with large size whether we’re talking private or public organizations. So, unless Ryan has plans to break up the large banks, insurance companies, pharmaceutical companies, telecommunications companies, and exporters he favors so much, he really ought shut up about Bureaucracy, because his precious private sector has absolutely nothing to crow about when it comes to that feature of large organizations.

If we don”t like bureaucracy, then what we need is regulation that will break up large organizations, making them illegal beyond a certain size. Then perhaps we might restore real markets and be able to shrink the Federal government too.

Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.

First, I’ve heard enough of comparisons of Greece and Ireland to the United States and other nations that are sovereign in their own currency. Greece and Ireland use the Eurozone’s currency, so they have solvency risk not shared by nations like the United States. They can be driven into insolvency by the bond markets. Currency-wise they are like the States of the United States, and not like the Federal Government which is the creator of US currency. They cannot avoid insolvency by simply creating Euros. We, on the other hand, can spend dollars, and in the act of spending create high-powered money in private sector accounts.

Second, Ryan may say that the British Government was forced into its austerity measures. But this is nonsense, no one forced it into its austerity moves. It just decided to follow the policies that Ryan wants for us here. And what’s happening to Britain since they did introduce those policies is instructive.

Contrary to Ryan’s neoliberal economic theory, austerity is creating economic contraction in the UK, as this is written. The UK National Accounts show a decline of 0.5% in real GDP growth the fourth quarter of 2010, a little over 6 months after the new coalition took office and passed its austerity program. This decline is prior to the implementation of some of the heaviest austerity measures, and reflects the attempts of UK households to anticipate the bite of austerity. The UK VAT was just increased by 2.5% this month. We should see its impact by the next UK National Accounts Report. It is nearly certain to show another decline in GDP caused by the Government’s removal of private sector financial assets through the increase in the VAT.

Everyone in America should be watching Europe very carefully. Ireland and Greece had the choice of austerity or withdrawing from the Eurozone. They chose austerity. Greece struggles with popular frustration, and the Government in Ireland is about to be roundly rejected by the people, with even a chance that the public will turn to Sinn Fein in disgust at the legacy parties.

In the UK, a Government that freely chose austerity when it could have increased its economic stimulus enough to end unemployment, is now testing the neoliberal theory that austerity works for everyone. Early results show that this theory is false and the British public will suffer for it. Let’s hope that the deficit hawks and doves in this country watch that carefully, so that they can see that austerity won’t work, before they subject Americans to it.

We believe the days of business as usual must come to an end. We hold to a couple of simple convictions: Endless borrowing is not a strategy; spending cuts have to come first.

I believe that business as usual has to end too. For the past 30 years or more we’ve heard nothing but the economic theory that confuses the Government with a household or other economic units that cannot create their own currency. And we’ve heard all through that time that we cannot keep borrowing, and that spending cuts must come first, while we’ve kept borrowing largely to provide lower tax rates for wealthy people, in the hopes that greater disposable income for them would trickle down. Ryan is giving us the same ideology again.

If endless borrowing is really not a strategy, than why won’t Ryan work to restore the marginal tax rates of the 1960s and close all loopholes? We all know why; because he doesn’t believe in shared sacrifice; only in sacrifices by the poor and the middle class so he can further enrich his supporters. Congressman Ryan, the Republican’s young guru is exactly the same as their old gurus. His one prescription for everything is to leave the poor little rich people alone, so they can, out of the goodness of their hearts leave the rest of us a few scraps.

Apart from this however, while ending borrowing and cutting spending may increase the well-being of a private sector household, if everyone does that in the private sector, then there will be no demand, and as surely as night follows day there will be a double-dip recession harming everyone, unless Government spending takes up the demand slack coming from the private sector. The Government can borrow endlessly if it wants to, as long as its accompanying Government spending doesn’t cause demand-pull inflation. Or, alternatively if Ryan is so bothered by the debt, then he can work to repeal the Congressional mandate forcing the Treasury to issue new debt when it deficit spends. That way, the debt will gradually be reduced to zero as time passes and he won’t have to worry about it anymore.

However, the more important point here is that cutting the level of Government deficit spending is not what ought to be done when we have an economy that is operating at 70% of capacity. If we do that and move to balance the budget as Ryan wants us to do, then we will take financial assets out of the private sector, reduce aggregate demand and further decrease our use of the economy’s productive capacity. That is, we’ll have greater unemployment, greater suffering, and much less growth.

That’s because Government deficit spending, other things equal, increases net financial assets in the private sector; while Government surpluses decrease net financial assets. There’s just no getting around that macroeconomic identity. So, spending cuts and budget balancing are a strategy that won’t effect the Government’s capacity to spend at all, but it will impoverish the private sector. If that’s really what Congressman Ryan and the Republicans want to do, then let them try to do it. But I guarantee that sooner or later the American public will have its revenge for their bringing back Herbert Hoover.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).



Joseph M. Firestone, Ph.D. is Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director and co-Instructor of KMCI’s CKIM Certificate program, as well as Director of KMCI’s synchronous, real-time Distance Learning Program. He is also CKO of Executive Information Systems, Inc. a Knowledge and Information Management Consultancy.

Joe is author or co-author of more than 150 articles, white papers, and reports, as well as the following book-length publications: Knowledge Management and Risk Management; A Business Fable, UK: Ark Group, 2008, Risk Intelligence Metrics: An Adaptive Metrics Center Industry Report, Wilmington, DE: KMCI Online Press, 2006, “Has Knowledge management been Done,” Special Issue of The Learning Organization: An International Journal, 12, no. 2, April, 2005, Enterprise Information Portals and Knowledge Management, Burlington, MA: KMCI Press/Butterworth-Heinemann, 2003; Key Issues in The New Knowledge Management, Burlington, MA: KMCI Press/Butterworth-Heinemann, 2003, and Excerpt # 1 from The Open Enterprise, Wilmington, DE: KMCI Online Press, 2003.

Joe is also developer of the web sites,,, and the blog “All Life is Problem Solving” at, and He has taught Political Science at the Graduate and Undergraduate Levels, and has a BA from Cornell University in Government, and MA and Ph.D. degrees in Comparative Politics and International Relations from Michigan State University.