Paul Ryan Speaks On The "Catastrophic Trajectory" Of US Debt
Shared Scarcity versus Renewed Prosperity
Economic Club of Chicago Remarks as Prepared for Delivery by Paul Ryan
May 16, 2011
Thank you so much, Anne, for the kind introduction.
I want to thank you all for inviting me to speak. It was especially
gracious of you to host me, even though I’m a Packers fan and I assume
most of you are Bears fans.
But that doesn’t mean we can’t work together. As chairman of the
House Budget Committee, I stand ready to do whatever it takes to help
you re-sign Jay Cutler.
I’m here to talk about the economy today – about the need to get four quarters of strong, consistent performance.
That wasn’t another Jay Cutler joke, I swear. It could be, but it’s not.
I’ll come to the point. Despite talk of a recovery, the economy is
badly underperforming. Growth last quarter came in at just 1.8 percent.
We’re not even creating enough jobs to employ new workers entering the
job market, let alone the six million workers who lost their jobs during
The rising cost of living is becoming a serious problem for many
Americans. The Fed’s aggressive expansion of the money supply is clearly
contributing to major increases in the cost of food and energy.
An even bigger threat comes from the rapidly growing cost of health
care, a problem made worse by the health care law enacted last year.
Most troubling of all, the unsustainable trajectory of government
spending is accelerating the nation toward a ruinous debt crisis.
This crisis has been decades in the making. Republican
administrations, including the last one, have failed to control
spending. Democratic administrations, including the present one, have
not been honest about the cost of the tax burden required to fund their
expansive vision of government. And Congresses controlled by both
parties have failed to confront our growing entitlement crisis. There is
plenty of blame to go around.
Years of ignoring the drivers of our debt have left our nation’s
finances in dismal shape. In the coming years, our debt is projected to
grow to more than three times the size of our entire economy.
This trajectory is catastrophic. By the end of the decade, we will be spending 20 percent of our tax revenue simply paying interest on the debt – and that’s according to optimistic projections. If ratings agencies such as S&P move from downgrading our outlook to downgrading our credit, then interest rates will rise even higher, and debt service will cost trillions more.
This course is not sustainable. That isn’t an opinion; it’s a
mathematical certainty. If we continue down our current path, we are
walking right into the most preventable crisis in our nation’s history.
So the question is, how do we avoid it?
The answer is simple. We have to make responsible choices today, so that our children don’t have to make painful choices tomorrow.
If you look at what’s driving our debt, the explosive growth in
spending is the result of health care costs spiraling out of control.
By the time my children are raising families of their own, literally
every dollar we raise in revenue will be paying for three major
Some of this is demographic – every day, ten thousand baby boomers retire and start collecting Medicare and Social Security.
But a lot of it is simply due to the fact that health care costs are rising faster than the economy is growing. Revenues simply cannot keep up.
It’s basic math – we cannot solve our fiscal or economic challenges unless we get health care costs under control.
The budget passed by the House last month takes credible steps
to controlling health care costs. It aims to do two things: to put our
budget on a path to balance, and to put our economy on a path to
I am here today to stress the point that these goals go hand in hand.
Stable government finances are essential to a growing economy, and
economic growth is essential to balancing the budget.
The name of our budget is The Path to Prosperity.
See, right now, we’re finally having a debate in Washington about how
to address our fiscal problems. But we’re still not having the debate
we need to have.
To an alarming degree, the budget debate has degenerated into a game
of green-eyeshade arithmetic, with many in Washington – including the
President – demanding that we trade ephemeral spending restraints for
large, permanent tax increases.
This sets up a debate in which we are really just arguing over who to
hurt and how best to manage the decline of our nation. It is a
framework that accepts ever-higher taxes and bureaucratically rationed
health care as givens.
I call it the “shared scarcity” mentality. The missing ingredient is economic growth.
Shared scarcity represents a deeply pessimistic vision for the future
of this country – one in which we all pay more and we all get less. I
believe it would leave us with a nation that is less prosperous and less
To begin with, chasing ever-higher spending with ever-higher tax
rates will decrease the number of makers in society and increase the
number of takers. Able-bodied Americans will be discouraged from working
and lulled into lives of complacency and dependency.
Worse – when it becomes obvious that taxing the rich doesn’t generate
nearly enough revenue to cover Washington’s empty promises – austerity
will be the only course left. A debt-fueled economic crisis will force
massive tax increases on everyone and indiscriminate cuts on current
beneficiaries – without giving them time to prepare or adjust. And,
given the expansive growth of government, many of these critical
decisions will fall to bureaucrats we didn’t elect.
Shared scarcity impedes economic growth, results in harsh austerity, and ends with lost freedom.
In a recent speech he gave in response to our budget, President Obama
outlined a deficit-reduction approach that, in my view, defines shared
scarcity. The President’s plan begins with trillions of dollars in
higher taxes, and it relies on a plan to control costs in Medicare that
would give a board of 15 unelected bureaucrats in Washington the power
to deeply ration care. This would disrupt the lives of those currently in retirement and lead to waiting lists for today’s seniors.
Now in criticizing the President’s policies, I should make clear that
I am not disputing for a moment that he inherited a difficult fiscal
situation when he took office. He did.
Millions of American families had just seen their dreams destroyed by
misguided policies and irresponsible leadership that caused a financial
disaster. The crisis squandered the nation’s savings and crippled its
The emergency actions taken by the government in the fall of 2008 did
help to arrest the ensuing panic. But subsequent interventions – such
as the President’s stimulus law and the Fed’s unprecedented monetary
easing – have done much more harm than good, in my judgment.
In the aftermath of the crisis, we needed government to repair the
free-market foundations of the American economy, as it did under Reagan
in the early 1980s, by restraining spending… keeping taxes low…
enforcing reasonable, predictable regulations… and protecting the value
of the dollar.
Instead, leaders in Washington embarked on an unprecedented spending
spree… enacted a deeply flawed overhaul of financial rules… passed a new
health care law that raised taxes by $800 billion… and encouraged a
sharp departure from a rules-based monetary policy, which created even
more economic uncertainty.
In the 2010 election, the voters sent a message: This isn’t working. Washington needs to try something else.
We know what that something else must be, because we know what has
always made growth possible in America. We need to answer that call for
new economic leadership by getting back to the four foundations of
First, we have to stop spending money we don’t have, and ultimately that means getting health care costs under control.
Second, we have to restore common sense to the regulatory
environment, so that regulations are fair, transparent, and do not
inflict undue uncertainty on America’s employers.
Third, we have to keep taxes low and end the year-by-year approach to
tax rates, so that job creators have incentives to invest in America;
Fourth, we have to refocus the Federal Reserve on price stability,
instead of using monetary stimulus to bail out Washington’s failures,
because businesses and families need sound money.
Let me deal with each in order.
The first foundation, real spending discipline: it’s pretty simple.
You can’t get real, sustainable growth by continuing to pile on the
debt. More debt means more uncertainty, and more uncertainty means fewer
The rating agency S&P just downgraded the outlook on U.S. debt
from “stable” to “negative.” That sends a signal to job creators. If
S&P is telling them that America is a bad investment, they’re not
going to expand and create jobs in America – not at the rate we need
Mounting debt also threatens our poorest and most vulnerable
citizens, because those who depend most on government would be hit
hardest by a fiscal crisis. We have to repair our safety net programs so
that they are there for those who need them most. This starts by
building on the successful, bipartisan welfare reforms of the mid-1990s.
Our reforms save the social safety net by giving more power to
governors to create strong, flexible programs that better serve the
needs of their populations. Most important, they make these programs
As we strengthen welfare for those who need it, we propose to end it
for those who don’t. We end wasteful corporate welfare for those such as
Fannie Mae and Freddie Mac, big agribusinesses, and others that have
gotten a free ride from the taxpayer for too long.
All of these steps are necessary to getting spending under control.
But they are not enough. We cannot avert a debt crisis unless we
directly address the rising cost of health care.
Getting health care costs under control is critical, both for solving our fiscal mess and
for promoting growth. One reason that many people aren’t getting raises
is that rising health care costs are eating into their paychecks.
The second foundation addresses the growing scourge of crony
capitalism, in which Washington bureaucrats abuse the regulatory process
to pick winners and losers in the private economy.
Congressional Republicans continue to advance reforms that stop
regulatory bureaucrats from strangling job growth and innovation with
red tape. We’ve advanced legislation to stop the EPA from imposing
job-destroying energy caps on American businesses.
We’ve advanced legislation to revisit the flawed Dodd-Frank law,
which actually intensifies the problem of too-big-to-fail by giving
large, interconnected financial institutions advantages that small firms
do not enjoy.
But most important, we propose to repeal the new health care law and
its burdensome maze of new regulations. It’s bad enough that the law
imposes an unconstitutional mandate on every American; it also imposes
new regulations on businesses, which are stifling job creation.
Let me share with you a figure that serves as a devastating
indictment of the new health care law: So far, over 1,000 businesses and
organizations have been granted waivers from the law’s onerous
mandates. These waivers may prevent job losses now, but they do not
guarantee relief in the future, nor do they help those firms that lack
the connections to lobby for waivers.
This is no way to create jobs in America. True, bipartisan health care reform starts by repealing this partisan law.
The third foundation recognizes that we cannot get our economy back
on track if Washington tries to tax its way out of this mess.
The economics profession has been really clear about this – higher marginal tax rates create a drag on economic growth.
As the University of Chicago’s John Cochrane recently wrote: “No
country ever solved a debt problem by raising tax rates. Countries that
solved debt problems grew, so that reasonable tax rates times much
higher income produced lots of tax revenue. Countries that did not grow
inflated or defaulted.”
Higher taxes are not the answer.
Finally, the fourth foundation calls for rules-based monetary policy
to protect working families and seniors from the threat of high
The Fed’s recent departures from rules-based monetary policy have
increased economic uncertainty and endangered the central bank’s
Advocates of these aggressive interventions cite the “maximum
employment” aspect of the Fed’s dual mandate – its other mandate being
Congress should end the Fed’s dual mandate and task the central bank
instead with the single goal of long-run price stability. The Fed should
also explicitly publish and follow a monetary rule as its means to
achieve this goal.
These are our four foundations of economic growth. And the
House-passed budget starts the long, arduous, and necessary process of
restoring these foundations and building a prosperous future.
We lift the crushing burden debt by cutting spending and reforming
those government programs that drive the debt. We reduce the deficit by
over a third in the first year of our budget, putting an end to the era
of trillion-dollar deficits. The House-passed budget doesn’t just put
the budget on a path to balance – it actually pays off the debt over
We can’t achieve this goal by simply rubber-stamping increases in the
national debt limit without reducing spending in Washington.
Speaker Boehner made this clear in a recent speech at the Economic
Club of New York: If the debt ceiling has to be raised, then we’ve got
to cut spending. The House-passed budget contained $6.2 trillion in
spending cuts. For every dollar the President wants to raise the debt
ceiling, we can show him plenty of ways to cut far more than a dollar of
spending. Given the magnitude of our debt burden, the size of the
spending cuts should exceed the size of the President’s debt limit
The House-passed budget also gets health care spending under control
by empowering Americans to fight back against skyrocketing costs. Our
budget makes no changes for those in or near retirement, and offers
future generations a strengthened Medicare program they can count on,
with guaranteed coverage options, less help for the wealthy, and more
help for the poor and the sick.
There is widespread, bipartisan agreement that the open-ended,
fee-for-service structure of Medicare is a key driver of health-care
cost inflation. As my friend Jim Capretta, a noted health-care policy
expert, likes to say, Medicare is not the train being pulled along by
the engine of rising costs. Medicare is the engine – and the rest of us are getting taken for a ride.
The disagreement isn’t really about the problem. It’s about the
solution to controlling costs in Medicare. And if I could sum up that
disagreement in a couple of sentences, I would say this: Our plan is to
give seniors the power to deny business to inefficient providers. Their
plan is to give government the power to deny care to seniors.
We also disagree about how best to deliver the tax reform that Americans have long demanded from Washington.
Here’s a quick story about tax policy. Twenty-five years ago, GE CEO
Jack Welch introduced himself to this very club by saying, “I represent a
company that doesn’t pay taxes.”
I guess some things never change.
We have to broaden the tax base, so corporations cannot game the
system. The House-passed budget calls for scaling back or eliminating
loopholes and carve-outs in the tax code that are distorting economic
We do this, not to raise taxes, but to create space for lower tax
rates and a level playing field for innovation and investment. America’s
corporate tax rate is the highest in the developed world. Our
businesses need a tax system that is more competitive.
A simpler, fairer tax code is needed for the individual side, too.
Individuals, families, and employers spend over six billion hours and
over $160 billion per year figuring out how to pay their taxes. It’s time to clear out the tangle of credits and deductions and lower tax rates to promote growth.
The House-passed budget does that by making the tax code simpler…
flatter… fairer… more globally competitive… and less burdensome for
working families and small businesses.
By contrast, the President says he wants to eliminate deductions, but he also wants to raise
rates. That includes raising the top rate to 44.8 percent. That would
amount to a $1.5 trillion tax increase on families and job creators.
The President says that only the richest people in America
would be affected by his plan… Class warfare may be clever politics, but
it is terrible economics. Redistributing wealth never creates more of
Further, the math is clear – the government cannot close its enormous
fiscal gap simply by taxing the rich. This gap grows by trillions of
dollars each year, representing tens of trillions in unfunded promises
to future generations that the government has no plan to keep.
There’s a civic side to this as well. Sowing social unrest and class
envy makes America weaker, not stronger. Playing one group against
another only distracts us from the true sources of inequity in this
country – corporate welfare that enriches the powerful, and empty
promises that betray the powerless.
Those committed to the mindset of “shared scarcity” are telling
future generations, sorry, you’re just going to have to make do with
less. Your taxes will go up, because Washington can’t get government
They are telling future generations, you know, there’s just not much
we can do about health care costs. Government spending on health care is
going to keep going up and up and up… and when we can’t borrow or tax
another dollar, we’ll have to give a board of unelected bureaucrats the
power to tell you what kind of treatments you can and can’t receive.
If we succumb to this view that our problems are bigger than we are –
if we surrender more control over our economy to the governing class –
then we are choosing shared scarcity over renewed prosperity, and
managed decline over economic growth.
That’s the real class warfare that threatens us – a class of
governing elites picking winners and losers, and determining our
destinies for us.
We face a choice between two futures. We can continue to go down the
path toward shared scarcity, or we can choose the path of renewed
The question before us is simple: Which path will our generation choose?
In 1979, my mentor, Jack Kemp, captured the essence of why we must choose the path to prosperity:
“We can’t progress as a society by using government to diminish one
another. The only way we can all have more is by producing more, not by
bickering over how to share less. Economic growth must come first… for
when it does many social problems tend to take care of themselves, and
the problems that remain become manageable.”
You know, there’s a question I get a lot from people at town halls.
When you go around the country showing people a chart that shows that
our debt is on track to cripple our economy, people start to ask you
whether any plan, even a plan like the House-passed budget, can save America from a diminished future.
They say, Congressman Ryan, I know you have to sound optimistic in public. But in private, do you really think there’s anything we can do to save this country from fiscal ruin? Or should we just be bracing for the worst?
It’s a difficult question. It’s one that gives me pause. Frankly, it’s one that keeps me up at night.
But the honest answer is the one I’m about to give to you: Nobody
ever got rich betting against the United States of America, and I’m not
about to start.
Time and again, just when it looked like the era of American
exceptionalism was coming to a close… we got back up. We brushed
ourselves off. And we got back to work – rebuilding our country,
advancing our society, and moving the boundaries of opportunity ever
We can do it again. America was knocked down by a recession. We are
threatened by a rising tide of debt. But we are not knocked out. We are
America. And it is time to prove the doubters wrong once more – to show
them that this exceptional nation is once again up to the challenge.
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