It's not just that Ryan slashes spending -- he places the burden of risk on American families' shoulders.
There are lots of ways to talk about Rep. Paul Ryan's dramatic budget plan, none of them kind. It's a massive cut in benefits to the poor and elderly. It's another giant tax cut to the well-off. It doesn't reduce the national debt at all, according to the Congressional Budget Office. It doesn't just reduce costs in Medicare and Medicaid, it effectively eliminates those vital Great Society programs. Its extreme budget austerity would doom the hesitant economic recovery and condemn the economy to a slower growth path for decades to come.
All those statements are true. But a better way to look at the the Ryan plan is in the context of some of the big shifts in the economy and government programs over the last few decades. Seen this way, it would be yet another step, the biggest yet, in shifting economic risk onto individuals and families.
The political scientist Jacob Hacker's 2006 book, The Great Risk Shift, demonstrated that the biggest trend in the evolution of the social contract over the last three decades has been the shift of risk away from bigger institutions that can handle it (corporations, government) and onto smaller businesses, individuals and families. The disappearance of traditional defined-benefit pensions, and their replacement by 401(k)s, is one good example: Instead of the company bearing the risk for all its employees, with a federal insurance program to back it up, it's all on you to save enough and invest it well. That might work out fine, or it might not.
But pensions aren't the only risk that families now bear. Employment has become shakier, and when people lose their jobs, they're much less likely to be hired back when the recession ends, because the job and perhaps the company are gone for good -- a phenomenon reflected in the record 6.1 million people unemployed for 27 weeks or longer almost two years after the recession officially ended. The housing bubble, when it burst, wiped out the economic security promised by homeownership, while the costs of higher education have forced young people to take an ever-bigger gamble that more schooling would pay off.
The achievement of the New Deal and the Great Society was not primarily in providing benefits to the poor and the old, although that's often how both liberals and conservatives talk about it now. What those programs did best was to reduce risks for individuals by sharing them across society. Whether it was health insurance through Medicare and Medicaid, insurance against poverty in old age through Social Security, federal mortgage insurance that made homeownership possible, or the Federal Deposit Insurance Corporation that enabled people to save for the future with confidence, when government absorbed and shared some of the risks of life, individuals were able to take chances and make the most of their potential.
Today, though, the only risks we're sharing are the wrong ones: Wealthy investors are protected by real or implicit guarantees such as “too big to fail,” while the risks that should shared, through social insurance, are instead privatized -- that is, pushed down the line onto us as individuals.
The Ryan plan would be one more step, the biggest step yet, in the privatization of risk. It makes no secret about it. The logic of his proposal to turn Medicare into a voucher, with which seniors would purchase private insurance, is that only if individuals bear some of the risks will they be conscious of the costs of health care and apply pressure as consumers to reduce those costs.
There are some health care costs that we can all be smarter about -- particularly preventive care that would reduce costs later in life. But more often, people over 65 (or, under Ryan's proposal, 67) would simply forgo care they need in order to get an insurance plan they can afford.
That is, if any health insurance is available to them at all. Before Medicare, there was no such thing as private health insurance for people over 67, and even with subsidies, health insurers are unlikely to rush to create products for people who are extremely likely to incur major health costs at some point between 67 and the end of their lives. It would be like creating auto insurance just for 16-18 year old boys! Ryan's plan proposes risk-adjusted subsidies that increase with age, but the only way to make a health insurance market work for 80-year-olds is to make the subsidies so generous, and the regulations so strict, that it's hardly private-sector at all.
Similarly, Ryan's plan to convert Medicaid -- the health program that serves mostly poor and near-poor families -- to a block grant to the states is an explicit risk shift. Today the risk of Medicaid costs -- which increase not only with health inflation, but with unemployment -- is shared between the states and the federal government. In some cases, it's a 50-50 split, but in states like Mississippi, the federal government absorbs 75% of the costs. A block grant would put all the risks on the states and their governors -- not their governors today, but their next governor, and the one after that, because the block grants will not adjust to keep up with health costs or economic conditions. With little room to adjust, because of state balanced-budget requirements, the risk will fall on poor working families or on other state programs, such as education.
Like other conservatives, Ryan claims the mantle of “devolution,” which promises shift responsibility down from the big cumbersome federal government to states, cities, and individuals. But the reality is that what he's shifting down is risk, not responsibility. There's one thing the federal government has shown it can do better than any state, family, or business -- absorb and share risk so that we can all move forward with confidence. Instead of thinking of budget plans like Ryan's in terms of who benefits, ask, where do the risks fall? And that question can be a guide to policies that might still reduce federal spending but also free up citizens, their families, and their businesses to live up to their potential.
Mark Schmitt is a Senior Fellow and Director of the Fellows Program at the Roosevelt Institute.