Keynesian policies wrong prescription for the U.S. economy

As the nation confronts record deficits and debt, President Barack Obama sounds willing to change course. In his State of the Union address, he repeatedly employed the rhetoric of “fiscal discipline” — ostensibly to reassure a nation deeply concerned with Washington’s current fiscal path. Regrettably, I fear a close look at his actual budget will simply show a plan for more of the same — more spending, more taxes, more deficits, more debt — with just a few cosmetic budget maneuvers to give the illusion of restraint.

Such an approach will not reverse the “deficit of trust” he spoke of last week, and it will make an already unsustainable budget outlook much worse.

Consider the following:

Last week the Congressional Budget Office projected the current-year budget deficit at about $1.3 trillion — just a fraction less than last year’s. The 2010 deficit will be roughly equal to what the government will spend on all appropriations — including national defense, homeland security, K-12 education, veterans’ healthcare, highways and transit, science and technology, and a host of other government programs.

We’ve seen an explosion of spending over the past year, and that money has to come from somewhere. Just last week, the Senate passed a $1.9 trillion increase in the debt ceiling, bringing it to a total of more than $14 trillion — about the same size as our entire economy. The House will vote on the debt increase this week. 

With the government soaking up so much of our country’s resources, is it any wonder the economy is still not creating jobs?

This is just the immediate impact of a very aggressive agenda of increasing government spending and the scope and reach of the government. More troubling is healthcare legislation, which would add a $1 trillion new entitlement and initiate a government takeover of the healthcare sector.  

All of this will add to the already-unsustainable levels of entitlement spending — and push us further down a fiscal path of unprecedented, and unrelenting, levels of spending and deficits that will overwhelm both the budget and the economy.  

In his State of the Union speech, the president repeatedly promoted a Keynesian-inspired doctrine: that nothing good can happen without government pointing the way. Small businesses won’t expand unless government subsidizes them; homeowners won’t seek ways to save on energy costs unless government subsidizes them; banks won’t lend without ongoing government subsidies; automakers won’t build the right kind of cars unless government directs them; and Americans cannot be trusted to make rational decisions about their own healthcare — unless government does it for them. 

This is the view that is gradually turning the U.S. into a European-style culture of dependency, one in which the majority of the people pay little or no taxes but increasingly rely on government benefits. Tax reduction becomes impossible because more people have a stake in the welfare state than in free enterprise; permanent high unemployment is a way of life; and the spirit of risk-taking is smothered by a thick web of regulations and mandates from an all-providing centralized government.

The U.S. already has drawn perilously close to this “tipping point.” The Tax Foundation estimates that approximately 60 percent of Americans receive more in benefits and services from the government than they pay in taxes. The president’s fiscal agenda raises net reliance on government to 70 percent of the population. 

The president, to his credit, recognizes Americans’ growing concern with the spending projections under current policies.  But I fear his proposals for achieving “fiscal discipline” will do little, if anything, to get at the core of the problem. One is pay-as-you-go, which only locks in deficits at their current high levels. Another is a punt to a commission the critical budget decisions that members of Congress got elected to make. Added to these is an ostensible “freeze” on some discretionary spending — after last year’s explosive spending growth — with no clear means of enforcement.

Clearly, steps to strengthen budget discipline are always worth considering. But they are no substitute for real policy reforms that can alter the trajectory of our current, out-of-control, spending.

Now, to those who accuse Republicans of being merely a “party of no,” take a look at the numerous proposals we have offered and the House Republican leadership gave to the president last Friday. These include a bill that would have provided twice the jobs at half the cost of the president’s “stimulus” and the House GOP budget alternative.  I have advanced my own proposals with others, such as the Patients’ Choice Act, and I recently reintroduced my own plan, A Roadmap for America’s Future, which — among other things — guarantees universal access to health coverage for all Americans, and makes our major entitlement programs sustainable for the long term.

The president claims many of our nation’s problems — fiscal and otherwise — lie in petty bickering and partisanship in Washington. I agree that we should avoid the politics of personal destruction.  But, we also should not get lulled into avoiding a full debate about the problem and the extraordinary and permanent impact of the proposals that the Obama administration and the Democratic leadership are aggressively pursuing. While this may appear to some as a partisan, inside-Washington debate, its consequences will have an immense and lasting impact on the future of our nation. 

Ryan is the ranking Republican on the House Budget Committee.