From Ezra Klein over the weekend, the appropriately titled “Paul Ryan’s inequality plan increases inequality,”
“Paul Ryan’s 15-page response to the Congressional Budget Office’s inequality report can be summed up in two sentences: Inequality isn’t a problem. But if it is a problem, then the ideas I’ve been pushing all along will solve it.”
Except, you know, his plan doesn’t reduce inequality…if it exists, that is. One the more frustrating things about this recent episode of discussions on inequality is trying to find accord from some on whether it exists. As I’ve said in the past, though, Gini don’t preach. On Medicare:
“A century ago,” Ryan writes, “the average American lived a life that was dramatically different, in terms of what he or she could experience and obtain, from an elite like Rockefeller. In many important respects, the difference between ultra-elites and average Americans is less pronounced today.”
“But that difference is less pronounced in large part because of programs like Medicare, which ensure that poor and middle-class seniors have access to health care of similar quality to that of richer seniors. So where Ryan’s analysis suggests the need to means-test Medicare and control health-care costs to ease inequality, the core of his health-care plan, the very plan he touts in the conclusion to his paper, would dramatically increase absolute health-care inequality for seniors.”
That’s because Mr. Ryan’s plan for Medicare is to shift the future increase in healthcare costs from the federal government to future seniors. What about taxes?
“In 2010, the Tax Policy Center released a detailed analysis of the tax provisions in Ryan’s Roadmap for America. If you were in the top 1 percent, they found, Ryan’s plan would save you $350,000 a year. If you were in the middle of the income distribution, it would cost you $152 a year. And if you were in the bottom 20 percent, it would cost you $393 a year. That would undoubtedly increase inequality.
Well that works out well if your wealthy, not so much if your not. Yet of course the entire idea of Mr. Ryan’s proposal is that those differences won’t matter because the inevitiable explosive economic growth would make everyone richer. Except, it doesn’t seem to work that way in the real world:
“Over at the International Monetary Fund, Andrew Berg and Jonathan Ostry recently published a paper looking at the relationship between inequality and growth across the world. In a sense, they were testing Ryan’s proposition exactly. “Some dismiss inequality and focus instead on overall growth — arguing, in effect, that a rising tide lifts all boats,” they write. Berg and Ostry found that “high ‘growth spells’ were much more likely to end in countries with less equal income distributions.” Moreover, “the effect is large . . . closing, say, half the inequality gap between Latin America and emerging Asia would more than double the expected duration of a ‘growth spell.’ ” And it was robust: “Inequality seemed to make a big difference almost no matter what other variables were in the model or exactly how we defined a ‘growth spell.’ ”
Which is a roundabout way of saying that spells of high economic growth inandofthemsleves don’t reduce inequality. Now, as Ezra notes, Mr. Ryan does bring up good points. Federal transfers in the form of Medicare and Social Security have become more regressive in the past thirty years. Explosive healthcare costs are the culprit there and do need to be dealt with, but simply plopping seniors into regulated exchanges with a voucher that buys less care over time is not a satisfactory solution in my eyes.