July 22, 2010
The Battle Plan: A Roadmap for America's Future
By Rep. Paul Ryan
American Enterprise Institute – July 21, 2010
Thank you for your kind words, Arthur. I appreciate your invitation to speak at AEI this morning. This is one of a small number of places in this city where the principles of freedom always receive a welcome hearing.
It was Abraham Lincoln who expounded America to Americans. This nation, Lincoln explained, drew its very meaning from its foundation on the principles of liberty and equality...self-government and equal opportunity. These principles belong to all human beings by their nature. But no nation before the US ever actually based its government on these principles. Americans would be tested repeatedly. Could a nation under limited government founded on equal freedom survive and prosper after all the trials time would reveal? Would history vindicate our Founding Fathers' faith that the unchanging "laws of nature and of nature's God" - however self-evident this truth was - could form the rock solid ground for this flourishing society, this exceptional country?
Americans throughout our history have answered this question forcefully and passed this test every time. From the first "realignment" election of 1800, and the Civil War, through two World Wars, the Cold War, and periods of economic unrest. But America can fail this test only once. Should that ever happen, the world's noblest experiment in human freedom will come to an end, for mankind and perhaps forever.
The bar for constitutional self-government is high. Government by consent is government in freedom, yet it demands more from citizens in moral principle and love of country, in political understanding and civic compassion than any other type of government.
Most of the time America is not under the consequential test of survival. On the contrary: because of the peace and prosperity which our system...rooted in political and economic freedom...makes possible, Democrats, Republicans, and independents normally share these goals. The bedrock principles of natural rights, equal opportunity, free enterprise, limited government, and private property are not at issue. They are even taken for granted. We debate means, not ends.
AEI's President Arthur Brooks says in his new book-provocatively titled The Battle that this is not such a time in America. I could not agree more. As I elaborate my views on today's crisis, you will see that I've benefited from his new book, and I urge everyone to read it.
For we live at a time when the "ends" of America's government are very much at issue. The current crisis appears at once in the explosion of out-of-control government spending which is about to overwhelm not just the public sector but the private economy and the social well-being of our land. The debt threat alone is enough for a high stakes debate on the role of government. The looming implosion of our entitlement programs requires this nation to reshape and strengthen our safety net to help avert a debt crisis.
But beyond this fiscal challenge, there is deeper cause for concern. We are clearly being drawn into political crisis by the impassioned zeal of today's elected leaders, yes our Democratic Party leaders, in Congress and the White House. It appears they have convinced themselves that America's history is dubious and our foundations are inadequate. America's house was founded on a sand pile, the narrative goes. Our aspirations for wealth and influence are illusionary, superficial, and unambitious. When the economic and financial crisis hit in 2008, the house was blown away. Therefore America must abandon its original foundations and build what the President has again and again called a "new foundation" on the basis of-again, his words-five pillars. The first pillar is new layers of bureaucracies, dictates, and regulations on investment; second, more government spending and control on training our "workforce"; third, more government spending and control on energy and technology; fourth, more government spending and control on health care; fifth, a mix of tax hikes and budget savings at some unspecified future date to reduce debt.
I have great respect for President Obama, who surely believes his Progressivist agenda is best for the American people. But America's well-being rests on America's timeless truths, and can't be secured by abandoning our principles. This "new foundation" rests on ideas like the following:
- Bureaucratic control over private enterprises' investment decisions;
- Enormous government spending;
- Forcing worker training into sectors favored by government rather than empowering individual workers to choose their training and pursue their own destiny;
- Imposing upon the economy government's radical energy and environmental overreach;
- Seizing control and management of the health care sector.
These ideas, in my judgment, reflect not the foundations of America, but of a European-style social welfare state.
How did we get into this crisis? The financial meltdown and economic recession of 2007-8 caused frightened citizens, believing the Republican White House failed to prevent it, to turn to the other party. Our new President and Congressional leaders at first said little about their ideological goals, but they wove a tale that blamed people's greed and ignorance for the recession. Government alone had the virtue to rescue the people from their own folly.
To be sure, there were sordid failures on Wall Street. But the revisionist story propagated by those who even now are signing their financial regulatory scheme into law is so wrong one hardly knows where to begin.
For one thing, whatever greed drove investors to trade in Mortgage-Backed Securities and similar financial instruments - for greed always plays its part - those "securitization" investments were evolved, packaged, and sold by so-called "Government-Sponsored Enterprises," principally Fannie Mae and Freddie Mac. The GSEs were heavily regulated by HUD and other agencies, and they were under close Congressional oversight. Congress itself compelled Fannie and Freddie to provide a secondary mortgage market for uncreditworthy buyers. This meant they would eventually have to cover subprime mortgages under quotas targeted by HUD...and they would have to find a way to resell these risky mortgages to investors.
Between 2001 and 2008, Fannie and Freddie had 5.4 trillion dollars of exposure under the HUD targets, all of which taxpayers could be responsible for, but much were sold to financial investment houses around the world. And the Federal Reserve facilitated these transactions with easy money. Many others followed, but Fannie and Freddie initially created these securities and dominated this market. You know how the chapter on these toxic assets ended. If "greed" is responsible for the collapse of housing credit, the "greed for power" among politicians ranks right up there with Wall Street's "greed for money"...and it's even more dangerous. Banks that have survived are repaying government funds. As for Fannie and Freddie, the taxpayers are on the hook for something between $150 and $300 billion. While the "greed for money" is chastened, unlimited government's "greed for power" is growing.
The Progressivist tale is wrong because it misstates the very nature of free enterprise. It presumes that free enterprise is materialistic and selfish. The free market is a game of chance. Success or failure depends on the luck of the draw, and the edge goes to the ruthless. The system of free enterprise is unfair. The moral is this: government must step in to redistribute the wealth and equalize the results for all.
But the prosperity of America finds its real source, not in government, but in democratic capitalism... people investing, working, and saving in private enterprise. Homes could not be built without private builders, creditors, and workers under the free enterprise system. It's the source of all wealth, the satisfaction of all material needs, our means of transportation, instant global communications, access to information, it's the only spring of progress and innovation in health care, education, and on and on.
Of course we understand that circumstances beyond anyone's control have an impact. But the human factor in gaining reward is merit: people whose imagination, drive, technical understanding, sensitivity to popular demands, and old fashioned hard work and sweat earn their success...and have a natural right to what they earn.
In order for justice and prosperity to prevail, free markets are not left to the law of the jungle, as Progressivists would say. They are limited and structured around rules that enforce such things as private property rights and contracts, honesty, transparency, open access to competition, freedom of prices, wages, and resource allocation. They also need standards and sound money, as the Constitution provides.
While the future may be uncertain, America has seen debt crises before. In the 1780s it nearly destroyed this country at birth. It dissolved social bonds, weakening economic, personal, social, moral, and political relationships. The key is the loss of sound money, as government monetizes the debt to meet rising service costs. Money whose future value is unpredictable cannot serve its most important purpose, to provide a common rule to equate goods, services, and labor. When social transactions are undermined, people lose trust in one another...and the vacuum must be filled with the power of government.
Our Founders experienced this first hand...so they laid their foundations to provide for limited government with a maximum of entrepreneurial freedom and sound money. They cleared the way for a nationwide open market under rules that help commerce grow. The Founders held, moreover, that economic freedom with its discipline, self-restraint, delayed satisfaction, and rewards for merit would uplift the moral character of our people. They thought market-produced prosperity was a help to compassionate concern for others, not a hindrance. The British government's interventions in America taught them that arrogance, power lust, materialism, and icy indifference are the hallmarks of uncontrolled government in every age. The natural rights to life, liberty, and the pursuit of happiness had to be secured against arbitrary government no less than criminal predators. This is why they laid down few but strong rules for commercial freedom in the Constitution. These rock solid principles are the very opposite of the "pile of sand" as our President scornfully terms them.
He and those who lead Congress reject the original foundations. The breathtaking scope of their ideological project has gradually become clear.
The project - still drawing on the President's interpretation of the Gospel parable of the two houses - is to prove we must build a "new foundation" for the American house.
Why do these leaders think we want a radical change in principles? Over decades, both Democrats and Republicans led us here. The American people were once proud to be independent of government or anyone else for their income and well-being. Today we have data that show as much as sixty percent of Americans are receiving from government more benefits and services in dollar value than they pay in taxes. We have reached that "tipping point" when we have a growing majority of "takers" and shrinking minority of "makers." A majority of government dependents, a deep recession, and zealous political leaders: these circumstances together, they believe, will drive support for their cradle-to-grave welfare model.
I myself believe, with Arthur and others, that most Americans are still not ready to sign on to limitless government. The true lesson of the financial and economic decline is the opposite of the official line. Progressive government's defect is not personnel, it's systemic: after all the claims to competence, expertise, and specialized knowledge, compared to the "ignorance" of the private sector--when you need Progressive government to solve a problem, it doesn't have the answer. Without free market democracy, Progressivist government is almost helpless.
They say we believe in no government - a sort of Hobbesian state of nature. Not true. We believe in limited government, not weak government. Government should be focused on its high but limited mission to secure every person's natural rights. It should be effective, but not all-consuming. We have reached a consensus in America that we ought to have a safety net to help those who cannot help themselves and those temporarily down on their luck. I agree with that consensus.
But Progressivism, especially as it revealed itself in its current 3rd wave, is different. Mr. Obama said in Berlin: "Let us resolve that we will not leave our children a world where the oceans rise and famine spreads and terrible storms devastate our lands." Think about that! Our President sincerely believes that problems without limit can be solved by government without limit. But bigger government cannot produce better solutions...though it may produce more mistrust. And this begins to look like self-government's newest test.
Our Founders knew that government overrun by bureaucrats would suffer from the worst weaknesses to which human nature is prone. For them, the way to prevent bureaucratic overreach was to divide up the power of government into separate branches as well as vertically between the federal and the state governments, avoid creating unaccountable bureaucracies, and insure commercial freedom and government by popular consent.
And now we have reached a fork in the road, challenged to make a choice between two paths. And there will be no turning back. The alternative to European-style social welfare unlimited government is still the timeless foundations of America - where government's high but limited mission is to secure the natural rights of all. In economics, our foundational principles are the basis for free markets, free enterprise, free labor, and competition. Striving for success and achievement - justice - trust: these are inherent elements of human happiness.
I developed my plan - "A Roadmap for America's Future" - as a fresh approach, but it is guided by the foundational principles of private ownership, individual choice, and consumer-driven markets which Arthur propounded in his book. This isn't a plan for austerity and pain. It's a prudent, temperate, achievable, and modest plan for prosperity that fulfills our commitment to the mission of the retirement, health assistance, and other safety net programs.
Here are the major components:
· First of all: We cannot rest satisfied with permanently high unemployment. America must begin to create new businesses and jobs. We can begin with a pro-growth tax reform. The Roadmap proposes a simple two-tier low-rate personal income tax system: 10% on the first $100,000 of income for couples ($50,000 for singles) and 25% above that. It abolishes the Alternative Minimum Tax, and nearly all loopholes and credits, except for generous personal and family deductions. Taxpayers can either file under the current tax code or this simplified code. Our uncompetitive corporate income tax code will be replaced by a simple 8.5% business consumption tax and investments will be expensed immediately. The Roadmap creates incentives to foster job opportunities and economic growth, while sustaining the revenues to meet our priorities.
· Next, it is not possible to grow unless we act to reduce the mountain of debt from unfunded health care and retirement entitlements. The Roadmap was put forth during the last Administration, and reintroduced this past year - before the President signed into law his massive health care overhaul. Going forward, the Roadmap is predicated on its repeal - and offers a consumer-driven replacement.
· The Roadmap offers universal access to affordable, quality health care by reforming the cost-pushing and discriminatory distortions in our tax code. Along with transparency on price and quality and upfront support for those with pre-existing and chronic conditions, the Roadmap reform tackles the scourge of health inflation with a true patient-centered alternative.
· Everyone over 54 remains in the current Medicare program. For those under 55, the Roadmap plan provides future seniors with the resources they need to choose from a list of diverse Medicare-certified plans, just like the health coverage enjoyed by Members of Congress and Federal employees. The payment grows each year, with more support for those with lower-incomes and higher health costs. To meet Medicaid's obligations, the Roadmap reform provides low income Americans with financial resources to buy their own health care coverage like everyone else.
· Everyone over 54 will stay in the existing Social Security program with no change, but benefits are guaranteed. My plan offers those now under 55 a choice: continue to take part in traditional Social Security, or participate in a retirement system like the one I have as a Congressman. You can invest over a third of your payroll taxes in a guaranteed low risk account which you own, managed by the Social Security Administration, not a stock broker or private investment firm.
· Beyond the Roadmap reforms, we also need to create a modern system of sound money, to carry certain value into the uncertain future. Trust in government begins with the guarantee of money's value. Our government is forfeiting that trust, and a society without trust cannot long remain free.
The Roadmap is my attempt to offer America a choice, an alternative to Progressivism's dreary path to welfare statism. It shows, using CBO analysis, that it is not too late for America to choose a path true to its founding ideas. We can still be that exceptional nation. Acting soon, we can still have an opportunity society with a safety net, where government protects our rights so we can maximize our potential. Should we fail to meet this challenge in time, we will remain on our current path, and the outcome will be austerity, not prosperity...managed decline instead of limitless growth.
Some say I've created a political liability for my party. "They'll use this against our candidates in the next election..." or something to that effect. Americans expect to be talked to like adults, not children. They know our system is breaking, and they are hungry for ideas and answers.
In order to save these programs, we must reform these programs. To Progressivists who don't agree with my plan: come up with a better one! Does it not look like hypocrisy to say you want a safety net to help those in need, and take no action to stop it from shredding apart ... to frighten beneficiaries about our plan and then cause their worst fears to materialize by doing nothing?
Harvard political scientist Harvey Mansfield once quipped that the Progressive entitlement programs are "progressive only in their uncontrolled cost." Today even the most "progressive" politicians and bureaucrats in Washington can't honestly make the numbers add up. We saw that during the Health Care debate. If they can't do it even now, before they have transformed this nation into a European-type social welfare state, how on earth will they do it afterwards? Portugal, Italy, Greece, Spain, France, England, and other welfare societies are reeling out of control from their governments' debts, imposing harsh and austere remedies to avoid bankruptcy...and our leaders now want to take us there?
Either we reclaim the American idea -- an entrepreneurial economy where you make the most of your life and tap your potential...where we reinvigorate the principles of liberty, freedom, free enterprise and insist on the morality of freedom - or, we abandon the founding principles and embrace the "soft despotism" of the cradle-to-grave welfare state, drain people of their incentives and will to make the most of their lives, and make them completely dependent on government.
Today's leaders seem to think government is never big enough. So let us ask ourselves, honestly and sincerely: Do we want an entrepreneurial society that brings back prosperity in the 21st century...where individual merit and entrepreneurial activity define the American economy, or are we going to have more and more people dependent on the government for their livelihoods? That's the fork in the road. We were brought to this place by the current direction of our government and the debt crisis from the coming entitlement explosion. We've got to make a decision in 2010 and in 2012 of what kind of country we want to be in the 21st century.
Arthur's book talks about a "new culture war," initiated by the Progressivist elite, but there's something in it to be thankful for. Our current leaders with their ideological agenda have awakened America! They have reminded us of all we have to be grateful for. We relish the opportunity to take back America's heritage of freedom!
And here's my final point: the case for our founding principles and for free market democracy has always been based on a moral proposition-the equal dignity of every person-the capacity to control or guide our own lives and to grow in self-responsibility to our families, our country, and our Maker. Progressivist plans for a social welfare state are rooted in materialism. They misunderstand human happiness and suppose it can be purchased with redistributed dollars. We seek fulfillment in achievement and work... or earned success... our flourishing in self-government under a limited constitution.
Those who wish to replace the principles that made America exceptional have posed their challenge on several fronts at once-economic, social, international, and even philosophical. All are interconnected, because the moral foundation that supports freedom in one area supports freedom in all. This is a mighty trial over the very meaning and dignity of the human person. In the political domain, the issue comes down to this: Is government to be master or servant?
My message is sober but my confidence in America is boundless. Once Americans understand that this is the great question of the day, they will, as always, take their stand upon the rock of our foundation of freedom.
Thank you.
Paul Ryan represents Wisconsin's First Congressional District and serves as Ranking Member of the House Budget Committee.
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