Evan Soltas
Aug 12, 2012

Analyzing the Ryan Budget: Part II

Yesterday, I began my analysis of Representative Paul Ryan's budget, in light of the fact that Ryan has been selected as the Republican vice-presidential candidate by Mitt Romney, by looking at national defense and security spending. In general, I concluded that the Ryan plan proposed to keep defense spending at levels which I found inappropriately high on a real per capita basis for peacetime. I would like to add that Romney's pledge to set a "floor of 4 percent of GDP" for defense spending would ensure that real per capita defense spending would continue to soar even with it already well above postwar peacetime norms.

The next section in the Ryan plan "blueprint" is called "Restoring Economic Freedom." Long on rhetoric but short on numbers, it is not something I can analyze quite as thoroughly, so I will turn to the relevant sections of the budget as it was presented in the House of Representatives.

In general, Ryan considers the Department of Energy, the Environmental Protection Agency, the National Labor Relations Board, the Department of Transportation and the Department of Heath and Human Services in this section. Also included by his implication are the financial-regulatory wing of the federal government -- FDICCFTCCFPBSEC, and the Federal Reserve -- as well as the Federal Housing Administration, Fannie Mae, and Freddie Mac.

Let's tackle Energy in this post; I'll come back to the others in another post.

The Ryan budget outlines its strategy on page 30:

"continue funding essential government missions, including energy security and basic research and development, while paring back duplicative spending and non-core functions, such as applied and commercial research or development projects best left to the private sector...immediately terminate all programs that allow government to play venture capitalist with taxpayers’ money."
Its cuts to Energy are extreme: the Department spent $16.6 billion in 2012, and under the Ryan plan, they would be spending $2.2 billion in 2022. That is a net 87 percent cut in nominal spending; assuming annually 1 percent population growth and 2 percent inflation as I did in the prior post, that is a 90 percent cut in real per capita expenditure on energy programs. Ryan leaves science spending, which includes some DoE work, in a separate category -- search the House budget for "Function 250" -- but that is effectively frozen on a nominal basis at $30 billion, and thereby cut in real per capita terms. (See also this breakdown of energy spending by function and subfunction.)

That would mean that, for all intents and purposes, the Department of Energy was -- to use a technical expression -- gone. One can certainly question the realism of Ryan's plan in respect to DoE, but also it's worth pointing out that the severity of cuts is incompatible with Ryan's vision for the department.

Over the next decade, the President's budget increases energy spending by $4 billion, from $15.3b in 2012 to $19.3b in 2022, which amounts to a 6 percent net cut in Energy spending in real per capita terms.

I have been using the 1998 budget as a point of reference for where to bring spending on a real per capita basis. Neither Ryan or the President includes security-related energy spending in his numbers, so adjusting the 1998 Energy Department numbers, real per capita energy spending stability would result in a $11.1 billion budget in 2012 and a projected $14.9b in 2022. 

Relative to the 1998 target, the President is over-budget by 39 percent for 2012 and 30 percent for 2022. The Ryan plan would cut energy spending to 15 percent of the 1998 real per capita level.

I notice here that the 1998 real per capita level projected out to 2022 is almost the same as the 2012 level in nominal dollars. It makes sense to me to freeze Department of Energy spending on a nominal basis for the next decade, producing a net 25.6 percent cut in real per capita spending over the interval and reattaining nearly the 1998 target. After 2022 one could keep real per capita energy spending stable; that implies an annual 3 percent nominal growth.