Over the next seventy-five years, Medicare’s unfunded obligations will add up to a grand total of $24.6 trillion under current projections. In reality the program, unless reformed, will be far heavier indebted as the official numbers assume $575 billion in savings included in President Barack Obama’s health reform law and a 29 percent reduction in physician reimbursements in 2012. That is unlikely to happen. Time and again, Congress has overwritten payment reductions and it’s almost certain to do so again, especially during an election year.

Democrats have no plan expect letting Medicare go bankrupt. Republicans have proposed privatizing care delivery for the next generation of seniors, offering them vouchers or “premium support” which is effectively a subsidy to cover part of their insurance costs.

According to economist Paul Krugman, that’s completely unnecessary. In his latest New York Times column, Krugman suggests that Medicare is sustainable “in its current form.” How? By rationing care.

Medicare will have to start saying no; it will have to provide incentives to move away from fee for service, and so on and so forth. But such changes would not mean a fundamental change in the way Medicare works.

It would to people on Medicare. They would not longer be able to afford the sort of medicine and treatments deemed unfit or too expensive by—whom exactly? Who is supposed to say “no”? Who will decide which medical care will be paid for and which will not? President Obama has answered that question already. He would let an “advisory board” of fifteen unelected bureaucrats decide how to trim Medicare spending.

Rationing care is the favorite resort of leftists who are confronted with the utterly unsustainable nature of their favorite government handouts. The current adminstrator of Medicare and Medicaid, Dr Donald Berwick, is no exception. He complained in 2008 about how America’s then relatively free health insurance market was trapped in “the darkness of private enterprise” and professed to be romantic about the British National Health Service which, he said, was “generous, hopeful, confident, joyous and just.”

Britain’s National Health Service Ombudsman disagreed. He found that medical care for seniors in the United Kingdom was inhumane and “failing to meet even the most basic standards of care.”

Britain already has a rationing board. It’s called the National Institute for Clinical Health (or NICE) and Berwick described it as “a national treasure.” Just how nice is this institute? According to its mandates, each year of added life is worth approximately $44,000 (or £30,000). NICE Chairman Michael Rawlins boasts that at times, his agency has approved treatments costing over $70,000 (£48,000) per year of extended life but the principle remains unchanged—NICE puts a price tag on life. A principle that is readily endorsed by Dr Berwick.

“The chronically ill and those toward the end of their lives are accounting for potentially 80 percent of the total health care bill out there,” said Berwick. He predicted the need of what he described as “a very difficult democratic conversation” without elaborating all too explicitly of course on what it would entail. But he did announce this:

The decision is not whether or not we will ration care. The decision is whether we will ration with our eyes open.

Just what does “eyes open rationing” mean? Dr Berwick has yet to answer that question. What’s obvious though is that according to the Medicare and Medicaid chief, the chronically ill and elderly are taking up more than their fair share of America’s health care supply. It’s the government’s job to remedy that injustice.

“Any health care funding plan that is just, equitable, civilized and humane, must redistribute wealth from the richer among us to the poorer and the less fortunate,” said Berwick. Good health care, he stressed, “is by definition redistributional.” He added: “The simplest way to reach these goals is with a single payer system.” Which, as Krugman points out, is what Medicare is—and should remain.

Paul Krugman, professor in economics and New York Times columnist, announces his winning of the Nobel Prize in Princeton, New Jersey, October 13, 2008 (Getty Images/Jeff Zelevansky)

In his latest New York Times column, economist Paul Krugman criticizes the “pain caucus” in Europe, notably the European Central Bank (ECB), for insisting that sound money and balanced budgets will somehow fix all of the continent’s fiscal woes. Austerity, he argues, is failing and American policy makers would be ill advised to repeat it in their own country.

Krugman’s column is unfortunately so filled with mischaracterizations and outright blunders that it is difficult to purely dissect his Keynesian alternative. In fact, he doesn’t offer much of an alternative to austerity at all except to suggest “debt reduction,” which means restructuring. He has traditionally championed stimulus though and blamed the “arrogance” of Europe’s policy elite for “pushing” the continent into adopting a single currency well before it was supposedly “ready for such an experiment.” Krugman then is no fan of the euro and hasn’t ever had much respect for Europe.

The ECB, writes Krugman this week, claims “that raising interest rates and slashing government spending in the face of mass unemployment will somehow make things better instead of worse” but only half of that statement is perfectly true. Frankfurt has been urging budget cuts but kept interest rates low at the same time not to make matters worse in the highly indebted eurozone countries of the south. Austerity, moreover, is not supposed to get people back to work directly. The point is to avert sovereign bankruptcy as would have happened in Greece and possibly Ireland without European support by restoring confidence on bond markets.

Krugman characterizes this as “belief in the confidence fairy—that is, belief that slashing spending will actually create jobs, because fiscal austerity will improve private sector confidence.” That’s more accurate although budget cuts in themselves won’t create jobs. The private sector will if it has confidence in future growth.

But, “the confidence fairy hasn’t shown up,” writes Krugman. Case in point? Greece, Portugal and Spain where unemployment remains high. He is right but also disingenuous in pretending that those countries have fully implemented austerity measures yet—while not considering the nations that have.

Greece has made cutbacks, laying off public sector employees and reducing the salaries of those that weren’t fired but it’s protracting on necessary privatizations and making very little progress in getting its fiscal house in order. The government remains heavily involved in energy, health care and public transportation. The country’s railway system alone needs €1 billion in yearly subsidies to keep afloat. Pharmacists have retained their monopoly and continue to enjoy fat profit margins. Law firms still cannot open branches in different cities. Greek competitiveness overall is lacking far behind many other European countries.

Portugal’s highly inefficient public sector accounts for nearly half of gross domestic product and has gravely undermined the nation’s competitiveness. Its labor laws are inflexible. Regulations on dismissals and the use of temporary contracts are burdensome. The government maintains majority ownership of air- and seaports, railways and sanitation. Tax evasion is a problem and while corruption is limited, it is more widespread than is the case in most of the rest of Europe.

Spain is suffering from similar mistakes. Before the crisis, its government invested in renewable energies, bioengineering and infrastructure but in the process, probably destroyed more jobs in traditional industries than it created. Homeownership was heavily subsidized like in Britain and the United States, leaving people today with gargantuan debts that they’re unlikely to ever be able to pay back. Banks are naturally cautious about lending money and anxious about the prospect of losing even more if their loans to sovereign states aren’t fully repaid.

It’s no coincidence that in all of these countries, socialists have been in government throughout their recessions. In the immediate aftermath of the 2008 financial shock, they attempted the very Keynesian stimulus measures that Krugman at the time proposed.

In Spain, government spending already amounted to nearly 40 percent of GDP in the years preceding the downturn. Its stimulus provided for public works investments, support of the auto industry and increased social benefits. Yet one in five Spaniards remains unemployed today. For all the money that their government poured into the economy, the country did not recover.

What is Paul Krugman recommending these countries do now? Spend more! he says. Whatever you do, don’t cut back. But what about the countries that have?

Krugman doesn’t mention in his column that fiscal prudence in Germany enabled a relatively quick and export driven recovery. He doesn’t mention Latvia where austerity brought on a dramatic 18 percent drop in GDP in 2009 but where growth and jobs are returning less than two years later. He doesn’t mention Slovakia which pushed through huge market reforms earlier this decade and opted for austerity in recent years. Like Germany, it has seen a rise in exports and enjoyed two consecutive quarters of growth while unemployment is decreasing. He doesn’t mention the Czech Republic where a conservative government is reining in public sector spending and confidence among business owners and consumers is high. Nor does Krugman mention countries as Austria, Finland and the Netherlands where fiscal restraint and a considerable dependence on demand from Germany is fueling growth.

Finally, Krugman fails to consider lessons of austerity from the past, including Mexico during the 1980s and East Asia during the late 1990s, where each time international rescue efforts were conditioned on spending cuts and liberalizations that helped nations recover from terrible crises within just a few years.

Perhaps the most striking example of nation mired in recession and faced with the choice whether to spend or to cut was Britain during the 1970s though. There and then, Margaret Thatcher proved Krugman wrong. Despite hundreds of economists who told her that austerity would deepen the nation’s recession, Thatcher cut spending and privatized old, unprofitable industries held in government ownership for many decades. By the end of her prime ministership, Britain was back on a path for growth. It was “heartless” and “unsocial” and unpopular but it worked.

Krugman notes that health care providers are expected to behave according to higher standards than the average professional because they have to make life and death decisions, sometimes under severe stress. Doctors aren’t just “people selling services to consumers of health care,” he writes, because the service they’re selling is health—sometimes life.

That’s fine but doctors still expect to be paid and rightly so. The service they’re providing may be far more important than those provided by managers and economists but there’s no such thing as free care.

Health care professions aren’t like other professionals but Krugman never explains why patients shouldn’t be seen as consumers. He focuses entirely on the providers on care—which is refreshing given that the rights of medical professionals were largely forgotten in last year’s health care debate—but he hardly mentions those receiving care.

In essence, patients are consumers. They pay their doctors for medical advice and treatment. The only reason to pretend that they aren’t is to legitimize a system of care in which patients don’t have to pay, or not pay in full, the care they receive. That is, the sort of public health system Paul Krugman supports.

Paul Krugman, professor in economics and New York Times columnist, announces his winning of the Nobel Prize in Princeton, New Jersey, October 13, 2008 (Getty Images/Jeff Zelevansky)

Economist and New York Times contributor Paul Krugman rallies against Republicans’ spending cuts in his latest column, blaming them for sacrificing America’s future in favor of short term political gain.

Krugman notes that while the majority of Americans support budget cuts, they actually like to keep the government spending that benefits them. Thus, “Republicans don’t have a mandate to cut spending,” he believes.

The fact that most people want more, not less public spending for education and health care does not diminish the need to cut. The United States are on an unsustainable fiscal path. As House Speaker John Boehner told NBC’s Meet the Press this weekend, “We’re broke.” He’s right. Unless serious spending reductions are enacted, the Federal Government will continue to run trillion dollar deficits for years to come.

Yet Krugman argues against austerity. He is afraid that it could imperil the still fragile economic recovery. Moreover, he points out that most people don’t actually want to cut government.

At the same time, most people are “ill informed” and have let themselves be fooled by politicians.

They don’t have the time or the incentive to study the federal budget, let alone state budgets. So they rely on what they hear from seemingly authoritative figures.

Do they? The Tea Party phenomenon would seem to prove him wrong. Millions of voters across the country chose not to listen to “seemingly authoritative figures” last November. One of those seemingly authoritative figures is Paul Krugman who does have the time to study the federal budget and therefore knows what’s best for people.

Krugman has championed for ever bigger government since the start of the recession, regarding it as a failure of the free market system. President Barack Obama’s “stimulus” was too small, he complained last year. The world would be much better off if only governments were willing “to run even larger deficits over the next year or two,” he claimed two years ago.

Since then, we have seen Greece and Ireland and Portugal teeter on the brink of sovereign default and unless America raises its debt ceiling or manages to rein in spending, it too will face bankruptcy soon.

Republicans (most of them anyway) realize that and they are pushing for spending cuts. According to Krugman, their cuts amount to “eating the future.” He cites a billion dollar cut in a “highly successful program” that provides supplemental nutrition to pregnant mothers and young children as well as a $578 million cut from the Internet Revenue Service’s (IRS) enforcement budget. Without these “future oriented programs,” the next generation of Americans will be “damaged by childhood malnutrition,” he warns and coping with “a revenue system [that is] undermined by widespread tax evasion.”

One can only imagine what doomsday scenarios Krugman will conjure when Republicans propose to slash Medicaid spending or reform Social Security. If those poor, “ill informed” Americans can’t do without their Federal Government subsidizing infant nutrition, what apocalypse will await them if heartless Republicans attempt to take away their health care benefits?

The truth is that most people are perfectly capable of fending for themselves. Most Americans, in fact, don’t care to have the government subsidizing other people’s health insurance or meddling in their personal diet or lifestyle. And they don’t like the notion of the IRS fining people who choose not to have health insurance as the president’s reform bill would compel them to.

Krugman would rather raise taxes and maybe get rid of defense before dismantling America’s welfare state. Excessive government spending is currently responsible for a $1.5 trillion deficit however and still, nearly one of ten American workers is unemployed. As we see the results of Paul Krugman’s Big Government, most Americans should say, loud and clear: “Leave us alone!”

In Krugman’s warped interventionist mindset, ending “stimulus” measures equates “punishing the economy” and that, he believes, would mean disaster. “Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea,” he writes. Even the Organization for Economic Cooperation and Development gets it wrong when it recommends austerity.

Krugman’s argument may have been “textbook economics” during the 1960s but experience is not on his side. Besides the United States and Japan, countries throughout Europe plunged in the red in the wake of the recession and the results are undeniable: investors are fleeing countries like Ireland, Italy and Spain while Greece bordered on bankruptcy and had to be rescued by its fellow eurozone member states. Krugman pretends that’s irrelevant though. Greece didn’t collapse because it borrowed too much money, he says; it was all the fault of Europe’s “arrogant” elite which “pushed” countries into adopting the common currency way too soon.

Very well, let’s go back further, before the euro came into play. In the late 1970s the United Kingdom was mired in deep recession after several decades of socialist rule. Successive Labour governments had followed Keynes’ recipe almost to the letter but proved unable to generate economic growth. So when Margaret Thatcher came to power in 1979, she promised to slash the deficit and reduce the national debt. She raised interest rates to slow the growth of the money supply and tame inflation. Unemployment soared and opponents of the Conservatives voiced concerns similar to Krugman’s today.

In 1981, several Cambridge economists began to circulate a letter to their colleagues throughout Britain which condemned the policies of the Thatcher Government as being likely to “deepen the depression, erode the industrial base of our economy and threaten its social and political stability.” By the time the letter was published in The Times, 364 economists from across Britain’s universities had signed it.

Thatcher persevered however. She broke the power of the unions and privatized old, unprofitable industries held in government ownership for many decades. By the end of her prime ministership, Britain was back on a path for growth. The eminent economists were proven wrong.

As during the 1980s in Britain, commentators on the left today complain that such supposedly heartless measures as once preached by Thatcher are lethal to the common man. As Krugman puts it, “conventional wisdom says that the responsible thing is to make the unemployed suffer.” Evidently, that’s how socialists still think of efforts that could truly stir a recovery: as attempts of the rich to make the poor poorer. Krugman would to well to abandon this marxist mindset for as Britain before Thatcher amply demonstrated, the sort of policy it leads to only leaves more people unemployed and impoverished.

Paul Krugman previously blamed the “arrogance” of the European policy elite for pushing the eurozone “into adopting a single currency well before the continent was ready for such an experiment.” He liked to blame the euro for all of Greece’s problems, ignoring, of course, the simple truth that the country would probably have gotten into much greater trouble, and definitely much faster, if it hadn’t been able to rely upon the relative stability of the common currency.

Simon Johnson recently joined him in parade, writing for The Huffington Post that the very same “European policy elite”, “after months of denial,” is still failing to comprehend the deeper flaws that are supposedly are the root of the crisis.

The Europeans, according to Johnson, “have not planned for these events,” which is true; “they never gamed this scenario, and their decision making structures are incapable of updating quickly enough.” Maybe Europe could have stepped in to help sooner but note that just weeks after European Council President Herman Van Rompuy pledged solidarity with Greece, a multibillion euro bailout plan has been made available together with the IMF. One wonders just how quick Johnson would have the “decision making structures” of the Union be capable of “updating” themselves.

What’s more though, “the incompetence at the level of top European institutions is profound and complete,” he believes. Johnson is echoing a sentiment expressed by Greek Prime Minister George Papandreou in February here, who complained at the time that the EU was turning his country into “a laboratory animal in the battle between Europe and the markets.”

If one considers the speed with which European policy makers enacted massive bailouts of financial institutions on the brink of collapse last year; if one considers the relative urgency with which European leaders agreed to an unprecedented effort to contain the crisis in Greece this week; and if one considers that the involved Directorates-General for Competition, Economic and Financial Affairs, Enterprise and Industry, Internal Market and Services, and Trade respectively employ just 749, 506, 785, 469 and 470 civil servants, it’s hard to honestly blame Europe for “profound and complete” incompetence at an institution level.

When it comes to chastising European “arrogance” though, we surely wouldn’t want such telling achievements to get in the way of making a good show now, would we? Instead, let’s pretend that those priggish French are smiling upon the fiscal woes in the south “with a feeling of superiority” because reaffirming a stereotype is much more satisfying than reminding readers that it were those same Frenchmen who rather had Europe come to Greece’s aid alone, without interference from the IMF.

Since we can’t seem to rely on Europe, “what we need is a new approach,” notes Johnson—”at the G20 level.” So, an organization that isn’t even an organization rather an informal platform lacking any power to regulate let alone intervene will be better equipped to handle near sovereign bankruptcy than the European Union which, before anything else, has been dedicated to building a common market and of which many member states have an actual stake in ensuring the future stability of the euro because they carry the same currency? I think not.

The one thing that is “seriously wrong” here is not European attitudes but the utter incompetence of certain non-European analysts to see the Union for what it is. Disregarding a handful of forward looking officials working in the halls of powers along the Rue de la Loi in Brussels, there are very few politicians in Europe today who dream of coming to a federal state at any point in the foreseeable future. Nonetheless, there are plenty of American commentators who insist on describing Europe as though it were similar in this sense to the United States. It isn’t. And it won’t be any time soon.

Shockwaves from Greece’s predicament have hit as far as East Asia where the Australian and Japanese stock markets plunged into the red over worries about the country’s ability to service its debt. The euro dropped to a one year low against the dollar. Oil prices extended losses, sliding to near $82 a barrel Wednesday amid concerns that European debt crises might imperil the global economic recovery and hurt demand for crude oil.

The downgrades came after Greece announced last week that it would be forced to tap into the €45 billion aid fund sponsored by the European Union and the International Monetary Fund. European leaders reached compromise on this arrangement last month after Germany objected to an outright bailout. France and Italy led the effort for an exclusively European rescue operation, fearing that interference from the IMF would diminish the Union’s economic stability. Italian Prime Minister Silvio Berlusconi even warned that if Europe failed to deliver, it had no right to exist at all.

There is further discord over the future of the Stability and Growth Pact. Berlin wants tougher sanctions for members that violate European budget rules, including the ability to expel them from the eurozone. Brussels would rather be more involved in countries’ budgeting from the start in order to prevent, not punish, excesses. Some are already interpreting this as the beginning of the end for all of the European Union—an exaggeration of course, though it painfully demonstrates a lack of credibility on the part of the EU when it comes to containing its economic troubles.

Chancellor Angela Merkel has demanded that Greece come up with tougher austerity measures before the EU and the IMF plough in billions of euros. Investors fear that the Greek Government will be unable to deliver with trade unions already taking to the streets to protest against any shortening on entitlement programs.

Worries about the scope of public debt in Europe first surfaced in February when The New York Times revealed that Wall Street firms had helped keep countries’ mounting debts, Greece’s included, off the books for many years. British economic historian Niall Ferguson warned at the time that the contagion would spread to Ireland, Portugal, Spain and possibly Belgium and Italy. He predicted that markets would wake up, realizing that these eurozone members’ plunging into the red in the wake of the financial crisis “were not credible fiscal policies.” Today, that’s what the markets did.

Ferguson also noted that “in terms of the size of its debt,” the United States were not all too far behind Greece. It would have great trouble, he said, to get back “into any kind of balance” in the foreseeable future.

Even some economists on the left appear to realize finally that deficit spending is not a game that can be played indefinitely. Simon Johnson for instance, who is convinced that banks are to blame for the crisis and ought to be broken up, understands that fiscal irresponsibility lies at the heart of Greece’s woes. Nonetheless, he seems to believe that it is up to the rest of Europe to “restructure government debt in an orderly manner,” however that may come about.

Johnson is not the first to suggest that the eurozone as such is to blame. Greek Prime Minister George Papandreou chastised his colleagues in February for supposedly turning his country into “a laboratory animal in the battle between Europe and the markets.” That remark did not inspire a particular willingness on the northern euro countries to come to Greek’s rescue.

Economist Paul Krugman similarly blamed the “arrogance” of the European political establishment which allegedly “pushed Europe into adopting a single currency well before the continent was ready for such an experiment.” Deficit spending didn’t matter much, he argued; the inflexibility of the euro was to blame. In April he reconsidered, recognizing that fiscal irresponsibility was part of the problem before finding the real fault with deflation or “excessively low inflation.” Evidently, Krugman still won’t dare admit that spending more and more isn’t always a smart thing to do.

European and IMF officials are currently hard at work convincing the German cabinet to agree to the multibillion euro relief effort. European Commission President José Barroso reassured bond markets in Tokyo that help is underway. “The commission expects this work to be finalized in the coming days,” he said. “In my mind, there’s no doubt Greece’s needs will be met in time.” The German finance minister Wolfgang Schäuble meanwhile tried to prevent the panic from engulfing all of Southern Europe, declaring that Greece’s budget problems “are not at all comparable” with the market pressures on Portugal and Spain.

Paul Krugman, professor in economics and New York Times columnist, announces his winning of the Nobel Prize in Princeton, New Jersey, October 13, 2008 (Getty Images/Jeff Zelevansky)

In his column yesterday, New York Times columnist Paul Krugman demonstrates how wrongheaded liberal thinking on economics can be.

Pointing to the fiscal problems being experienced by Greece, Krugman correctly points to the core of the problem: excessive spending and borrowing by the Greek government. Although he doesn’t point out that all that spending and debt is to pay for the ever-growing expenditures of Greece’s welfare state, at least he recognizes that a government can spend and borrow too much. Indeed, he even recognizes that the situation can become so dire that investors don’t want to invest anymore in a government’s bonds because they fear a default, which is precisely what is now happening in Greece.

But then Krugman goes awry, finding another culprit to blame for Greece’s debacle: deflation or even “excessively low inflation.”

What he’s alluding to is that because Greece doesn’t have control over its money supply, the Greek government cannot do what the US Government and other governments do to pay off excessive debt—simply print the money and paying off creditors in debased dollars.

Krugman says that one possible solution to Greece’s problems is to slash spending and raise taxes. But of course slashing spending would involve major reductions in welfare benefits for the Greek citizenry, who are, by the way, protesting against any reductions in their dole. They take the same position as American dole recipients: that they have a right to their dole, come hell or high water, even if the government doesn’t have the money to continue paying them their dole. As Krugman observes, raising taxes will put more businesses out of business, raising unemployment and thereby aggravating the overall problem.

Krugman suggests that another possible solution is to have other European countries guarantee Greece’s bonds. But as he suggests, German taxpayers are not excited about having their money taken from them so that Greek taxpayers can continue receiving their “free” welfare state dole.

So, the obvious solution to his quandary, one that the US Government’s Federal Reserve has long used, is simply to crank up the printing presses and pay off all that debt in depreciated, debased currency.

But there’s one big problem, one that Krugman deeply laments: Since Greece is part of the eurozone, it doesn’t have the power to crank up the printing presses without the approval of the other EU countries, which are not likely to want to debase the euro for the sake of saving the welfare state dole for Greek citizens.

That leaves Greece with the option of withdrawing from the eurozone and resorting to its own monetary system. But as Krugman points out, that might not be successful given that would likely be a rush of people to get their money out of the banks, along with a refusal by investors to buy bonds issued in the new currency.

Needless to say, Krugman deeply laments the inability of the Greek government to inflate itself out of the crisis. Never mind that paying off creditors in debased currency constitutes an intentional default. That doesn’t seem to bother Krugman one whit. All that matters, obviously, is that the Greek welfare state be saved from collapse.

Unfortunately, by not surprisingly, Krugman draws the wrong lesson for America from this Greek tragedy. He says that while the US Government needs to be “fiscally responsible,” it should also “steer clear of deflation, or even excessively low inflation.”

In the final analysis, Krugman gets it wrong. What has collapsed in Greece is the welfare state, and hanging onto this anchor is what is sending Greece to the bottom of the ocean.

Americans need to take what has happened in Greece as a warning: Get off the dole road before it’s too late. Dismantle and repeal (that is, don’t reform or reduce) all welfare (and warfare) programs and departments, along with the taxes that support them.

Moreover, don’t do what the Federal Reserve has done for decades—that is, don’t inflate. In fact, abolish the Fed, America’s engine of inflation, and restore sound money to America.

This article originally appeared on Hornberger’s Blog, The Future of Freedom Foundation, April 9, 2010.

European Central Bank building in Frankfurt, Germany, May 29, 2010 (Oleksandr Telesniuk)

With Greece in despair and worries about mounting national debts rampant throughout Europe, it is easily presumed that those eurozone members still struggling with recession can all blame their troubles on deficit spending spun out of control. Paul Krugman notes however that there are different circumstances to be taken into account.

Spain, for instance, unlike Greece, is no victim of fiscal irresponsibility, opines Krugman. Its problems mainly stem from a decade-long housing bubble that ultimately burst in 2007. Up until then, its economy grew steadily with four percent a year, driven almost exclusively by a rapidly expanding real estate market. Now that construction has come to a standstill, millions of Spaniards are left unemployed with so much as two million of them living off unemployment benefits.

Krugman blames the situation on the euro. He cites the “arrogance” of the political establishment that “pushed Europe into adopting a single currency well before the continent was ready for such an experiment.”

If Spain still had its old currency, the peseta, it could remedy [its problems] quickly through devaluation—by, say, reducing the value of a peseta by 20 percent against other European currencies. But Spain no longer has its own money, which means that it can regain competitiveness only through a slow, grinding process of deflation.

The inflexibility of the euro, writes Krugman, “not deficit spending, lies at the heart of the crisis.” He doesn’t tell the whole story however. Although he is correct to point out that Spain’s massive deficit spending is more of a result than a cause of its current predicament, that same plunging into the red is doing very little to alleviate the crisis. Also, the supposed inflexibility of the euro deserves further attention.

Well before the euro went into circulation, European governments agreed, in 1997, to protect the stability of the Economic and Monetary Union through fiscal responsibility. Member states are bound by the Stability and Growth Pact to keep deficit spending under control. Greece and Space, however, among others, repeatedly violated this decade-old agreement. There is no mechanism in place to punish these countries or even stop them from doing so, which might be argued is a shortcoming of the European system.

Other member states are understandably reluctant to bail out Greece. Doing so would create the same moral hazard the banking sector, especially in the United States, is now confronted with: the expectation that if one screws up, a bailout will always be available.

This is not inflexibility; it is European countries looking after their own interests before anything else. If helping out Greece comes at considerable expense of their own prosperity, there is no reason why they should suffer for the sake of rescuing a neighbor that repeatedly disregarded treaty and behaved in an irresponsible matter that now threatens to harm all of the eurozone.

There is however one GOP Congressman who did what none of his colleagues dared—design a plan to control long term government spending and deficits. Representative Paul Ryan of Wisconsin proposes to freeze domestic discretionary spending, privatize Social Security and turn Medicare into a voucher program that depreciates against medical costs.

Ryan, who serves as the ranking member on the House Budget Committee, found himself denounced by fellow Republicans. The reason? Ryan is an admirer of Ayn Rand’s free market philosophy and reportedly requires staffers and interns to read her novel Atlas Shrugged (1957). In a speech before the Conservative Political Action Conference in February of last year, he even warned that some of the Democrats’ initiatives sound eerily similar to the collectivist measures enacted in Rand’s novel. “Citizens who had governed themselves will become mere subjects of the state,” he said, “more concerned about security than liberty. Once we reach this ‘tipping point,’ the friends of freedom will be reduced to silence.”

This sort of rhetoric is apparently considered controversial even by Republican standards. Before moving on to his critics however, a quick look at Ryan’s precise budget proposals is in order.

The Wisconsinite intends to largely privatize Social Security for those who are under the age of 55 by 2011. For citizens over that age, the program would remain unchanged. His alternative is to establish individual investment accounts, funded with part of peoples’ payroll taxes and protected against inflation by a government guarantee.

Medicare would be similarly dismantled if Ryan had his way. Current recipients and those enrolling over the next ten years could continue to enjoy today’s program whereas in 2021, the system would become voucher-based for new recipients. With their vouches, people could buy Medicare-certified, private insurance.

“Rather than depending on government for your retirement and health security, I propose to empower people to become much more self dependent for such things in life,” explained Ryan in a speech to the Hudson Institute last June.

His budget further involves a simplification of taxes, with people able to choose between either the existing system or his alternative which includes no deductions and virtually no special tax breaks. Above a taxfree amount ($39,000 for a family of four), taxpayers would know only two rates: 10 percent up to $100,000 for joint filers and 25 percent on incomes over that.

Critics are positively infuriated. While Republicans have been reluctant to admit support for Ryan’s proposals, economist Paul Krugman believes that his vision “does, in fact, represent what the GOP would try to do if it returns to power.” Ryan’s economic agenda, claims Krugman, “hasn’t changed one iota in response to the economic failures of the Bush years.” The opposite is true—Ryan is trying to steer his party toward the promotion of free market capitalism once again after President George W. Bush not only expanded government but left the country in serious debt.

Krugman’s response to the proposed dismantling of Medicare is all the more revealing. Where on February 1, he complained that the Republican Party “literally has no ideas about how the nation should actually be governed,” in his bashing of Ryan, the New York Times columnist describes the one plan that is distinctly different from anything the Democrats offer as “deliberately confusing gobbledygook.”

Younger people wouldn’t be covered by Medicare as it now exists, cries Krugman. Instead, they “would receive vouchers and be told to buy their own insurance.” What could possibly be more gruesome? Surely, you can’t expect of people that they take care of their own insurance! That, apparently, is much too confusing.

Jonathan Chait, editor at The New Republic, closes ranks on the left by blaming both Rand and Ryan for their supposed “inability to grasp the enormous differences between American liberalism and socialism or communism, seeing them as variants on the same basic theme. The historical reality,” according to Chait, “is that the architects of American liberalism saw it as a bulwark against communism.” Of course, the “historical reality” is that communism didn’t exist at the time American liberalism was framed but this, perhaps, is just such another inability to grasp the obvious.

More significant is the consequence of this alleged confusion on the part of those who champion the free market however. “The result is a tendency to see even modest efforts to sand off the roughest edges of capitalism in order to make free markets work for all Americans as the opening salvo of a vast and endless assault upon the market system.” Chait leaves readers with the impression that this sort of thinking is nothing short of lunacy.

Ryan’s proposed reforms of Medicare and Social Security aren’t actually so radical as Krugman and Chait would have us believe. He still sees a role for government which is certainly not what Ayn Rand favored. What’s more, both entitlement programs are by no means “modest efforts” in response to alleged shortcomings of capitalism—they rank among the greatest expenses of government and are, in part, responsible for the high costs of health insurance in the United States.

Upon closer scrutiny, Chait’s argument falls apart entirely for it follows the familiar logic of those who vain to speak in favor of free market capitalism but really forward its undoing. Chait defends the correction of just the “roughest edges” of capitalism; the “excesses” of laissez-faire so commonly persecuted these days. The charge rests on the premise that in order for the free market to work best, it needs to be less free. The inevitable result of “making it work” for everyone, is that everyone has to make do with less.

Paul Ryan’s plan deserves attention for it is without doubt the boldest and forward looking the GOP has offered since the Democrats most recently assumed power. Republicans hesitate however because Ayn Rand seems such an easy target for critics to shoot at. Indeed, Rand herself and blatant misrepresentations of her philosophy are often denounced yet her ideas are hardly ever specifically assessed, let alone undermined. Ryan has adopted just part of her thought to plan for America’s future. Legislators of both parties ought to pay attention.