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Entries Tagged as 'reform'

Two Cheers for the Welfare State

David Frum April 16th, 2011 at 4:28 pm 224 Comments

This is the final installment in David Frum’s series on Yuval Levin’s “Beyond the Welfare State.” Click here to read the entire series.


In the interval since I started this response to Yuval Levin’s important piece in National Affairs, the Ryan budget plan has been approved by the House of Representatives on a near-total party line vote. Ideas like those endorsed by Yuval Levin are now the formal position of the Republican party. My guess is that the party’s presidential nominee will attempt to tip-toe away from that position in 2012, but who knows? Anyway, it will not matter. President Obama’s billion-dollar campaign will ensure that Republicans are thoroughly identified with it.

So Yuval Levin’s proposition is the proposition that Republicans will take to the country. Perhaps that is as it should be. Since the economic and electoral disasters of 2006-2009, Republicans have veered in a sharply libertarian direction. Why not put that new direction to the test of democracy? Perhaps Paul Ryan is right, and Americans (or anyway: voting Americans) have abruptly changed their minds during this economic crisis about their expectations from government.

I’ll admit: I’ve also changed my mind during this crisis, but in the opposite direction.

There’s an interesting rotation of ideologies here between Yuval Levin and me. Yuval Levin is one of the brightest rising stars in the intellectual tradition of Irving Kristol. Kristol famously championed a conservative welfare state, and especially programs of social insurance for the elderly.

I, on the other hand, got my political start urging a doubling-down on the economic libertarianism of the Reagan years. On the eve of the last Republican congressional triumph, 1994, I published a book urging ideas very similar to those now being urged by Yuval Levin and Paul Ryan and many others.

I won’t try here to explain why the conservative mainstream has turned so sharply to the right, although I have my theories.

As for my own turn away, that I can explain:

The radical free-market economics I embraced in the late 1970s offered a trade:

Yes, there would be less social provision. In return, Americans would receive an economy that was simultaneously more dynamic and also more stable.

There would be less inflation (because the Federal Reserve would have one job: price stability).

There would be fewer and milder recessions (because the Federal Reserve would no longer have to extinguish the inflation it did not create).

The financial sector could finance faster growth with less risk (because risks would be cushioned by diversification rather than prohibited by regulation).

Economic growth would accelerate (because the reduced tax burden would induce entrepreneurial innovation).

Faster growth would raise incomes for all (because a rising tide lifts all boats).

More opportunity in the private economy would abundantly offset the curbing of welfare benefits (because the best social program is always a job).

More opportunity would end the caste-like isolation of the poorest of the poor by drawing them out of the underclass into paid employment (because all human beings respond more or less rationally to positive incentives).

This was the trade, and it was engineered jointly by Republicans and Democrats: in fact some of the most important elements of the trade were adopted during the Clinton years.

Some of the terms of that trade were honored. From 1983 through 2008, the US enjoyed a quarter-century of economic expansion, punctuated by only two relatively mild recessions. In the late 1980s, the country was hit by the savings & loan crisis, the worst financial crisis to that point since the 1930s – and although the S&L crisis did deliver a blow, the country rapidly recovered and came up smiling. New industries were born, new jobs created on an epic scale, incomes did improve, and the urban poor were drawn into the working economy.

But of course, other terms of the trade were not honored.

Especially after 2000, incomes did not much improve for middle-class Americans. The promise of macroeconomic stability proved a mirage: America and the world were hit in 2008 by the sharpest and widest financial crisis since the 1930s. Conservatives do not like to hear it, but the crisis originated in the malfunctioning of an under-regulated financial sector, not in government overspending or government over-generosity to less affluent homebuyers. Fannie Mae and Freddie Mac were bad actors, yes, but they could not have capsized the world economy by themselves. It took Goldman Sachs, Merrill Lynch, AIG, and — maybe above all — Standard & Poor’s and Moody’s to do that.

In the aftermath of the catastrophe, the free-market assumption and expectation that an unemployed person could always find work somewhere has been massively falsified: at the trough of this recession, there were almost 6 jobseekers in the US for every unfilled job. Nothing like such a disparity had been seen since the 1930s. The young faced the worst job odds. But some of the most dismal outcomes were endured by workers in their 50s, laid off from middle-class jobs likely never to see middle-class employment again.

GK Chesterton once wrote that we should never tear down a fence until we knew why it had been built. In the calamity after 2008, we rediscovered why the fences of the old social insurance state had been built.

Speaking only personally, I cannot take seriously the idea that the worst thing that has happened in the past three years is that government got bigger. Or that money was borrowed. Or that the number of people on food stamps and unemployment insurance and Medicaid increased. The worst thing was that tens of millions of Americans – and not only Americans – were plunged into unemployment, foreclosure, poverty. If food stamps and unemployment insurance, and Medicaid mitigated those disasters, then two cheers for food stamps, unemployment insurance, and Medicaid.

Which does not mean that I have become suddenly indifferent to the growth of government. Not at all. Paul Ryan is absolutely right that the present trend is unsustainable and must be corrected. The free marketeers of the 1980s were right that taxes on enterprise must be restrained to leave room for private-sector-led expansion. Over-generous social insurance has all kinds of negative consequences. Private saving must be encouraged. Work must pay better than idleness. The job of designing the right kind of social insurance state is hugely important and hugely difficult, and the conservative sensibility – with its respect for markets and less sentimental view of human nature – is the right sensibility for that job.

Yet that same conservative sensibility is also properly distrustful of the fantasy that society can be remade according to a preconceived plan. We have to start from where we are, and we have to take people as we find them. Ronald Reagan liked to quote a line of Tom Paine’s, “We have it in our power to make the world new again.” George Will – although a great Reagan admirer – correctly complained at the time, “No, we don’t.”

I strongly suspect that today’s Ayn Rand moment will end in frustration or worse for Republicans. The future beyond the welfare state imagined by Yuval Levin will not arrive. At that point, Republicans will face a choice. (I’d argue we face that choice now, whether we recognize it or not.) We can fulminate against unchangeable realities, alienate ourselves from a country that will not accede to the changes we demand. That way lies bitterness and irrelevance. Or we can go back to work on the core questions facing all center right parties in the advanced economies since World War II: how do we champion entrepreneurship and individualism within the context of a social insurance state?

Those are words I would not have written 15 years ago. I write them now, conscious that I am very far from the first person to write them.  Irving Kristol made the point most memorably at the very onset of the conservative ascendancy:

The idea of a welfare state is perfectly consistent with a conservative political philosophy – as Bismarck knew, a hundred years ago. In our urbanized, industrialized, highly mobile society, people need governmental action of some kind… they need such assistance; they demand it; they will get it.

Conservatism’s task is to shape that social insurance state, not repeal it.

Yuval Levin knew this truth when I did not. I’ll preserve it here in safe keeping for him and all his friends until they are ready to remember it again.


Cut Medicare for the Richer, Not the Younger

David Frum March 16th, 2011 at 10:42 pm 52 Comments

Paul Ryan’s advance previews of his budget ideas make a lot of sense. But they are missing one important piece.

Here’s the Wisconsin Congressman, head of the House Budget Committee, speaking last weekend to Mike Huckabee on Fox News: “If you’ve already retired or you’re about to retire and you’ve organized your lives around Medicare and Social Security, what we will do is preserve those benefits for you just like they are today and then reform them for future generations so that they can actually rely on them, because they are going bankrupt. If we do it now, we do it on our terms, meaning we don’t change anything for people in and near retirement. But if we wait, if we keep delaying and kicking the can down the road, then it will look like Europe — bitter austerity. Cuts will happen to current seniors, and that’s what we want to avoid.”

Ryan here expresses two important good government ideas: Phasing in major changes gradually and with lots of notice and acting in advance of a crisis, not during a crisis.

But let’s add a third essential element: Acting in ways that minimize the shock to the most vulnerable.

For the under-40s who will be exposed to the fullest impact of entitlement reform, the past half decade has been an economic disaster. Now we are about to load an additional burden on a generation already struggling with under-employment and (in many cases) heavy student debt. We also are about to ask them to simultaneously pay the taxes to support current retirees and save for their own retirement, while receiving less help from later generations than earlier generations will receive from them.

To put it a different way: Every previous wave of retirees has been supported by the young. Today’s young are expected first to provide for today’s old, then provide for themselves.

Some of today’s under-40s will in time perhaps be able to do so. But many more will not. The United States has become a very unequal society, and the gap between the classes shows no sign of narrowing soon. We can all hope that the future is more prosperous for all. But it’s wise to prepare for a future that looks like the recent past, in which prosperity is much less equally distributed than it was in the 1950s and 1960s.

That preparation should include greater means-testing of benefits. Ryan has for example proposed converting Medicare from an open-ended entitlement into a voucher for people currently in their 30s and 40s. At retirement, the voucher would cover some — but not all — Medicare costs. Retirees would be expected to use their own savings to cover any shortfall.

Good concept. But why should the voucher be the same for all, regardless of need?* How is someone who has gone through life earning less than $44,000 — and half of all Americans do earn less than $44,000 — supposed to accumulate the savings to pay for insurance against the medical costs of the 2050s? And how is it fair to ask them to do so while paying taxes to support unlimited Medicare for everyone currently in their 60s and 70s, including retirees who earned many multiples of $44,000 during their working lives?

Ryan is right that we have to act early and decisively. But we cannot omit the third element: we have to act fairly and we have to act realistically. Bad enough that the young must pay twice. Worse if the poor young must pay twice to support the elderly rich.

*UPDATE: Please note that this is not an accurate statement. A correction has been issued here.

Originally published in The Week.

The Reid Bill’s Hidden Pork

December 2nd, 2009 at 7:40 am 13 Comments

Break time for nursing moms?  Hundreds of millions in funding to help teenagers make the transition to adulthood (including programs that promote “positive self esteem, malady relationship dynamics, friendships, dating, romantic involvement, marriage and family interaction”)?  Bone density promotion provisions?

Yes, yes, and yes.  All three are in the health-care reform bill currently being debated by the Senate.

Kaiser Health News has a fascinating article on the “Seven Things You Didn’t Know Were In The Senate Health Bill.”

For the record, I knew only about one of the seven items.  But is that particularly surprising?  Democratic leaders have put together increasingly long bills, jammed packed with regulations and pork.  Let’s put all this in perspective: ClintonCare (1993) sat at 1,342 pages.  The Reid bill is 2,070 pages, pre-amendments.  On the Hill, Republicans are estimating a final bill that pushes at 2,400 pages.

The reporters will have plenty more to write about over at Kaiser Health News.

Now It’s the Dems Turn to Experience Mediscare

August 10th, 2009 at 10:01 am 15 Comments

The Washington Post finally discovers what should have been obvious from the sea of gray and white heads in evidence in all those town hall videos: senior citizens loathe Obamacare. It’s not hard to see why: they have Medicare now (recently enhanced by virtually free prescription drugs). Many have “Medi-gap” coverage as well through their former employers. It’s hard to see how they can “win” under Obamacare. Add to that scary (and not terribly exaggerated) stories about being forced to undergo “end of life” counseling, and voila! Instant town hell.

Also, as any rookie marketing executive can tell you, getting older people to try a new product is well-nigh impossible. They are creatures of habit, and anyone – politicians especially – who try changing those habits does so at their peril.  You would think the Democrats would know this. They are now getting a taste of the medicine they have ladled out so lovingly for the last quarter-century whenever a Republican president made noises about “reforming” Social Security.

Democrats have always viewed national healthcare as a big political winner for them, a la Social Security. But frankly, I never really understood the politics of health care reform, from the liberal perspective. The biggest likely beneficiaries – the poor, the young, the marginally employed, the illegal – are already solidly in the Democrats’ camp. Not obvious that there are many new votes to be mined there. By contrast, the almost certain losers, aside from senior citizens, are working, middle-class voters with solid (if not gold-plated) corporate health plans. (Like me.) Frankly, I think any politician would be mad to try courting the first tranche of voters at the expense of the second. Unlike the young, the poor and the illegal, who are unreliable voters at best, seniors treat polling places as if they were banks. (Why not? For them, they are.) And when you get middle-class Americans sufficiently riled up to take to the streets, look out. (Think 1994.)

The whole “national healthcare” subject has a bit of a dated ring to it, it seems to me. The Democrats appear to be clinging to it almost out of habit, rather than good sense. The world has changed in ways Franklin D. Roosevelt couldn’t even have imagined. Trying to implement his vision of a vast, centralized, enormously costly bureaucracy in 2009 seems wildly out of sync with the times. It’s as if John F. Kennedy had taken office in 1961 pledging to finally implement the free coinage of silver.

The emerging conventional wisdom is that the Obama administration will have to settle for a scaled-down reform of the health insurance industry. Maybe. Things are getting so wild out there that I wouldn’t rule out a rerun of Hillarycare and see it die altogether. The politics just don’t seem to work.