The Battle over Entitlements Isn’t Lost Yet

By
Brink Lindsey

I thought I would step out from behind Cato Unbound’s editorial curtain and make a comment here about what’s going on over there. In particular, I’d like to offer some words of encouragement to my friends David Frum and Bruce Bartlett, both of whom are downhearted (excessively, in my opinion) about the prospects of checking and reversing the entitlement-driven expansion of government spending.

Both David and Bruce make strong cases for their pessimism. David points to the opportunities blown during the nineties, while Bruce stresses the huge increases in spending that existing commitments under Social Security, Medicare, and Medicaid will necessitate in coming years.

Good points, but not the whole story. Yes, the nineties offered what in retrospect were optimal conditions for restructuring America’s entitlement commitments and thereby winning huge victories for good policy and limited government. But to adopt the clear-eyed realism that David and Bruce urge, since when did countries ever make major systemic reforms at the optimal time? Over the past generation, we have seen bold moves around the world to unwind overreaching government and install more market-friendly policies. And almost without exception, those moves have occurred, not when favorable conditions permitted sweeping changes with a minimum of short-term pain and dislocation, but when countries had their backs against the wall. Gorbachev’s launch of perestroika and the resulting collapse of communism in the Soviet bloc, India’s dismantling of central planning, the general turn toward macroeconomic stabilization, trade liberalization, and privatization throughout the less developed world, New Zealand’s dramatic policy turnaround – all occurred when countries were in extremis and alternatives to liberal reform had been exhausted.

So while it’s disappointing, it’s not terribly surprising that we have thus far failed to face up to the fiscal unsustainability of our existing entitlement commitments. We have opted for delay because delay has been the path of least resistance, but it will not remain so indefinitely. At some point, the day of reckoning will arrive, and we will face an unavoidable choice: pay to keep the promises we have made with huge tax increases, or repudiate those promises and restructure the programs that made them. It is entirely possible that, when the time comes, we will end up choosing something much closer to the former than the latter. Certainly that is what David and Bruce seem to assume.  But I don’t think it’s inevitable. Indeed, there are sound, non-wishful-thinking reasons for believing that the limited-government side has a fighting chance.

After a steady runup from the 1930s through the 1960s, total government spending as a percentage of GDP has been stable for a generation [.pdf], knocking around the 35 percent range (see Figure VI.1 on page 163). Yet if no changes are made to Social Security, Medicare, and Medicaid, spending under those programs will increase dramatically over the coming decades – according to this CBO report, from 8 percent of GDP today to 21 percent in 2075. Which means a commensurate 13 percentage point increase in overall government spending as a share of GDP, and a mind-bogglingly large tax increase to pay for it all.

Bruce assumes that because past efforts to roll back government spending’s share of GDP have been unsuccessful, further whopping increases in that share are all but inevitable.  But how does that follow? Look at things another way: efforts to prevent increases in government spending’s share of GDP have been highly successful for over three decades. Why is it unimaginable that such success can be continued? Isn’t it conceivable that, when faced with a ruinously expensive tax increase, Americans will choose a repudiation of past promises, and a restructuring of future commitments, as the lesser of two evils?

David and Bruce seem to assume that repudiating past promises will be next to impossible. I think that assumption is unwarranted. Countries around the world have repudiated obligations under fiscally unsound public pension programs – and so did we (by increasing the retirement age and subjecting benefits to taxation) in the 1983 Social Security reform. And unsustainable corporate promises to retirees are being repudiated left and right these days, without any strong political backlash.

So there is hope. A battle is looming, and the limited-government side is very much alive. Because we have waited so long, partial repudiation of past promises will inflict pain that could have been avoided. And even with partial repudiation, the price tag of taking care of existing retirees and near-retirees will be hefty. But if we do succeed in restructuring these programs, that transition can be financed, and after digesting the rat the government snake can slim down again.

It won’t be easy. We could lose. But we are not foredoomed.

Topics: 
General, Social Security, Tax and Budget Policy

NSA Database

By
Tim Lynch

USA Today reports that the NSA has a massive database of Americans’ phone calls. This is going to keep Bush’s controversial legal theories in the news for the next few weeks – especially since confirmation hearings for CIA director-designate General Michael Hayden are right around the corner. Here’s a pertinent excerpt from our new report on Bush’s constitutional record:

President Bush’s claim that he has the “inherent” power as commander in chief to order the secret surveillance of international e-mail and telephone conversations of persons within the United States raises a host of disturbing questions. For example, if the president can surveil international calls without a warrant, can he (or his successor) issue a secret executive order to intercept purely domestic communications as well? Can the president order secret warrantless searches of American homes whenever he deems it appropriate? Attorney General Alberto Gonzales has indicated that the president can order secret searches of American homes because President Bill Clinton deemed such break-ins “legal,” as if that would bolster the validity of his claim. 

Since Bush and his lawyers believe the president can arrest Americans without warrants (see the Department of Justice legal brief in the Padilla case), they presumably believe that domestic eavesdropping without warrants is also legal and appropriate. We’ll see what General Hayden says when he comes before the Senate.

Recent Cato debate on the NSA program here. Even more general background in this Cato report, Watching You.

Topics: 
General, Law and Civil Liberties

A ‘Red State’ Health Care Plan

By
Arnold Kling

Instead of surrendering the argument on health care, I say we should come up with a health care reform that leans more toward libertarian principles.

In my view, free-market health care means health insurance policies designed by insurance companies to meet the needs of consumers, rather than designed by regulators. Thus, the core of any libertarian health care reform has to be be deregulation of health insurance—eliminating mandates and any restrictions on health insurance companies’ methods of managing risk. Such reform would allow risk-based pricing, for example.

Red Staters who are intrigued by such ideas but who nonetheless believe some sort of government intervention is necessary may want to consider Red State offering of long-term catastrophic re-insurance. If a health insurance company issues a policy to an individual (this would not apply to employer-based health insurance, which is over-subsidized as it is), the Red State would pay health insurance expenses that exceed a five-year deductible. The deductible would be based on the person’s family adjusted gross income, divided by the number of people in the family. Divide that number by two, and make that the five-year deductible.

Under such a plan, if this is 2006 and you are an individual whose adjusted gross income last year was $60,000, then your five-year deductible will be $30,000. If your health care expenses in 2006 through 2010 exceed $30,000, then the state would pick up the additional cost. A health insurance company that offers you a policy in 2006 would be obliged to accept your submissions of expenses for five years, whether the insurer continues to be your policy provider or not. The insurer could offer no additional coverage beyond the $30,000 deductible (in which case, it should only charge an administrative fee), or it could layer other coverage on top of that (such as a lower deductible, in which case the insurer would be bearing some risk).

My thinking is that, if not truly libertarian, such a plan would have the virtue of making the health insurance playing field less tilted toward “insulation” (prepaid health care plans) and allow a market to develop in real health insurance. Yes, the state could end up being adversely selected by people who are really sick, but that is much better than putting taxpayers on the hook for supporting health insurance policies with really low deductibles for everyone, which is where we seem to be headed with Blue State health care reform.

Topics: 
Health Care

Diversity: Math Counts

By
David Boaz

The Washington Post reports:

President Bush’s crop of political appointees includes fewer women and minorities than did President Bill Clinton’s at comparable points in their presidencies, according to a new report by House Democrats.

Women made up about 37 percent of the 2,786 political appointees in the Bush administration in 2005, compared with about 47 percent in the Clinton administration in 1997, according to the report and supplemental data released last week by the Democratic staff of the House Government Reform Committee. Similarly, about 13 percent of Bush administration appointees last year were racial minorities, compared with 24 percent in the fifth year of Clinton’s presidency.

Unlike the Democratic report [.pdf], the Post noted that Bush is the first president to appoint a minority to any of the top four Cabinet posts: State, Defense, Treasury, and Justice. And he has appointed three minorities to those jobs.

But there’s another problem with the Democratic analysis. Presidents usually draw their appointees from the ranks of their supporters, and they tend to reward constituencies that support them. Get more support from the South, and you’ll likely appoint more Southerners to office. If Catholics vote heavily for one party, that party is likely to appoint more Catholics. That’s partly a matter of rewarding your voters, and partly a reflection of the pool of supporters you can draw from. If blacks vote 9 to 1 Democratic, it’s likely that a Democratic president will have more blacks among his campaign workers, contributors, and party faithful. By that criterion, Bush has lived up to the demands of affirmative action better than Clinton.

In 1996, about 58 percent of Clinton’s voters were women, 11 points higher than the percentage of women among his appointees. In 2000, about 47 percent of Bush’s voters were women, about 10 points higher than the percentage of women among his appointees.

More dramatically, Clinton got 27 percent of his votes from minorities, compared with 24 percent of his appointees. Bush got only 9 percent of his votes from minorities, but 13 percent of his appointees were minorities. So an identity-politics advocate would say that Clinton under-rewarded his minority supporters while Bush over-rewarded his.

The people who are going to manage vital services ought to be selected on the basis of their qualifications, not their race and gender. (Appointees who are merely going to be involved in useless and unnecessary federal programs can, I suppose, be selected on some other basis than ability and experience.) But to the extent that we’re going to look at “diversity” criteria, it seems appropriate to note that Bush has appointed more women and minorities in proportion to their presence in his coalition than Clinton did.

Topics: 
General, Government and Politics, Law and Civil Liberties

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