Reason Magazine - Topics > Social Security

Putting Our Entitlements in Order

info@reason.com (Paul Wilner) — Wed, 07 May 2008 15:00:00 EDT

Over the course of his career, George Shultz served as Secretary of Labor and Secretary of Treasury to Richard Nixon and Secretary of State to Ronald Reagan. Shultz's reputation for independence survived the Reagan era, in which he famously opposed the Iran-Contra adventure while maintaining credibility as a committed Cold Warrior. And as a strong critic of the war on drugs conducted by his former bosses (and every other recent American president): In a widely discussed 1989 Wall Street Journal op-ed, Shultz wrote, "We need at least to consider and examine forms of controlled legalization of drugs."

More recently, he retained influence as the senior member of the "Vulcans,'' a group of policy advisors, including his protégée Secretary of State Condoleeza Rice, who helped identify George W. Bush as a rising political star who could lead the Republicans back to electoral victory in the post-Clinton era. He is still respected within the Bush 43 administration, even if one senses that, as a veteran internationalist, he might have preferred a less Lone Ranger-style of foreign policy.

An ex-Marine, Shultz is discreet about differences he may have with the Bush administration and was incensed at the group of generals and ex-generals who broke ranks not long ago to openly criticize former Defense Secretary Donald Rumsfeld. (One wonders what his reaction will be to the book Rumsfeld is reportedly writing about his experiences in the administration.)

These days, the 87-year-old Shultz hangs his hat at Stanford University's Hoover Institution as the Thomas W. and Susan B. Ford Distinguished Fellow. As befits an elder stateman, he is turning his attention to some of the unsolved problems of our society, especially the looming wreck of federal entitlement spending. In a new book, Putting Our House In Order: A Guide to Social Security & Health Care Reform (W.W. Norton), co-written with fellow Stanford economics professor John B. Shoven, Shultz, outlines potential solutions to the Social Security and health-care messes.

Specific reforms Shultz and Shoven propose include changes in the indexing system of Social Security benefits, so that "the rate of increase over and above inflation is either eliminated or moderated," raising the age at which benefits would start, and creating individual accounts "with the possibility of an additional deduction on a mandatory or voluntary basis.'' They argue that a "Personal Saving Account plan would transfer a significant part of Social Security payments to a Personal Security Account system in which the amount of benefits would directly reflect the amount of contributions. This plan would likely increase national saving, which in turn would increase national income in the future.''

"Reform of these programs will not come easily,'' Shultz and Shoven write in their introduction. "To touch them, many politicians worry, is to touch a third rail. But well-documented projections of the costs of current programs show that inaction is simply not an option. Progress will be promoted by widespread realization of the depth of the problem and of the fact that workable options exist. In fact, the rigidity and stability of the programs are major parts of the problem. Everything about the U.S. economy is dynamic except its major entitlement programs. To serve their fundamental purposes, these programs must be modernized so that they are suitable for the twenty-first century.''

West Coast writer Paul Wilner, whose work has appeared in The San Francisco Chronicle, The Los Angeles Times, barnesandnoblereview.com, and many other publications, talked to Shultz at the Hoover Institution in April. Comments can be sent to letters@reason.com.

reason: Some people go to Washington and get addicted to life there. But you've chosen to divide your time between San Francisco and Stanford. I guess staying back East was not for you?

George Shultz: When I'm in Washington, I like to be in the action. If I'm not in the action, I'd rather be somewhere else.

reason: You're still very much in the action, even from this remove. It was down here at Stanford, wasn't it, that you and others identified the political potential of the current occupant of the White House?

Shultz: He came here, and we had a nice day.

reason: It was more than a nice day, You helped identify him as a candidate who could successfully carry the Republican torch forward in the 2000 election...

Shultz: (Pause). He won.

reason: Twice. With the help of your protégée, Condoleezza Rice.

Shultz: My other protégé was Ronald Reagan. And Condi's a very good friend.

reason: What's your view of recent history, especially in Iraq? Do you think the current arrangement, with Rice, Defense Secretary Robert Gates and Gen. David Petraeus, is more workable, even just from a purely managerial standpoint, than what came before?

Shultz: They had good arrangements before....

reason: What do you think of the prospect of a McCain-Rice ticket?

Shultz: Well, she's kind of ruled it out.

reason: But if she were to call you for advice on the subject, what would you say?

Shultz: She's very capable and can do just about anything. But she's expressed some interest in returning to Stanford, and that's our expectation.

reason: You were identified in The New York Times recently as part of the foreign policy debate for the heart and soul of McCain.

Shultz: I didn't know I was going to be in that story, but I'm a supporter of his.

reason: Have you had a chance to discuss any of the ideas set forth in this book on health care and entitlement programs with him?

Shultz: I think he thinks of me as a foreign policy person. I saw him recently and gave him a copy of the book, so he may look at it.

reason: The subjects you discuss in it couldn't be more timely. But how do we get these programs under control. How would you rate the positions of the candidates?

Shultz: Clinton's plan, apparently, is to force people to pay for health insurance. Obama says that he thinks the reason many people don't have health insurance isn't that they don't want it, but that they can't afford it. So I tend to agree more with that. Anybody, Republican or Democrat, can adopt some of the solutions we propose. We believe that the Social Security issue can be resolved more readily and that health care will require intermediate steps.

reason: One of the specific suggestions you make is to remove health-care tax exemptions for businesses.

Shultz: We didn't suggest that—President Bush suggested that. We mentioned various suggestions, including that idea, Milton Friedman's plan, and (Democratic Congressman) Rahm Emanuel's plan. Many of the proposals are interesting, but they're quite radical, and we didn't think a radical plan would likely succeed. Social Security is a problem that can be solved. There are various ways to do it. But it ought to get done. Nevertheless, the health of the system depends on other factors. The bigger the economic pie, the easier it is to cut a slice from it.

reason: The argument being made by Elizabeth Edwards and other critics of Obama and McCain's plan is that if everyone isn't covered, the costs will just be passed on to consumers.

Shultz: We have a lot of history that if you order people to do something, it doesn't work out very well. Remember Prohibition?

reason: Yes, but there's also the history of the creation of Social Security and of Medicare, where people can't opt out of paying into the system.

Shultz: When Franklin Roosevelt created Social Security, in his wisdom, he said that the one thing it should not be is a welfare program and that we couldn't afford such an approach. We keep borrowing from the Social Security trust fund—the politicians can't seem to keep their hands off it.

We favor subsidizing existing spending, providing benefits for people 65 years old and older regardless of sex or prior medical conditions. But that's different from saying to you, if you're a healthy 25-year-old, that you have to buy insurance for everything. They want insurance against a catastrophic event—they don't want to cover acupuncture, or wigs, or all kinds of things that make it more expensive. So how do you bring that about? Provide an insurance policy for the 25-year-old that makes sense. I'm 87 years old. I don't want the same policy as a young man; I'm in a different position.

reason: So as a free-market advocate, you think competition would get costs down?

Shultz: If you're mandating things to people, you won't get lower costs.

reason: You and Shoven are at some pains to say you want to preserve the safety net by taking incremental steps.

Shultz: It's incremental, but it's bold—we have a lot of suggestions.

reason: You mentioned President Bush's efforts in this regard, but his attempts at reform came up against a stone wall of resistance.

Shultz: As did President Clinton's. There's a bipartisan recognition that this is a problem that needs to be solved, and a bipartisan recognition of the resistance to solving it.

reason: If the federal government won't do it, what about local communities? What do you think of Gov. Schwarzenegger's and Mayor Newsom's health-care proposals?

Shultz: We know and like them both. The governor's proposal hasn't gone anywhere, so there's no need for me to talk about that. What's interesting about Newsom's proposal is the idea of clinics where ordinary health care needs can be addressed inexpensively.

reason: As you watch the deficit increase—along with the costs of funding the war—is your feeling one of, "A plague on both their houses?"

Shultz: I haven't seen any lack of appetite for more domestic spending programs. The last time anything substantive got accomplished [on Medicare reform] was when two Irishmen [Reagan and Speaker of the House Tip O'Neill], who didn't agree on much else but knew this was a big problem, could get together over drinks and work to help fix it and get the changes through Congress.

reason: You mentioned Prohibition—I know you've taken a somewhat controversial stand for the legalization of recreational drugs.

Shultz: I don't think of them as "recreational.'' They do enormous harm, and we should do everything we can to prevent people from taking them. But the current system isn't working.

reason: You write in Putting Our House in Order about the successes of our economic system. As you point out: "Over the last 150 years, the U.S. economy has become increasingly stable. The economy was in recession nearly 45 percent of the time during the last half of the nineteenth century, 33 percent in the first half of the twentieth century and 16 percent in the last half of the twentieth century. In the post-World War II period, the occurrence of down quarters has diminished sixteen in the years between 1946 to 1965 to fifteen from 1966 to 1985 to just five since then. Meanwhile, even as the economy has grown to Herculean size, its rate of growth has continued to be robust.''

Despite the threats of terrorism, entitlement costs and the current downturn in the economy, are we better off today than we were 20 years ago?

Shultz: The economy has been very successful, but there are other problems, so we have to work on them.

reason: Are entitlements a bigger problem than terrorism?

Shultz: I don't see how you get very far by comparing them. Terrorism is a gigantic problem.

reason: Which is a greater threat to our way of life, though?

Shultz: Well....Entitlement spending is something we have to face up to.

Walls of Paper

khowley@reason.com (Kerry Howley) — Mon, 21 Apr 2008 15:00:00 EDT

“There is a smart way to protect our borders, and there is a dumb way to protect our borders,” Hillary Clinton explained at a February debate in Austin. Obama agreed. The smart way, he added, involves “deploying effective technology.” The “dumb” way, which both Obama and Clinton voted for, involves building a hideous steel barrier on land taken from inconveniently situated Texans.

Thus has advanced our immigration debate since the great failure of comprehensive reform in 2007. Walls are for neanderthals. Civilized people do not try to keep poor, entrepreneurial, much-needed workers out of the country with bricks and mortar; rather, they achieve this through the use of technology. On this, all three prospective presidential candidates agree. Each supports an expanded employment verification program, which would involve a hugely expensive surveillance apparatus and bureaucracy in order to monitor the employment choices of every American and foreign national. What an appalled ACLU calls “a permission slip to work” has come to represent the middle ground, though it’s likely to be far more devastating than any fence.

A bill known as the SAVE Act (Secure America Through Verification and Enforcement Act of 2007) represents an extreme version of this fantasy, a barrier built of paper and databases rather than mere concrete. The bill’s co-sponsors, Democrat Heath Shuler and Republican Tom Tancredo, are currently attempting to force a vote on the issue by collecting signatures for a discharge petition. If they succeed, they’ll force reluctant legislators into the awkward position of voting on an unworkable bill that seems, at first glance, a reasonable attempt to enforce the law.

Fewer than one percent of American employers currently use the E-verify system, which checks the immigration status of American and foreign workers against imperfect federal databases. By all accounts, the Social Security Administration is struggling under this burden; SAVE would increase the number of users by around 13000 percent (pdf). Every employer would be forced to send information about every potential hire, citizen or otherwise, to the United States Citizenship and Immigration Services, which would send the information on to the Social Security Administration, which would send the information back to USCIS. In cases where either agency finds a discrepancy, USCIS will issue a “temporary non-confirmation” that the worker can in theory contest within eight days. Given the 4.1 percent error rate of the SSA database, millions of legal workers may have to fight for the right to accept a job. According to the agency, 17.8 million of its records contain discrepancies, and most of those pertain to citizens.

Employers are not supposed to act when presented with a “temporary non-confirmation”; they’re supposed to relay information to employees, allow employees to contest the finding, and wait for another response from DHS. But the costs of E-verify are significant even when it functions properly, and waiting around while potential hires wrestle with data snags is even costlier. From the perspective of an employer with a bunch of interchangeable potential hires, it's most efficient to simply run everyone through the system and fail to hire people with problematic records. Pre-employment screening is illegal, but a study commissioned by the DHS last year found that nearly half of participating employers were ignoring at least some mandated worker protections.

While undocumented workers probably contribute more in federal taxes than they consume in federal services, no one doubts that they pose some fiscal burden to border communities where they arrive. Still, you’d have to take an improbably extreme view of these costs to deem the SAVE Act fiscally rational. According to the Congressional Budget Office (pdf), the act would decrease federal revenues by $17.3 billion between 2009 and 2018 as formerly tax-paying workers go underground. The costs of expanding E-verify and a bunch of other goodies stuffed into SAVE (thousands more border agents, a program to recruit former members of the armed forces to join the border patrol, more SUVs and unmanned aerial vehicles, hundreds of full time immigration investigators, expanded immigration detention centers) come to $23.4 billion in discretionary spending during the same period. And that doesn’t touch the cost to individual employers, who are being slapped with a huge regulatory burden in the midst of impending recession.

No presidential candidate has come out in favor of Schuler’s bill, most likely because the bill includes no avenue for undocumented workers who wish to become legal. Herein lies the ambitious stupidity of SAVE: If the bill works as intended, it will instantly turn the population of 12 million undocumented workers with no way of becoming legal into 12 million unemployed undocumented workers with no way of becoming legal. For a political constituency constantly worried about “anarchy,” this does not appear to be an ideal situation.

The SAVE Act may or may not come to a vote this session, but employment verification will almost certainly be a part of future compromise legislation on immigration reform. That's worrying. Walls offend us aesthetically and symbolically; they’re clumsy and primitive and cruel. But they’re also easy to tear down; far easier than a slowly metastasizing system of total employment surveillance, of growing databases and expanding bureaucracies.

In the end, E-verify will not “turn off the tap,” “dry up the pool of jobs,” or “turn off the magnet.” It will simply encourage workers underground, where they will be more vulnerable to abuse and less likely to pay taxes. But SAVE’s supporters may be doing more than they know to slow the flow of willing workers into the United States. Rises and falls in the flow of undocumented immigrants do not track enforcement efforts; they track the state of the U.S. economy. If legislators manage to quicken the onset of recession by reducing the flexibility of American employers, draining billions in tax revenue, and preventing Americans from going to work, they'll get exactly what they've been wishing for.

Kerry Howley is a senior editor of reason.

Serve the (Old) People

paul.thornton@latimes.com (Paul Thornton) — Tue, 08 Apr 2008 07:00:00 EDT

“Ask not what your country can do for you—ask what you can do for your country.” If only John F. Kennedy could have known what his 1961 call to service would become: a rallying cry for generations of rich, middle-aged men convinced that the nation’s youth are lazy, unpatriotic ingrates.

Normally, we can shrug off such nonsense and chalk it up to nostalgia (“Ah, for the days of Camelot!”) or the positive correlation between age and irritability. But having endured a primary campaign rife with candidates and pundits of both parties yapping about how putting me to work for almost no pay is in the nation’s interest, I’ve stopped laughing. This national service fever must stop.

The most earnest (and turgid) call for national service this election cycle comes to us not from a candidate but from Time Managing Editor Richard Stengel. In a cover story last September, Stengel declared that dramatically expanding our national service programs would cure an astounding number of social ills. Stengel doesn’t want to mandate participation, but he is quite clear about who should save America: not Time’s senior staff, but young people, for whom service will prove “a countrywide rite of passage.”

In an equally earnest speech last December, a very Kennedyesque Barack Obama fleshed out his own vision of a national service utopia. His version is (relatively) benign: It isn’t supposed to be mandatory, and only parts have a whiff of “get off your asses, young punks”—namely, his proposal to knock $4,000 off college tuition for any student who agrees to perform 100 hours of community service annually. He does flirt with compulsion, though, setting “a goal of having middle and high schoolers contribute at least 50 hours a year to community service.”

Although Obama and Stengel steer clear of overt calls for conscription, other presidential candidates were happy to beat that drum. Former Democratic contenders Chris Dodd and John Edwards each made national service a campaign centerpiece and floated the idea of requiring public high school students to perform community chores as a prerequisite for graduation. Imagine the Democrats’ utopia: millions of uninspired teenagers skipping homework to perform involuntary servitude. Can’t you feel the civic pride?

As for Republicans, boy, are those guys about to nominate a national service militant. John McCain envisions a robust program of servitude as a crucial part of his creepy crusade to wipe out cynicism about government institutions. With Obama heading full sail toward his party’s nomination, the coming McCain-Obama contest holds great promise for those who hope to see the day when youth are expected to perform nearly free labor as a matter of federal policy.

National service proponents never really explain why young people are uniquely suited for their schemes. Rather, they rely on the common assumption that kids should be put to work because, well, they’re kids!

Nearly all the national service proposals also target a particular kind of young American: the less than wealthy. Obama’s $4,000 tuition forgiveness and other such college fee incentives are far too small to entice the rich to serve. Poor children are far more likely to seek free public education than wealthy ones, and programs such as Dodd’s or Edwards’ would force students most likely to be at the receiving end of community service into community service.

Politicians usually embed these ideas in ennobling, Kennedyesque rhetoric about serving your country. I’d be more inclined vote for a candidate who says something like this: “As president, I’ll try to put your kids to work as soon as they’re out of the house. Not for full pay, of course, or anything resembling fair compensation. When Junior hits his formative years around high school and college, my administration will dangle all kinds of incentives that amount to a fraction of what you, a fully grown adult, would get for doing the same work.”

At least you couldn’t fault him for his honesty.

Paul Thornton is an assistant articles editor at the Los Angeles Times editorial page.

Fear of a Gray Planet

bdoherty@reason.com (Brian Doherty) — Wed, 16 Jan 2008 11:46:00 EST

Megan McArdle has a perspicacious piece in the new Atlantic on the likely economic and cultural effects of the aging of America's population. You ought to read it in full, but for a potted summary: likely slowdown in macro economic growth statistics as more Americans' needs shift from goods (where productivity growth is strong) to services (where it isn't).

She gently debunks the somewhat common fear of a huge stock market crash as the aging Boomers start selling off the stocks they've socked their savings in for decades. But she does think that double digit yearly stock market index growth is very unlikely down the line.

The implicit advice to the young? Go into geriatric medicine. Implicit advice to America? We'll need more immigrant service workers. (Paging Kerry Howley.) Implicit rebuke to aging Americans? You maybe shoulda thought about having more kids. (Paging Bryan Caplan.) And expect to see more graying heads in service occupations, as many Boomers didn't save enough to sustain them through their increasing golden years, and they'll have to keep working past standard "retirement" age, and Social Security won't sustain them. Nor will it bankrupt the Republic, in her reading--though Medicare just might.

Read the whole thing. It ends with a pleasing "life will go on, and still be sweet" tone, despite the possibly scary-sounding economic and cultural shifts she discusses.

The Real Beginning of the End of the 20th Century, or, Batten Down for the Silver Tsunami

bdoherty@reason.com (Brian Doherty) — Tue, 16 Oct 2007 07:56:00 EDT

First Baby Boomer applies for Social Security--first check to arrive in Feb. 2008. Reuters reports:

Social Security Commissioner Michael Astrue said the agency is bracing for some 80 million Americans to apply for retirement benefits over the next two decades.

"We are already feeling enormous pressure from baby boomers being in their peak disability years and now we're preparing for so many of them to file for retirement," Astrue said at a press conference with [Kathleen] Casey-Kirschling [the first Baby Boomer collecting--yes, they held a press conference to note this momentous occasion].

..........

Social Security, which referred to the looming crisis as a "silver tsunami," is facing enormous financial pressures from the generation born in the aftermath of World War Two. The latest report by the program's trustees said by 2017, Social Security will begin to pay more benefits than it receives in taxes. By 2041, the trust fund is projected to be exhausted.
............

"There is no reason to have any immediate panic," Astrue said. "I and most people who are really familiar with the situation are confident that there will be some pain along the way, but we will get there and Social Security will be there for future generations."

You got that? No reason to have any immediate panic. Nick Gillespie on some other ways Baby Boomers have ruined America here. A classic April 2005 debate on the possible future of Social Security between Tyler Cowen and James Glassman here.

We're Doing Fine, As Long As You Ignore the Liabilities

jsullum@reason.com (Jacob Sullum) — Thu, 08 Feb 2007 12:47:00 EST

In a New York Times op-ed piece, Steven Rattner, managing principal of a New York investment firm, asks what the federal budget would look like if the government were bound by accounting rules similar to those followed by private businesses. The short answer: a hell of a lot worse than President Bush's projections of red ink fading to black within a few years. For one thing, the government would not be allowed to use the current Social Security surplus to cover the general fund's gap between revenue and spending, a constraint that would raise the 2006 deficit by $185 billion. Accounting for pension obligations to federal workers would add another $200 billion. But that's small change compared to the government's long-term Medicare and Social Security obligations, which total something like $39 trillion but are not included in the government's rosy picture of its own financial condition.

The Ownership Society and Its Discontents

info@reason.com (Ryan H. Sager) — Wed, 01 Nov 2006 12:15:00 EST

CHOICE IS APPEALING. That’s why it’s at the heart of the loose amalgam of programs, theories, and buzzwords that President George W. Bush calls the Ownership Society. It’s Bush and his political advisor Karl Rove’s way of trying to bring everyone inside the Republican tent. People who are happy with the government just the size it is shouldn’t be spooked, they say: The Republicans aren’t trying to take anything away, they just want to give people more choices. Libertarian types shouldn’t be spooked either, and maybe they should even be excited: Republicans are finally dismantling the New Deal and replacing it with the free market, or at least a Rube Goldberg approximation thereof. And if policies to expand home and small business ownership can be tied in (because, hey, the word ownership is in there), all the better; that could appeal to African Americans and Hispanics. A Republican Party pushing an Ownership Society can be all things to all people.

This leaves those of us who care about limited government with a dilemma. Do we take the idea of an Ownership Society seriously, despite the fact that it comes from a group of people who have proven beyond a shadow of a doubt that they are comfortable not just increasing but ballooning the size of the federal government? Or do we cast it aside, despite the fact that as a political formulation the Ownership Society offers perhaps the most promising path in a generation to expanding individual freedom?

At the risk of giving the Bush administration the benefit of the doubt, libertarians, small-government conservatives, and all other natural skeptics of the president and his policy shop should take a step back, take a deep breath, and take the Ownership Society seriously. The big-government conservatives are right about one thing: Republicans are never going to roll back the New Deal. But they can shape what takes its place as America moves past the framework of its old industrial-era economy, to which the New Deal is inextricably tied.

At the same time, the Ownership Society can’t be judged in a vacuum. The Republicans have held the presidency, the House, and (except for two years) the Senate since 2001. The president has had more than five years to advance a bold new approach to conservatism under some of the most favorable political conditions imaginable, and at first glance it doesn’t look like he has much to show for it. What’s more, the small steps he has taken toward realizing that vision have come at great expense in sheer dollars and cents, as well as in greatly expanding the role of the federal government.

If the Ownership Society is supposed to be the best political means to achieve small-government ends—if it’s supposed to be the realistic alternative to the paint-fume-huffing delusions of committed libertarians—then it only makes sense to judge its performance in the real world, without pulling punches or granting points for effort.

The Evolution of Ownership

Though Bush had used the phrase on occasion before, it wasn’t until the 2004 Republican National Convention that he brought under the umbrella of the Ownership Society several policies and goals that turned out (more by happenstance than by design) to tie together thematically. “Another priority for a new term is to build an Ownership Society, because ownership brings security, and dignity, and independence,” he told the crowd at New York City’s Madison Square Garden. “In an Ownership Society, more people will own their health care plans, and have the confidence of owning a piece of their retirement.” Bush extolled the fact that homeownership was at an all-time high in America, and he promised that more Americans would own their own homes. He said that his administration was transforming schools by raising standards, and he promised that it would keep insisting on accountability and empowering parents and teachers. “In all these proposals,” he said, “we seek to provide not just a government program, but a path—a path to greater opportunity, more freedom, and more control over your own life.”

A fine vision, that. But Bush’s words didn’t flesh out exactly what an Ownership Society is at the end of the day, or how far along his administration might be in creating one after a full term in office. In fact, Bush didn’t make a single speech during the 2004 campaign or in the year after his reelection giving the idea significant depth or detail.

Still, upon examination, it’s possible to map out a constellation of programs and proposals that, taken together, form something of a coherent picture. Bush’s stalled proposal for private Social Security accounts? Definitely part of the Ownership Society. The tiny health savings accounts tacked onto the humungous Medicare prescription-drug bill? Also part of the Ownership Society. Setting targets for increased minority homeownership? Sure, why not. Proposed job-training accounts? What the hell. A prospective overhaul of the federal tax code? Somewhat inexplicably, Bush aides also consider this idea part of the package. The No Child Left Behind law? Passed in 2001, it predates the newfangled slogan, but administration officials say it gives parents more control over their kids’ education, an idea central to the Ownership Society concept.

What’s remarkable, then, is just how short a distance Bush has traveled with this idea in five-plus years. Even the president’s greatest defenders are left praising achievements his administration hasn’t…well, achieved. “Imagine if the president had won the fight for private accounts in Social Security,” the conservative pundit Fred Barnes wrote in his 2006 book Rebel in Chief. “And imagine if he had expanded consumer-driven health care.…Achieving it would have been an epic feat. And Bush, having succeeded in creating an ownership society, would be the most important and consequential domestic policy president since FDR.”

Too bad it didn’t work out that way.

Barnes still says he thinks the Ownership Society has a shot at going down in history next to the New Deal and the Great Society (some company). Bush’s conservatism, Barnes and others argue, breaks daring new ground because it is not aimed at reducing the supply of government, as in the Gingrich years. Instead, it aims to reduce the demand for government, by making people more self-sufficient and less dependent on handouts. Even if many of Bush’s bolder proposals haven’t yet been enacted into law, they argue, his pilot programs and half-measures will whet Americans’ appetites for choice, and his reorientation of the political debate will set the course for future Republican presidents and congresses.

Libertarian critics counter that the Ownership Society is merely big government by another name, providing only the faintest illusion of choice. The government would still be taking people’s money and forcing them to spend it on schooling or health care, or to save it for retirement; adding insult to injury, it would then allow (force?) citizens to choose from a menu of pre-approved, government-sanctioned options as to how precisely they would like to receive the required services. Meanwhile, government’s growth would continue unabated.

Each of these views of the Ownership Society has an element of truth. But the only way to judge Bush’s success is by looking at the results so far.

Owning Education

In January 2003, a little over a year after President Bush signed the No Child Left Behind Act (NCLB) with a beaming Sen. Ted Kennedy (D.-Mass.) by his side, Harlem mother Eunice Staton filed suit against the New York City public school system. Staton and a group of parents from New York City and Albany were looking to sue for their right, under the new federal law, to transfer their children from the failing public schools they were in to more successful ones. The school district had neglected to notify them that their children’s schools were failing and that they had the right to transfer, but once they found out, they wanted to take control of their kids’ destinies. Staton, who had three boys in two of the city’s 300 failing public schools, told the press she felt “like a prisoner.”

The suit was thrown out, making Staton and her fellow plaintiffs just a few of the millions of parents let down by the promise of a bold, new approach to federal education reform. Barnes calls NCLB “a perfect example” of the president’s redefinition of conservatism “to fit the times and to come to grips with political reality.” If that’s true, Bush’s conservatism is in worse shape than almost anybody could have imagined.

In the 2000 campaign, Bush and his team did away with the old conservative answer to education reform: closing down the federal Department of Education. It’s still not such a bad idea (the money would be better spent at the state level), but it could hardly make for worse politics. As Republican pollster David Winston put it, “Getting rid of the Department of Education doesn’t explain anything to me about how my child’s going to be better educated.” What Bush came up with instead, however, wasn’t a way to devolve power to the states in a more politically acceptable way, nor a way to give parents more control. Rather, the Bush administration came in and said, We can tame the federal behemoth better than the last guys. We can be the ones to finally make it accountable.

The administration’s initial plan was ambitious. Bush’s “blueprint,” released not long after he took office, included two fairly radical proposals. First, kids in failing schools could take their share of federal funds to a more successful school, public or private. (In other words, they could use those funds as a voucher.) Second, states that agreed to strict accountability timetables could get all their federal money as essentially a block grant, instead of being bound by strict federal allocation formulas that tend to steer funds to special interests.

How quickly did Bush abandon real reform in favor of getting a bill, any bill, through Congress? On March 22, 2001, Rep. John Boehner (R-Ohio) introduced the No Child Left Behind Act, which essentially followed the president’s blueprint: vouchers of up to about $1,500 and flexibility for the states. By May 2, the House Education and the Workforce Committee had stripped the voucher provisions from the bill (on a 27-20 committee vote where five Republicans sided with all of the panel’s Democrats) and significantly watered down the flexibility provisions. It was a nice month while it lasted.

Conservatives were crestfallen, but the White House couldn’t care less. National Review recounted a White House education aide explaining that supporters of school choice should have done more to lobby lawmakers instead of expecting the White House to do it. The aide said the issue was “never central to the president.”

What was central to the president was changing the politics of the education issue from favoring the Democrats overwhelmingly to favoring the Republicans at least narrowly. Internal GOP polling in May 1999 showed the Republicans trailing Democrats by a full 21 percentage points on education. When Bush entered the race, however, he changed how Republicans talked about the subject. He talked about closing the “achievement gap.” He talked about ending “the soft bigotry of low expectations.” And, of course, he talked about leaving no child behind. By August 2000, the Republicans had closed their education gap to 10 points. By March 2001, when NCLB was introduced in Congress, Republicans were leading the Democrats by 5 points on the issue.

But having come so far during the 2000 campaign, Bush chose not to spend any of that political capital on a worthwhile bill. “The president wanted a bill,” says Krista Kafer, a former House education committee staffer who also did a stint as an education analyst for the conservative Heritage Foundation. “It didn’t bother him that it was a significantly flawed bill.” The price of getting a bill that could pass 340-81 in the House and 87-10 in the Senate (with Kennedy part of that 87) was high: no vouchers, almost no new flexibility for states, a large across-the-board spending increase, a program combating hate crimes, a program promoting “gender equity,” and a “cultural exchange” for “Alaska Natives, Native Hawaiians, and Their Historical Whaling and Trading Partners in Massachusetts.” All that NCLB amounted to, really, was strengthening certain federal accountability requirements that were already in place, plus the president’s Reading First initiative, which helps states and schools adopt research-based reading programs. The bill’s “choice” provisions were utterly meaningless.

Under NCLB, school districts have done everything they can to avoid granting kids transfers out of failing schools. They don’t inform parents of their rights. They give them extremely small windows of time to act. They even send letters home meant to confuse or mislead parents. A researcher in Colorado found that a district there had sent parents home a letter with the good news that their school had been selected for “School Improvement” under federal law. “We are excited by this opportunity to focus on increasing student achievement,” the letter said, making it sound as if the school had won a grant, not gotten a slap on the wrist. No wonder that in the 2004–05 school year, just 1 percent of students eligible for choice under NCLB actually transferred schools.

The public school choice provisions are the only thing approximating “ownership” in the No Child Left Behind law, and yet they have been an utter failure because of resistance from local bureaucrats—resistance that NCLB does nothing to uproot.

Owning Health Care

If the Ownership Society has been an unmitigated disaster when it comes to education, its record when it comes to health care might be termed a mitigated disaster. Specifically, the disaster of the $1.2 trillion Medicare prescription-drug entitlement is mitigated by the significant expansion of health savings accounts (HSAs) that was included in the same bill, the first major free-market health care reform in a generation.

The question is: Is the trade-off worth it? Is it worth significantly (and permanently) expanding the size and scope of the welfare state so long as the expansion is tied to measures that will give Americans a degree of ownership over benefits previously controlled by the government?

There was a logic to adding a prescription-drug benefit to Medicare—it made little sense to say the government would pay for open-heart surgery, but not for the drugs that might make such surgery unnecessary. But most seniors already had some form of drug coverage. In 2002, the year before the benefit was passed, some 70 percent of seniors spent less than $500 out-of-pocket for prescriptions. A relatively small, targeted drug benefit, aimed at the 22 percent of seniors who didn’t have drug coverage, could have caught those who were falling through the cracks at much less expense.

But why be efficient when you can be popular for only a few hundred billion dollars more? Republican leaders, with their eyes on the 2004 election, were set on creating a universal benefit for more than 40 million elderly and disabled Americans. So they created Medicare Part D, the Medicare prescription-drug benefit.

The expense of all this is tremendous. Not only is the government crowding out private insurance that individuals were paying for themselves, but it has to write checks to corporations to discourage them from dropping retirees’ drug coverage and leaving the federal government to pick up the tab. In 2003, the Congressional Budget Office said the drug benefit would cost $400 billion over 10 years, and the White House accepted that number. The president’s first budget after the bill was signed bumped that number up to $511 billion. But neither of those numbers was a real 10-year figure; both counted two years, 2004 and 2005, when the new benefit wouldn’t be on line yet. The real 10-year cost, from 2006 to 2015, is closer to $1.2 trillion.

Administration officials estimate that various forms of savings will bring that closer to $720 billion. With Medicare, however, it has never been a good idea to accept the more modest cost estimates. While there’s been some early evidence of cost savings from drug plans competing against one another, it’s unlikely to make a serious dent in the program’s cost. And even going with the most modest of estimates, the prescription-drug benefit will increase the financial burden of Medicare by roughly a third, bringing its expenditures up from 2.6 percent of gross domestic product in 2003 to 3.4 percent in 2006. As 78 million baby boomers head toward retirement and Medicare eligibility, things will only get much, much worse.

All of this seemed like a high price to pay for HSAs. But it would be a mistake to underestimate just how radical a reform HSAs represent. “They were the first market-based health care reform really in over 60 years,” says Michael Cannon, director of health policy studies at the libertarian Cato Institute.

An HSA is essentially a 401(k), but for medical expenses instead of retirement savings. Individuals and their employers can make tax-free contributions. But unlike a 401(k), funds withdrawn to pay for medical expenses before age 65 are never taxed. HSAs can be set up only in conjunction with qualifying high-deductible health insurance (so that catastrophic expenses will be covered). They allow younger and healthier workers to save money on premiums while building up assets they can tap when they’re older and need more health care; this encourages HSA owners to be more price-conscious when tending to their everyday health-care needs.

HSAs became available under the new law at the beginning of 2004. Interest in them gained momentum quickly. In the first 15 months they were available, 1 million people had purchased the high-deductible health insurance to qualify for opening the accounts; in the next 10 months, another 2 million people signed up. What’s more, HSAs seem to be fulfilling their purpose of making health care affordable to the uninsured and containing costs. According to separate estimates from the health company Assurant and the trade group America’s Health Insurance Plans, which represents some 1,300 insurance providers, as many as 40 percent of HSA applicants were previously uninsured. A survey from Deloitte Consulting shows that the cost of consumer-driven health plans, such as HSAs and less flexible health reimbursement arrangements, increased by only 2.8 percent from 2004 to 2005, as opposed to an average of 7.3 percent for all other types of plans.

Building on this success, Bush in his 2006 State of the Union Address proposed expanding the amount of money individuals can put in HSAs and making them more accessible to individuals and employees of small businesses. His prescription-drug plan, one of the signature “accomplishments” of his first term and a key campaign issue in 2002 and 2004? He didn’t even mention it.

On the political side of things, there can be little doubt that the prescription-drug bill has been a disaster. A Gallup poll taken the month the bill was passed found that 73 percent of seniors thought the benefit wouldn’t go far enough. Once the benefit’s implementation got underway in January 2006, anger over the bill heated up even more as seniors came into contact with its complex machinery and hostile news stories flooded the media. As the midterm campaign season got underway, it was clear that the Democrats would use the prescription-drug plan as a weapon going into November, harping on its alleged stinginess, its complexity, and the Bush administration’s refusal to allow Americans to buy price-controlled prescription drugs from Canada and Europe.

With the bill giving Republicans so little political benefit, all that’s left is the question of whether it was a wise policy tradeoff. Grace-Marie Turner, president of the Galen Institute, a pro-market health care think tank, says she is absolutely certain HSAs could never have been passed any other way. “I cannot believe the naiveté of those who ask why couldn’t we have just passed HSAs on their own,” she says.

One such naive soul is Cato’s Michael Cannon—though he has a bit more than wide-eyed innocence behind his assertion that HSAs could have been won another way. He thinks HSAs could easily have been added to a tax or budget bill. In particular, he points to a Senate roll call vote in 2001 that showed that support for lifting the restrictions on Medical Savings Accounts (the forerunners of HSAs) was only a few votes short of a majority—and the 2002 elections resulted in the net gain of one new HSA supporter. “You had two stinking votes to get, you could have bought that for less than $400 billion,” says Cannon. But since HSAs were more of an afterthought designed to keep free-marketeers in line than a central part of the president’s agenda, there never was a push to pass them on their own.

Whatever your view of such hypotheticals, one of the corroding effects of the Ownership Society was clearly on display in the process that brought about the Medicare bill: its underlying assumption that the growth of government can never be stopped, or even slowed. In the third year of Bush’s presidency, with the Republicans having just reestablished control of the Senate and increased their margin in the House, those underlying assumptions expanded to include not just that government will stay the same size, not just that it will get bigger, but that it will explode catastrophically no matter who’s in power—and there’s nothing anyone can do about it, so it might as well be Republicans doing the exploding.

Owning Retirement

If the 2003 Medicare bill was wildly cynical and crassly political, it needs to be said that Bush’s advocacy of Social Security privatization over the years has been consistent, principled, and, yes, even bold—if not always well-articulated.

While Bush, Rove, and other Republican strategists see Social Security reform as part of a larger plan to—how to put this gently?—destroy the Democratic Party, the president has also long understood that the federal retirement system is unsustainable in its current form, short of massive tax hikes or benefit cuts. Rebel in Chief author Barnes traces Bush’s advocacy of private accounts back to his first, unsuccessful campaign for Congress in 1978. During that race in West Texas, Bush told a group of realtors at the Midland Country Club that “the ideal option would be for Social Security to be made sound and people be given the chance to invest the money the way they feel.” The issue wasn’t a big one in the campaign, but the idea would remain the same 22 years later.

Bush hit Social Security privatization hard during the 2000 campaign, and Al Gore and his allies hit back even harder. In the presidential debates, Gore labeled Bush’s plan “Social Security minus” and said that Bush would cut benefits and leave seniors eating cat food. The AARP and the labor unions spent millions on phone banks, mailings, and ads. There were even recorded calls by Ed Asner made to scare old folks out of their homes and into the voting booth. But ultimately, Bush had the politics of the issue right. In exit polls, 57 percent of voters said they supported Bush’s vision of private accounts—including one-third of those who’d voted for Al “Lock Box” Gore. In Florida, seniors split fairly evenly between Bush and Gore. Social Security was no longer the third rail of American politics. The new president might not have mustered the momentum for reform, but he demonstrated that it was no longer suicidal to try.

Once in office, Bush appointed a commission, chaired by the late Sen. Daniel Patrick Moynihan (D-N.Y.) and AOL/Time Warner COO Richard Parsons, to consider how to “modernize” Social Security. The panel was heavily tilted toward privatization proponents, but it had the unique disadvantage of releasing its final report on December 11, 2001, when the nation was in no mood to worry about an issue that fell well short of life or death. The prospects for private accounts just got worse in the spring and summer of 2002, as the names Enron, Ken Lay, and WorldCom became late-night punchlines and the stock market sank to five-year lows. Reform was off the table for the rest of Bush’s first term.

Social Security was far from the biggest issue in the 2004 campaign, but when Bush won reelection, he decided it was time to take his big gamble. He dedicated a 1,200-word section of his 2005 State of the Union Address to a call for reforming Social Security with personal accounts, then embarked on a barnstorming tour of America, including 60 stops in 60 days in March and April.

But the push fell flat. Despite all the talk about an Ownership Society, Bush put little effort into pushing the ownership aspects of Social Security reform, preferring to stress the system’s solvency problems. And even then, while he succeeded in convincing many Americans that the system needed reform, he didn’t convince many that it needed to be reformed right then. By late spring 2005, it was clear that reform was going nowhere. As early as March, Bush’s personal approval rating began to dip. Support for his Social Security proposal also dropped. A report from the Pew Research Center for the People and the Press found that support for private accounts fell among those considered most likely to support them, younger Americans, between February and March, from 66 percent to 49 percent. Opposition among older Americans was much higher. The Pew poll also found that among all Americans, the more they heard about the plan, the less likely they were to support it. And when the public’s support wavered, Republicans in Congress got squirrelly and ran for cover.

Creating a consensus that Social Security needs to be changed and creating broad familiarity with the concept of private accounts among the public were two non-trivial accomplishments. And it’s hard to see how anything short of political miracle-working would have brought a nervous public charging head-first into the most radical reform of the New Deal ever undertaken.

But it’s also worth recognizing that while the ownership pushed by Bush is in some ways more politically palatable than the austerity pushed during the Gingrich years, it is also no political palliative. Tough choices are still tough choices, and the public isn’t likely to believe that it can get something for nothing. Social Security may be the key to creating an Ownership Society, but no one’s found a way to make it click.

Failing, But Not Irredeemable

By accepting the premises behind so much of the federal edifice, Republicans have left themselves with precious little room to maneuver. If a conservative president comes into office set on education reform, but accepts off the bat that the Department of Education’s role should increase, not decrease, and that vouchers are off the table, he’s going to end up with a meaningless clump of sod like NCLB. The same goes for health care, where a lack of confidence and imagination—not to mention a routine triumph of politics over principle—prevented Republicans from even attempting to win free-market innovations like HSAs on their own before tying them to a massive expansion of the welfare state.

Still, Bush’s version of the Ownership Society is not the only version imaginable. Time and again Bush has decided that getting any bill is more important than getting a good bill. A more principled president or Congress might yet do some real good with the ideas Bush has clumsily and carelessly groped toward.

For now, however, all Bush’s Ownership Society has done is prove a timeless law of politics: Once you’ve written yourself a permission slip to bend on principle in the service of a higher good, you end up looking like a pretzel.

Why Republicans Can't Cut Spending

info@reason.com (Jonathan Rauch) — Mon, 23 Jan 2006 00:00:00 EST

In September, shortly before an indictment cost him his job as House majority leader, Rep. Tom DeLay (R-Texas) outraged conservative Republicans by saying that (as the Washington Times paraphrased him) there was "no fat left to cut in the federal budget." Within hours, conservatives erupted, and on Capitol Hill they vowed to prove DeLay wrong.

With the fiscal 2006 budget completed except for the last formality (the House is expected to make the budget official as soon as it returns from recess), conservatives have declared victory. In a press release last month, Rep. Mike Pence (R-Ind.) announced, "With the passage of this Deficit Reduction Act, including an across-the-board cut in federal spending, the 'Republican Revolution' is back."

And, indeed, this first post-DeLay budget proves DeLay wrong. Spending is not completely uncuttable. It is, rather, 99.5 percent uncuttable.

The Deficit Reduction Act of 2005 is, strictly speaking, a deficit-reduction act only in the Washington sense of the term—meaning, it is part of a plan to increase the deficit. It consists of about $40 billion of reductions in spending on entitlement programs, spread over five years (fiscal 2006 through 2010). Based on Congressional Budget Office forecasts, the Deficit Reduction Act will reduce entitlement outlays by about 0.5 percent over that period and cut cumulated deficits by about 2.5 percent. Wow.

Meanwhile, another budget bill is slated to cut taxes by $70 billion over the same five-year period. The net effect of the two bills (known as reconciliation bills) would be to increase the deficit by $30 billion. "The fact that the overall effect of reconciliation taken together was to enlarge rather than reduce the deficit undermines the credibility of anyone claiming that this was a deficit-reduction package," says Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, a nonpartisan fiscal-watchdog group.

Judged in purely fiscal terms, then, the reconciliation action resembles the old joke about a man who fell out of a plane without a parachute. Fortunately, there was a haystack below him. Unfortunately, there was a pitchfork in the haystack. Fortunately, he missed the pitchfork. Unfortunately, he missed the haystack.

The reconciliation bill focuses on entitlement programs such as Medicare, Medicaid, and student loans. Not to be overlooked are the discretionary accounts. Here, the Republicans' budget is indeed tight.

The White House boasts that, thanks in part to a 1 percent across-the-board reduction, total discretionary spending (that is, defense and homeland security, plus domestic discretionary programs) will grow by only 1.1 percent in fiscal 2006, which is below the likely rate of inflation. G. William Hoagland, the director of budget and appropriations for Senate Majority Leader Bill Frist (R-Tenn.) notes that domestic discretionary spending (which excludes defense and homeland security) is budgeted to decline a little, a feat not seen in Washington for years.

But, again, the Republicans missed the haystack. Domestic discretionary spending accounts for only a sixth of the budget, and the other five-sixths are growing. According to the Committee for a Responsible Federal Budget, Congress reduced nondefense discretionary spending by $106 billion over five years, but it more than offset those cuts with $237 billion in added spending on defense, Iraq, and emergencies like Katrina and bird flu.

All of that is before counting billions more in likely supplemental appropriations, notably for the Iraq war, which is being conducted off the books. "Appropriations represented some success this year, in that the line was held on nondefense discretionary spending," says Brian Riedl, a senior budget analyst at the Heritage Foundation. "At the same time, Congress continues to put $100 billion to $150 billion a year into emergency supplemental bills, and those never get counted in the final number."

If your paramount concern is reducing the federal deficit, then the best that can be said for the 2006 budget is that it may do less fiscal damage than the budgets of 2005, 2004, 2003, 2002, and 2001. But, as has become pretty obvious, deficit reduction is not the paramount concern of today's conservative Republicans. Their concern, rather, is to scrape away at the calcified mass of programs that constitute Big Government. On that measure, how did they do?

Not particularly well. Riedl says, "I didn't find much in the reconciliation bill that will have a substantial impact on the budget or on the programs themselves." Many of the reductions involved fee increases, spectrum-auction proceeds, and other measures short of fundamental programmatic reform.

Moreover, the total spending reduction in this year's reconciliation bill was not just smaller than in previous reconciliation bills, but smaller by an order of magnitude. Riedl calculates that in inflation-adjusted dollars, Congress cut $447 billion in 1990, $244 billion in 1993, and $232 billion in 1997, versus only $40 billion in 2006.

This wasn't because the Republicans weren't trying hard. To the contrary, overcoming Republican divisions and Democratic hostility required buckets of sweat. "The strain and stress associated with achieving this was amazing relative to back in the old days, when we were trying to achieve $500 billion over five years," says Hoagland. "This seems like a terribly heavy lift for such a small amount of deficit reduction."

Cutting spending, particularly entitlements, is always difficult; but the political inefficiency of the 2006 budget cycle set a new standard. Why should it be so much harder for today's one-party Republican government than for divided governments in the Reagan, George H.W. Bush, and Clinton years?

The answer has to do with a critical shift in the Republicans' governing strategy, dating to the late 1990s. From 1981 through 1998, Republican reformers' thinking was dominated by Dave Stockman (President Reagan's first budget director) and Newt Gingrich (the reform-minded House speaker of 1995 to '98). Both were movement politicians who believed that, by cutting spending, Republicans could build prosperity, tame Big Government, and win majority status.

The trouble was that budget cuts brought short-term political backlashes that kept interrupting the program. Burned by President Clinton in 1995-96 and then spanked by voters in 1998, Republicans decided to reverse the sequence. First they would build a political machine; then, once safely entrenched, they would reform Social Security and Medicare, shrink government, and so on. The new course was set by DeLay and Karl Rove, President Bush's chief political strategist—both machine-builders par excellence.

And so, under DeLay and Bush, the Republicans spent generously, even profusely, to build their base. The number of budgetary earmarks increased from 2,100 in 1998 to 14,000 in 2005, according to Citizens Against Government Waste. To disarm the Democrats, the Republicans gave up on reducing entitlement spending and instead dramatically increased it, notably with an expensive new prescription drug program. (According to Richard Kogan, a senior fellow with the Center on Budget and Policy Priorities, the Republicans have added $540 billion to entitlement costs over the 2001-to-2011 period.) They cut taxes and spent heavily on the Iraq war and defense. (Real spending on defense and security has risen by more than 7 percent a year since 2001, Kogan says.)

When, last year, DeLay blurted out that the budget had no fat left, he meant that it had no political fat, and he was right. Every dollar now served a constituent group in DeLay's carefully built machine. Phase one had worked. In 2005, with Bush safely re-elected and their congressional majorities cemented, Republicans launched phase two: a reform effort aimed at Social Security.

Then came a shock. Social Security reform collapsed and spending proved all but intractable, both for the same reason: Large-scale reform needs a popular majority, not just a parliamentary one, and Republicans constitute only a third of the country. In building their machine, the Republicans had made Democrats hostile and independents suspicious, and the support that remained was far from enough.

No one should be surprised that political entrenchment militates against governmental reform. One-party rule always turns reactionary. Still, the 2006 budget cycle is important for three reasons. First, conservatives finally realized they were captives of their own machine. Second, they rebelled, passing a package of entitlement cuts for the first time in eight years. Third, their rebellion proved not how much they could accomplish without Democratic votes, but how little. DeLay's fortress is conservatism's prison.

Jonathan Rauch is a senior writer and columnist for National Journal and a frequent contributor to Reason. The article was originally published by National Journal.

The Life-Preserver President

info@reason.com (Jonathan Rauch) — Mon, 25 Jul 2005 00:00:00 EDT

With President Bush's approval ratings stuck below the halfway mark, the public increasingly gloomy about Iraq, and Social Security reform going nowhere, the words "lame duck" have been in the air a lot lately. Conventional wisdom has Bush struggling with "second-term blues."

Nonsense, said an administration official last month, in an e-mail that made the rounds in Washington. In May of 1985, a Washington Post analysis declared that President Reagan was "impeded by his lame-duck status," but the official noted that Reagan went on to score many second-term successes. "Wise presidents," concluded the official, "ignore the white noise."

Both sides are wrong. What confronts Bush and his party is not a lame-duck problem, but it isn't white noise, either. The Republicans' problem is that, except on one crucial issue, they have lost the center.

Republicans adore Bush. In a CBS News poll released last week, they gave him an 86 percent approval rating. Democrats loathe him by a comparable margin (82 percent disapproval, in the CBS poll). Because the partisans cancel each other out, the swing vote belongs to independents, who account for about a third of the electorate. They lean against Bush, with 42 percent approving of his performance and 51 percent disapproving. (That's from the CBS News poll again; others are in the same range.) It is the middle's discontent that accounts for Bush's anemic overall approval ratings.

Partisans likewise cancel each other out on satisfaction with the way things are going. More than two-thirds of Republicans are happy; more than three-fourths of Democrats are unhappy. Independents again determine the swing, and again they side with Democrats, with only 37 percent telling the Gallup Organization that they are satisfied with the way things are going, and 57 percent telling Zogby International that the country is on the wrong track. As for Congress, not even Republicans are enthusiastic about it right now, but independents' 2-to-1 disapproval makes them even more sour on Congress than are Democrats—which takes some doing.

Why are independents so grumpy? The problem, as the disenchantment with Congress implies, is not that Bush is a lame duck. It is that independents regard Bush and the Republicans as out of touch and ineffective.

"A strong majority of self-described political independents—68 percent -- say they disagreed with the president's priorities," said The Washington Post in June, reporting on a Post/ABC News poll. A Fox News/Opinion Dynamics survey in June found independents saying by 61 to 31 percent that Congress "is not in touch with what is going on in the country." For Republicans, those are ugly numbers.

They reflect not only disgruntlement with Republicans' legislative priorities (too much about Terri Schiavo, not enough about gas prices), but also with many of their goals and ideas. For instance, a CNN/USA Today/Gallup poll finds that independents side with Democrats in opposing Social Security private accounts, which two-thirds of Republicans favor.

On the judiciary, too, it is Republicans who stand apart. According to a Gallup Poll in May, the solid consensus among both Democrats and independents is that federal judges are neither too liberal nor too conservative but "just about right." The Republican consensus, by contrast, is "too liberal." The rest of the country, it seems, does not share the Republicans' revisionist agenda for the federal courts.

Especially striking is independents' alignment with Democrats on international alliances. Last year, polling by the German Marshall Fund of the United States found that independents—like Democrats, but in marked contrast to Republicans—view the United Nations favorably, want the U.S. to become closer to the European Union, believe America should not be the sole superpower, and think it is essential to secure the approval of the U.N., NATO, and "the main European allies" before using military force in another situation like Iraq. With their defiantly Jacksonian foreign policy, Republicans are lined up not only against leftists at home and abroad but against American centrists—the "mainstream"—as well.

All of that would be less ominous for Republicans if independents didn't also take a dim view of the administration's effectiveness. Zogby finds independents rating Bush's job performance "fair" or "poor" over "good" or "excellent" by a 2-to-1 ratio, with the plurality (35 percent) opting for "poor." (Interestingly, independents hold a better—though still unfavorable—opinion of Bush than of his job performance, making him the mirror image of President Clinton, who was less popular than his policies.)

Zogby asked respondents to rate Bush's handling of eight issues. On Iraq, foreign policy, the environment, and Social Security and Medicare, majorities or pluralities of independents rated Bush's performance as poor, and in no category—not even taxes—did a plurality rate his performance better than fair. Translation: We are underwhelmed. And here is a result that should have Republicans worried: Gallup finds the plurality of moderates agreeing with the majority of Democrats that Bush's policies have hurt, not helped, the economy.

Iraq? According to the new CBS News poll, 54 percent of independents (as against about a fourth of Republicans and three-fourths of Democrats) think things are going badly there. (A fourth of independents say "very badly.") By 2-to-1, independents agree with Democrats that Bush has not "developed a clear plan for dealing with the situation in Iraq," a result that other polls have confirmed. Fifty-six percent say the American involvement in Iraq is "creating more terrorists who are planning to attack the U.S." The saving grace for Bush is that the public still believes that eventual success in Iraq is more likely than not. Centrists appear cautiously optimistic—not because of Bush's performance, but in spite of it.

Legislative victories—a Supreme Court confirmation, an energy bill—may give the Republicans some lift, but probably not for long. From independents' point of view, the problem is not the process ("getting things done"). The problem is getting things solved. Independents are pragmatists. They want to see results, or else they want to see Plan B. On some of the country's most pressing problems—Iraq, Iranian and North Korean nuclear proliferation, the deficit—they see neither. Instead, they see a Republican establishment that seems to relish teeing up confrontations over social issues while North Korea builds nukes and gasoline prices rise.

On issue after issue, in short, independents look like Democrats. Moderate Democrats, to be sure. Unlike Democratic partisans, they don't hate Bush. But they don't share his priorities, don't like his program, and don't feel he has the country's problems well in hand. The mystery, then, is what keeps Bush afloat. Part of the answer is the unwavering support of Republicans, but they make up only about a third of the public. The rest of the answer is one word long: terrorism.

On terrorism, independents flip: They side with Republicans. They disapprove of Bush's handling of the economy and Iraq (according to the CBS News poll), but they approve, by 50 to 38 percent, of his handling of the war on terror. True, they have reservations. They think the government could have done more. But a CNN/USA Today/Gallup poll taken just after the London bombings, earlier this month, tells the story: 54 percent of independents (against 91 percent of Republicans and 43 percent of Democrats) said they had a great deal or a moderate amount of confidence in the Bush administration to protect Americans from terrorism, versus 45 percent who had not much or no confidence. Similarly, majorities of independents side with Republicans, and against Democrats, in supporting continued operation of the Pentagon's detention camp at Guantanamo and in approving of the treatment of prisoners there.

Think of Bush's administration, then, as a life-preserver presidency, kept afloat by a single crucial issue. In much the same way that the "party of prosperity" issue once gave Democrats an imposing advantage in national politics, the "tough on terrorism" issue is today advantaging Republicans.

For now. Insulated from mainstream opinion by their seemingly permanent "party of prosperity" advantage, Democrats moved left in the 1960s and 1970s. When stagflation robbed them of their economic edge, they found themselves stranded. The terrorism advantage is similarly lulling Republicans rightward. If they lose it, or if terrorism loses salience, then the life preserver is gone, and Republicans sink.

Bush's choice of John G. Roberts Jr., a relatively uncontroversial Supreme Court nominee, may suggest an awareness of the problem. Then again, it may not. The trouble with a life preserver, after all, is that you neglect to swim.

Jonathan Rauch is a senior writer and columnist for National Journal and a frequent contributor to Reason. The article was originally published by National Journal.

Social Security: Bad for the Democrats

info@reason.com (Brooke Oberwetter) — Mon, 13 Jun 2005 00:00:00 EDT

When he broke ranks with his party's leadership last month and proposed an alternative to President Bush's push for personal retirement accounts, Rep. Robert Wexler of Florida said, "I have the largest amount [sic] of Social Security recipients of any Democrat anywhere in the country. My allegiance to seniors is greater than my allegiance to the Democratic Party."

Wexler seems focused on preserving the legacy and structure of Social Security, which he calls "the most successful government program in history."

His plan certainly suggests that keeping the system solvent in its current structure is worth almost any cost. He has proposed the largest marginal tax increase this country has seen in decades: a 6 percent tax hike on all income over the current $90,000 payroll tax cap.

Let us pass over the discussion of how ever-rising marginal tax rates lead to tighter labor markets, reductions in productivity, and declines in reported income. Let us forget in their entirety the issues of tax revenue and solvency and instead try to figure out why, exactly, Democratic lawmakers are so hell-bent on preserving the basic current structure of Social Security.

As Wexler noted in his press conference, his party should be looking for "alternatives that are true to our Democratic values." But is Social Security's current structure consistent with Democratic values, as Wexler—and the Democratic leadership—has declared, or are the Democrats falling all over themselves to defend a legacy of discrimination?

As it has evolved, Social Security has attempted to provide American workers and their families with three things: retirement benefits, disability insurance, and survivor benefits. Those are solid liberal goals. But because of the program's age, aspects of Social Security discriminate against many modern families, particularly gay couples, unmarried couples, dual-earner couples, and divorcees.

Fully one-third of all marriages end before the 10 years necessary for spousal benefit eligibility—among blacks, nearly a half of all marriages end in divorce within 10 years. Considering that many women take time off from work to raise children during those first 10 years, they are unable to make Social Security contributions of their own yet not eligible for spousal benefits upon divorce. Women who do remain married beyond the eligibility period but divorce later not only have a lower earnings record (if they raised children) but are forever tied to the earnings of their ex-husbands and are ineligible to receive the possibly higher benefits available from a subsequent marriage that doesn't last a full 10 years—this feature can be particularly harmful to older Americans who wish to marry.

Even on the rosier side of marriage and commitment, Social Security discriminates. Dual earning couples, for example, often end up subsidizing the benefits of single-earner families. This is because workers are entitled to either their own benefits or the equivalent of one-half the benefits of a higher earning spouse—but not both. Women who work for a number of years but who would do better by accepting one-half of their husbands' benefit level don't see any increased benefits for their payroll taxes; those women lose the 12.4 percent of income that was taken from them during their working years. The money goes to subsidize the benefits of a single-earner couple.

Consider also the bias against couples who for whatever reason are unmarried. Gay couples and heterosexual co-habiting couples are unable to share the benefits of their status as workers protected by the Social Security system. An unmarried couple that has decided on a single-earner structure cannot take advantage of survivor's benefits or spousal retirement benefits in the same way a government sanctioned married couple can.

The overwhelming support for the status quo from the political left is shocking, and should be appalling to members of the Democratic Party or anyone who holds the liberal values that Wexler extols. Bringing the system into solvency through tax hikes on labor and productivity will do untold damage to America's economic growth in order to protect a system that systematically discriminates against core constituencies of the Democratic Party, a system that disproportionately benefits white women who have never worked a day in their lives over all other groups. Is that a status quo that the Democratic Party wants to be associated with?

While the Democrats demand that Social Security's current structure be maintained through plans like Wexler's, millions of women remain tied to their husbands' earnings and millions of non-traditional families are denied access to the system. It doesn't seem out of line to ask, why aren't the Democrats taking the lead on transforming one of America's most discriminatory programs into a program that treats individuals as equals?

Pension Tension

jsanchez@reason.com (Julian Sanchez) — Wed, 01 Jun 2005 00:00:00 EDT

The debate over Social Security reform has put the retirement program's fiscal woes in the headlines. But public attention hasn't yet fixed on the foundering Pension Benefit Guaranty Corporation (PBGC), the government program that insures private employers' pension programs--and that Sen. John McCain (R-Ariz.) calls a "looming train wreck that could cost the taxpayers of America untold billions of dollars."

In fiscal year 2004 PBGC, which covers more than 34 million workers and retirees, paid out some $3 billion in benefits to pension plan beneficiaries--more than twice what it took in from employers in premiums. The total accumulated deficit of its insurance program came to $23.3 billion, more than double the figure for the previous year.

A March report from the Government Accountability Office found that PBGC's problems aren't just the result of economic bad luck, though recent airline bankruptcies have dumped some hefty new liabilities in the insurer's lap. The report found that because the law requires the corporation to keep premiums low--half the rate private insurers would charge, according to one estimate--"premiums paid by plan sponsors under the pension insurance system have not adequately reflected the financial risk to which PBGC is exposed." As a result, there's a perverse incentive "for financially troubled sponsors to increase pension benefits, possibly in lieu of wage increases, even if their plans have insufficient funding to pay current benefit levels."

The 30-year-old program was intended to safeguard workers' nest eggs against market fluctuations. As currently structured, it seems better at encouraging companies to roll the dice with employees' retirement funds, secure in the knowledge that taxpayers will pick up the tab.�

ID Card Trick

jsullum@reason.com (Jacob Sullum) — Fri, 13 May 2005 00:00:00 EDT

Creators' Syndicate

Ideally, the debate about national ID cards should have happened before Congress approved them. But better late than never.

The Real ID Act—which was slipped into a bill appropriating money for U.S. troops in Iraq, thereby assuring its passage with few questions asked—requires states to issue machine-readable, biometrically encoded ID cards (typically driver's licenses) meeting federal standards that specify who gets them, what information they contain, and what documents must be presented to qualify for them. Only such IDs will be accepted for purposes such as traveling by plane or train, opening a bank account, starting a new job, using government services, and collecting Social Security benefits.

The act's critics complain that it violates principles of federalism; creates a nationwide database that will facilitate identity theft and tracking of innocent people by public- and private-sector snoops; makes the roads more dangerous by denying driver's licenses to illegal immigrants; endangers people who for security reasons do not want their home addresses (as opposed to P.O. box numbers) on their driver's licenses; and turns the U.S. into the sort of country where the authorities routinely demand your citizenship papers.

The law's supporters, who insist it does not really create a national ID because the cards will still carry the names of individual states, say it will protect us from terrorists. Let's assume, for the sake of argument, that terrorists will be unable to forge the ID cards and are not motivated enough to become legal U.S. residents, thereby obtaining the cards fair and square. The system still depends on the ability of state DMV employees to verify legal residency, addresses, birth dates, and Social Security numbers.

Tennessee, which issues special driver's licenses to people who can't prove they're legal residents, is already having trouble with this sort of thing. "We're just doing the best we can with the documents," a state official told The New York Times in early May. "If [the Real ID Act] passes, we're going to have to look at sending all our employees to classes that teach all the different documents."

Given my recent experience with the U.S. State Department, which ought to know a thing or two about distinguishing between citizens and noncitizens, I am not optimistic about the ability of state bureaucrats with less training and experience to solve this paperwork puzzle.

In March, with an eye toward a trip to Israel in late June, my wife and I filled out a passport application for our daughter Mei, whom we adopted in China last summer. In late April, we received a letter from C. Pamela Holliday, regional director at the Washington, D.C., passport office, asking for Mei's certificate of citizenship.

Holliday said that if we did not have the certificate of citizenship—which we didn't, since we had sent it to the passport office—we could send a translation of the Chinese adoption decree, another document we had already submitted. After a couple weeks of calling the State Department's passport help line, staffed by occasionally sympathetic but generally clueless people who kept assuring me that I would hear from the D.C. passport office within 48 hours, I visited the post office where we had submitted the passport application, hoping they had found Mei's certificate of citizenship lying on the floor there.

The passport agent at the post office called the passport office in D.C. and was informed that what they really needed was our "second adoption decree." When I told her we only have one, she suggested I go to the D.C. office.

After a 90-minute wait, a "supervisor" at the D.C. office (not the mysterious C. Pamela Holliday) said that "upon review" it turned out Mei's file was complete and she could get a passport after all. So why did they send the letter? He didn't know. Why did they specifically ask for Mei's certificate of citizenship, leading us to believe they had lost this vitally important document, when they had it all the time? He didn't know. He did not admit there had been an error, let alone apologize.

Multiply the opportunities for such screwups by a few hundred million, and you'll get a sense of the bureaucratic hassles that will accompany implementation of the Real ID Act. Given the government's inability to reliably distinguish those who should get IDs from those who shouldn't, how confident can we be that it will be worth the trouble?

Social Security's Progressive Paradox

jsanchez@reason.com (Julian Sanchez) — Mon, 02 May 2005 00:00:00 EDT

Casual observers of contemporary politics could be forgiven for wondering: Where are the goatees? First we had a "conservative" Congress and president pushing through expansions in Medicare and federal control of education that would make Lyndon Johnson blush. Now we have liberal pundits horrified at the notion that President Bush, by proposing progressive indexing of Social Security benefits, would contemplate transforming a universal social insurance program into a de facto welfare program. Progressives decrying welfare? Have we slipped into some strange mirror universe? How long before Al Franken is conjuring man-on-dog scare scenarios to oppose gay marriage?

While mystifying from a policy perspective, there is sound political logic behind the liberal horror at progressive indexing. In part, as John Tierney argued in his New York Times column this weekend, it robs those who oppose Bush's Social Security reform proposals of a potent rhetorical weapon: The image of sad-eyed septuagenarians scrounging Alpo for lunch because their benefits have been cut. It becomes harder, in other words, to cast the private accounts crowd as moustache-twirling villains indifferent to the plight of low-income retirees.

The deeper reason for the opposition, though, is that by laying bare the redistributive function of Social Security, it threatens a key to the program's popularity, what economist Charlotte Twight, in her book Dependent on D.C., has called the "strategic manipulation of political transaction costs." Again, from a pure policy perspective, Social Security makes little sense except as a modest welfare program. There is, after all, no earthly reason why most middle class or wealthy citizens need the government to garnish their wages for decades and then provide a retirement benefit later: People are generally perfectly capable of saving for their own retirements. Those who want to paint the program as indispensable are fond of pointing to the large numbers of retirees who rely almost wholly on Social Security for their incomes. But then, when you take a hefty 12.4 percent bite out of people's paychecks—leaving them with less to save—and tell them they can rely on a government benefit later, it's not exactly shocking that many people don't save and rely on a government benefit later.

Neither is the notion of Social Security as "insurance" terribly coherent, if it ever was. Even when Social Security was first instituted, over half of Americans who reached the age of 21 would survive past age 65. As of 1990 the percentages were over 72 percent for men and 83 percent for women. Aging is not a "risk" to "insure" against; it's a normal part of life to plan for.

But as Twight points out, casting the program as universal "insurance," and payroll taxes as "premiums," was a crucial part of the public relations campaign waged in favor of Social Security. Though the 1960 Supreme Court case Fleming v. Nestor made clear that Social Security was a "noncontractual...social welfare program," the rhetoric of insurance led people to see payroll tax as analogous to the purchase of a benefit, an insurance policy. Citizens were led to perceive themselves as each holding a stake in the system, rather than as simply providing aid to poor retirees.

What worries liberals about progressive indexing, and about the shift to a more overtly welfare-like Social Security system, is that welfare benefits tend to be politically unpopular—and much easier to cut than benefits perceived as universal. Social Security, in other words, is a massive Rube Goldberg device, an ornate and utterly superfluous system of transfers from the middle and upper classes to themselves, the sole purpose of which is to construct—and conceal—a much smaller welfare machine for elderly retirees nestled deep in the guts of the meta-contraption. Some defenders of the status quo are now attempting—though they scarcely seem to believe it themselves—to argue that Social Security is no less vital for the middle class. But corner a progressive over a quiet drink and he'll probably admit that, in fact, the only defensible purpose of Social Security is to ensure that nobody retires in poverty. There may be political reasons for cutting a monthly check to Bill Gates when he turns 65, but there are no sane policy reasons.

The Rube Goldberg universality of Social Security serves a broader symbolic function in the eyes of some communitarian liberals. In a January L.A. Times op-ed, Benjamin Barber defended Social Security as a lynchpin of public life, arguing that private accounts would threaten not just individual penury for old people, but a society-wide return to the Hobbesian war of all against all. This is Barber's trademark hyperbole at work, but the core idea is less insane than he manages to make it sound. Social Security's Rube Goldberg structure conveys the message that we're all in this together: Rather than most of us relying on our own prudence, or on our families, to take care of us, while a few of the less fortunate require public assistance, we will all take care of each other—with the government as the vital locus of our common affection and generosity. Dependence will be not the exception but the norm.

Two symmetrical purposes, then, are served by the Rube Goldberg setup: The narrower policy goal of protecting redistribution to our impecunious elders, and the broader goal of leading people to see themselves as bound together by the loving tendrils of government.

As Cato's Will Wilkinson has noted, however, this is a profoundly undemocratic way to justify policy. It amounts to saying: You must not vote away the otiose features of a program, for you may later be tempted to vote away, or at any rate radically reduce, the features that we support on their own merits. That may be a tenable strategy for Straussian conservatives convinced that the hoi polloi must often be fed a Noble Lie to preserve their support for good policy; it sits uneasily with a self-proclaimed commitment to populism and public reason.

This is the sad irony of the current debate: Most wonks on both the left and the right would probably agree that a modest, means-tested program designed to prevent the elderly from retiring in poverty would be superior to our current Rube Goldberg system. But liberals will block such an improvement, because there's no way for conservatives to credibly promise that, once Social Security is explicitly restructured as welfare, they won't gut it. All of which keeps in place another trademark Rube Goldberg feature of the system: The boot on a lever, kicking us all in the ass.

Editor's Note: The Best Reason for Private Retirement

gillespie@reason.com (Nick Gillespie) — Fri, 01 Apr 2005 00:00:00 EST

Like many--probably most--Americans, I got a late start on saving for my golden years, not throwing a single penny into any sort of retirement account until well into my 30s.

There were many reasons for this. I grew up in a household in which there was relatively little money to begin with and even less understanding about how to handle it well, especially when it came to such distant and mythical events as retirement. (Work was, after all, something you did until you dropped dead--partly because you worked so long--or got canned because you were too old to produce.) In the first half of my 20s, I'd work for a few months, save money, and then travel until I ran out of money. In the second half, I was in grad school, scraping by on minimal stipends and fellowships and amassing student-loan and credit-card debt as I made a long-odds investment in what economists would call my "human capital."

It took a long time to pay that debt down and get real about retirement planning. Having kids helped immensely on the latter score, as virtually every financial planner will tell you that the best thing you can do for your children is to take care of your own retirement.

Mine is a pretty typical tale when it comes to retirement savings, and it helps explain why Social Security reform is the hottest policy topic of the day. It is also the topic of our cover story, "The Death of Social Security," a fiery debate between investment author James K. Glassman and economist Tyler Cowen that begins on page 24. Both are fierce proponents of free markets and libertarian policies, even as they disagree on key questions about how, or even whether, to move forward on mandatory private retirement accounts.

I've got a long list of reservations about likely reforms, but the single most powerful selling point for private accounts is that they might keep some money within families that can be passed down to kids or grandkids. I know firsthand that an inheritance of $15,000, $10,000, or even $5,000 can make a huge difference in all sorts of ways, from clearing out debt to providing a car (and hence employment opportunities) to financing a down payment on a house.

At press time, the Bush plan--let alone whatever legislative Frankenstein's monster might arise from the halls of Congress--is vague, though almost certain to disappoint those of us interested in truly fundamental reform, free markets, and individual freedom. With those reservations firmly in mind, the thing I'll be looking at more than any other is whether the changes do something to help pass wealth on to the next generation, especially to younger people who will otherwise have very little coming their way. That may be enough to convince me that any reform, however misguided and imperfect, is better than the Social Security status quo, which only promises less and less to future recipients.