Posted by: Jeremy C. Young | February 18, 2011

My Man Mitch: Major Medicare Moxie?

Indiana Gov. Mitch Daniels (R), a potential 2012 Presidential contender, has some interesting things to say about Medicare and Social Security. Let’s listen:

“In the cause of national solvency, [earmarks] are a trifle,” he said. “Talking much more about them, or ‘waste, fraud, and abuse,’ trivializes what needs to be done and misleads our fellow citizens to believe that easy answers are available.”

Instead, Daniels proposed focusing on the biggest components of future deficits, including defense spending and entitlements for seniors.

How refreshing to see a Republican leader being realistic about what it will take to cut the deficit. That hasn’t happened, really, since before Ronald Reagan. More from Daniels:

…[I]n plain English, what he’s suggesting is a new system that would provide more benefits to the poor than to the wealthy, making Social Security and Medicare look a little more like welfare and less like insurance. “Why do we send a pension check to Warren Buffett?” Daniels asked last year. …

For Social Security, he’s proposing a higher retirement age, just as the Simpson-Bowles deficit-reduction panel did.

And for Medicare 2.0, he’s essentially proposing a voucher program, in which the next generation’s senior citizens would choose their own private health insurance plans on the open market, paid for by the federal government — up to a monetary limit.

First of all — this is a serious proposal, and deserves a serious response, even though I don’t agree with two of Daniels’ foundational assumptions: that the deficit is such a huge problem that we have to fix it now no matter what the consequences, and that the retirement age is too low (I actually favor lowering it to 55, as in France). I still think Al Gore had the right idea back in 2000: take a bunch of money, put it in a fiscal “lockbox,” and keep the system solvent for another forty years, at which point our population may have begun to decline and it can pay for itself. But no matter; I want to discuss Daniels’ proposal, not my own.

My favorite part of Daniels’ plan is the idea that Warren Buffett shouldn’t be getting money out of Social Security and Medicare. I’m not entirely sure how much money it would save to create a progressive SS/Medicare system, and I know Daniels hasn’t figured that out either, but I like the basic idea: these programs exist as a social safety net for those who need it, not as a government giveaway to those who don’t. I’ve already stated my objection to the raised retirement age, but I’m pretty sure that’s going to be in any proposed plan to reform Social Security, including any that President Obama would propose.

My real question has to do with vouchers and privatization. Fiscal conservatives have been proposing these ideas for years; they’re convinced that the power of the market should be employed to help make these programs solvent. I want to suggest that the voucher/privatization solution isn’t wrong, but merely incomplete.

We all know that, in a capitalist system, some enterprises fail while others succeed. As capitalists, we believe that’s a good thing; what Joseph Schumpeter called “creative destruction” is what allows markets to expand and socioeconomic mobility to occur. The problem occurs when we submit a program designed as a social safety net to the vicissitudes of capitalism. The whole point of a social safety net is that it is safe — that there is no risk that its participants might lose their security. Obviously, capitalism and the social safety net make poor bedfellows. But conservative capitalists still want to promote capitalism in all sectors and to give the benefits of capitalism to those who need a social safety net. What to do?

Franklin Roosevelt gave us the blueprint of a solution in 1933 when he created the Federal Deposit Insurance Corporation (FDIC). The FDIC was an attempt to shore up another troubled capitalism/safety net hybrid: the bank. Banks claimed to be safer than your mattress in keeping your money secure, because they put it vaults that were unlikely to be robbed. They also offered you the benefit of interest accrual, so that your money could grow rather than just staying the same. However, shoddy investments or simply a run on the bank could destroy that investment in a second — capitalism’s creative destruction at work.

FDR’s solution was, in brief: banks are still private and they still participate in capitalism — but now, if a bank fails, the federal government will guarantee your money dollar for dollar (subject to some restrictions on large sums of money). This way, you and the bank get all the benefits of capitalism, while the federal government assumes your share of the risk. The system is not foolproof, but it was sufficient to prevent runs on the bank from ever happening again in American history, and to save the American economy during the 2008 crisis.

If I could sit down with Mitch Daniels and have a serious conversation about his plan, I would like to ask him this: would you consider creating a government-owned corporation to insure private investments through a Medicare voucher/Social Security privatization plan? Such a move would retain the social safety net aspect of these programs while allowing a larger role for capitalist institutions in the process. Without this sort of insurance, I would want to know how Daniels plans to make the system function as a true safety net for the seniors who need it most. What good is a safety net when it relies on the vicissitudes of the market?

(Cross-posted at the new Daily Kos, where I may be writing a few things from now on.)

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