PUBLIC POLICY - Bush's Breakthrough - George W. Bush proposes free-market reform of Medicare and Social Security - Brief Article

National Review, June 5, 2000

THE test of statesmanship is to combine a clear-eyed understanding of policy with political prudence. On entitlements, George W. Bush has aced that test, outlining on May 15 the principles of a free-market reform of Medicare and Social Security.

Bush begins, wisely enough, by establishing that he is not ideologically hostile to these programs-by declaring, for instance, that "Social Security is the single most successful government program in American history." He reassures current beneficiaries of the programs that he will not disrupt their arrangements. He reassures younger people that they will be able to stay in the current system if they so wish. He lays great stress on the bipartisan support for his ideas: Democratic senators John Breaux, Bob Kerrey, and Daniel Patrick Moynihan have all endorsed the investment by individuals of some Social Security funds. Bush explicitly rules out the possibility of raising taxes to make the entitlements solvent, and also rules out the potentially disastrous idea of letting the federal government invest payroll-tax revenues in private capital markets.

In describing his goals for Social Security, Bush eschews the word "privatize" in favor of such words as "save," "strengthen," and "modernize." This is not wholly a matter of public relations: "Privatization" usually means contracting out a government service to a private company, and therefore does not well describe a policy of letting individuals exercise choice within a program run by the government.

The criticism of Bush has followed several lines. Al Gore says his plan would be-what else?-risky. But Bush has several defenses. He says that there will be "basic standards of safety and soundness" so that "there will be no fly-by-night speculators or day trading." Against the risks of investment, he sets both the risks of the current system and "the security of ownership." Private accounts, he notes, can be passed on to children. Gore also says that the program cannot work because the government will have to bail out individuals who make poor investments- a problem that need not arise if the program is designed properly, and a more manageable problem than the abysmal investment the current system forces everyone to make. (Note, by the way, that Gore is thus arguing that Bush's plan is simultaneously too risky and not risky enough for individuals-the government would have to provide a safety net.)

Finally, editorialists complain that Bush has not said how he would pay for current benefits while also letting workers invest. Actually, he has: Workers would be able to invest surplus Social Security funds. There would be a financing problem ten to fifteen years down the road. But Bush's plan would not increase the system's liabilities as a whole, and it is perfectly legitimate to defer the financing questions until later. Gore's solution, by contrast, is to issue some IOUs from taxpayers to the Social Security system-without any plan whatsoever for paying off those IOUs. If Gore is able to pose as the candidate of fiscal responsibility, it will be a tribute to the willful gullibility of journalists.

With Bush having gone so far in the right direction, it seems almost churlish to point out that he omitted some points that would be helpful to his case. He could have made his argument about risk and security stronger if he had pointed out that workers have no legal right to Social Security benefits under the current system. He did not explain that the tax cuts he proposes would promote growth and thus make it easier to finance Social Security and Medicare; he therefore left himself vulnerable to the criticism that his tax cuts would endanger the programs. Nor did he explain that free-market reform of Social Security would itself boost the economy by expanding the capital stock.

But Bush will have plenty of opportunities to make these points. The big picture was sketched out by Richard Nadler, chairman of the American Shareholders Association, on NR's website: "For the first time since 1980, the Republican presidential nominee has enunciated a strategy that enlarges the GOP base on conservative principles." Bush has captured the rhetorical high ground of being "forward looking." And he has finally hit on a campaign theme that usefully frames the debate over both the policies and the personalities of the two candidates: Bush trusts Americans to manage their own lives; Gore does not.