REVIEW & OUTLOOK
Reform at Home
Today's progressive agenda is public "trust" busting.
The progressive era of a century ago was born with government activism aimed at breaking up the private "trusts" built during the Gilded Age. With his State of the Union speech on Wednesday, President Bush made his bid to define a new progressive era--this one aimed at reforming the creaky, graying public institutions built during what Bill Clinton once referred to as "the era of big government."
The paradox of this new progressivism is that it requires government activism on behalf of reforming government. Note we did not say "limiting" government. Mr. Bush is not a conservative in the mold of House Republicans, circa 1994, eager to reduce the supply of government as defined by cutting programs. We wish he had more of that in him. Instead, Mr. Bush is asking Congress to join him in reforming government programs with a long-run goal of reducing the demand for government.
So in education he wants to expand testing in high schools to make the public school monopoly--as much a "trust" as Standard Oil ever was--more accountable. An IRS code that overtaxes savings and investment must be reformed in a world of competition from China and India. Health insurance should be both easier for individuals to purchase and more portable. And the public pension system known as Social Security must be reformed to create a culture of "ownership."
It's an ambitious vision, and not easy to pass through a python like the U.S. Congress. But the reason Mr. Bush has a chance is because this vision is consistent with the decentralizing global information age in which we live. Big government grew in part as a counterweight to the corporate and union giants that emerged in the industrial era. Amid the insecurity of the Depression, the public turned to government institutions for security.
But today we know those institutions are themselves imperfect and unsustainable. The European welfare and entitlement state model has become a crippling burden on job creation and taxpayers. While the U.S. never went as far as Europe, we went far enough to face similar (if less severe) problems.
Nowhere is that clearer than with Social Security, to which Mr. Bush devoted so much of his speech. The program will eventually go bust as the pay-as-you-go, young-to-old income transfer that it currently is. Mr. Bush's answer is to begin--now, while the task is easier and we can spread out the costs--changing Social Security to allow individuals to build wealth with "personal accounts" that they would own and be able to pass on to their heirs.
The difficulty is that for today's politicians this reform is not urgent. The system will not start drawing on general (as opposed to payroll) tax revenue until 2018. And democracies are notorious for not confronting problems until they are crises. Mr. Bush is asking Members of Congress to commit the unnatural act of thinking beyond their next election.
For the President's fellow Republicans, the problem isn't philosophy but political risk. They like being called "Mr. Chairman," and addressing Social Security means explaining the matter to constituents who will hear from Democrats that their benefits will be cut. Never mind that this is false, many GOP incumbents would rather just pass one more highway bill.
This would be a shame, because a President willing to give them cover for a difficult vote is a rare opportunity. Republicans have a chance to get credit for addressing a serious problem, while also building a new "investor class" that is less dependent on government handouts. They won't get a better chance for years.
As for Democrats, they too face a choice. Most of them are vowing to preserve the New Deal in amber, notwithstanding the obvious fossil cracks. But just saying no again and again will not make them seem like a dynamic party with new ideas. Younger Americans are not fools, and they know that Social Security will not be there for them. By demagoguing Mr. Bush's proposals as "stock-market roulette" and a "risky privatization scheme," they run their own risk of looking as out-of-touch as the FDR-hating businessmen of the 1930s.
One other word of caution, especially to the White House: Some of us remember what happened a year ago to Medicare reform. Republicans in Congress balked at genuine free-market reform, and Mr. Bush caved in to claim a political victory. The cost was $7 trillion in new prescription-drug liabilities.
As much as we respect Mr. Bush for putting Social Security on the table, there is a danger that this effort too will turn out badly. Already, Democrats and Republicans alike are promoting the idea of "add-on personal accounts" that government would subsidize outside of Social Security. Jim McCrery, a usually sensible Republican from Louisiana, was pitching this yesterday as the only way to get "personal accounts."
Well, we already have such private accounts, and they're known as 401(k)s and IRAs. Mr. McCrery's idea is a political cop-out that would do nothing to improve Social Security's future solvency, and in fact would make things worse by creating another federal entitlement and burden on taxpayers. If this is the GOP's idea of compromise, then let's call the whole thing off.
The New Deal wasn't built in a day, and it won't be modernized in one Congress. But the domestic-policy vision that Mr. Bush laid out on Wednesday is a progressive governing philosophy consistent both with GOP principles and the temper of the times. If even half of it passes, it will be a successful second term.
