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March 13, 2005
David Warsh, Proprietor


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The Two Traditions

It is now generally recognized that President Bush has made a major mistake is his attempt to “personalize” Social Security by adding individual accounts.  The Washington Post counted heads in the Senate and reported on March 10 that the measure probably wouldn’t come to a vote.

Not enough attention has been paid to why Bush miscalculated.

True, there was Wall Street Journal columnist Peggy Noonan’s evocative phrase — “mission inebriation” –   to describe the high spirits and optative mood that gripped the White House after Bush’s successful re-election campaign.

But that diagnosis was designed to explain the over-the-top quality of Bush’s inaugural address, with its declaration that it had become the policy of the US government to root out and abolish tyranny wherever it is to be found in the world.

Why did the president immediately take a crowbar to the famously popular social old-age insurance program — the so-called third rail of American politics — as soon as he had been re-elected?

The most interesting account yet of the evolution of Bush’s view of Social Security appeared last month in The New York Times.  As best he could, reporter Richard Stevenson traced the president’s long involvement with the idea of individually-managed accounts. He found Bush’s views were already fully formed by the time the first exploratory meetings for his candidacy took place in 1998.

Stevenson located a newspaper account of a speech Bush gave in 1978 to a gathering of real estate agents, in the course of an unsuccessful campaign for a West Texas Congressional seat, in which he said that Social Security “will be bust in ten years unless there are some changes.”

“The ideal solution would be for Social Security to be made sound and people be given the chance to invest the money the way they feel,” he continued.

Bush himself says he can’t remember when he was introduced to the idea of individual investing, Stevenson wrote. The reporter noted, though, that the president “comes from a family with deep roots on Wall Street; his great-grandfather founded an investment bank, and his grandfather later ran Brown Brothers Harriman, one of the most prominent firms in the world of finance.”

And, Stevenson added, “His early political education included exposure to the ideas of Senator Barry Goldwater, the conservative standard-bearer who in 1964 was among the first Republicans to make a national issue of private investing as an alternative to traditional Social Security, and Ronald Reagan, who also took up the ideas.”

It’s true, of course, that early in his political career Ronald Reagan repeated the Goldwater platitudes — which in turn were adopted from Milton Friedman’s landmark 1962 book, Capitalism and Freedom. Friedman’s central objection was that that the program involved a well-disguised subsidy to the elderly poor.

But by the time Reagan was finally elected president, in 1980, he came to represent a very different approach.  First, he appointed a fifteen-member National Commission on Social Security Reform, chaired by an economist named Alan Greenspan, cooling off the highly emotional issue by turning it over to experts.

Then, after intense behind-the-scenes negotiations by the so-called Gang of Nine — a secret group of politically savvy negotiators for the White House and the Congress, Reagan and House Speaker Thomas P. (“Tip”) O’Neill Jr. blessed a deal that put Social Security on a sound footing for the next sixty years — until some times in the 2040s, when actuaries now figure a shortfall in income will begin to occur.

So today, the system again threatens to drift into the red, thanks chiefly to the lengthening span of life. It could be restored to balance easily enough, by another technical fix, similar to that of 1983 — some complicated combination of tax increases and benefit trims.  Or it could be knocked down in stages and extensively (and expensively) rebuilt from the ground up, as Bush envisages.

There are, in other words, two very different approaches to adjusting or reshaping  Social Security, and also the various other entitlements (mainly public schools, medical care in retirement, unemployment insurance and a long list of consumer protections), which, taken together, are the basis of what is commonly described as the modern welfare state.

One, associated in the United States with Franklin Roosevelt and Ronald Reagan, further interpreted by George H.W. Bush and Bill Clinton, emphasizes continuity with Roosevelt’s “New Deal” and evolution — simplify income taxes while maintaining progressive rates, keep Social Security intact, and balance the budget countercyclically.

The other approach, associated with Barry Goldwater, former House Speaker Newt Gingrich and now George W. Bush,  is essentially revolutionary in orientation. It seeks to overturn the foundations of the earlier order so as to rebuild from the bottom up an “Ownership Society” — establish a flat tax, the same for rich and poor alike; “personalize” and privatize Social Security; and maintain chronic deficits in order to “starve the beast.”

Neither approach has as yet much success applying its vision to the problem of sharply escalating medical costs.

That so little is known of the development of Bush’s views underscores the lack of a good biography.  There are plenty of books about Bush, pro and con.  Frank Bruni of The New York Times contributed a graceful and illuminating little account of the election campaign, Ambling Into History:  The Unlikely Odyssey of George W. Bush, but omitted the astonishing episode of the Florida recount.

But there has been no systematic biographical treatment like that of Ronald Reagan by Lou Cannon or of Clinton by David Maraniss, both reporters for The Washington Post. The closest anyone has come has been a richly-reported biography of former Treasury Secretary Paul O’Neill, an acute and severe Bush critic, by former Wall Street Journal reporter Ron Suskind — The Price of Loyalty.

(“Fact is, the dramatic stance I made on Social Security, pushing for these private accounts, is what got me elected,” Bush told O’Neill in March 2001. “It was the key thing. People saw me as dealing with one of the big problems — figuring it out.”)

Last week, on a four-state swing through the South trying to drum up support for his proposals, Bush began to experiment with the evolutionary tradition.

“Franklin Roosevelt did a good thing when he set up Social Security,” he told one audience “It has worked. And so the discussion today is not to get rid of Social Security. The discussion today is to build on what Franklin Roosevelt put in place, to understand the things that have changed since his presidency.”

Much has changed, all right, but what about the description of Social Security as the third rail of American politics? “I’ve touched it,” Bush said the other day in New Hampshire. “I touched it in 2000, when I campaigned here and around the country. I touched it in 2004.  And I really touched it in the State of the Union [address], because I believe we have a problem.

So the conclusion is inescapable.  Either the third rail is not live any longer — or, at least on this issue, Bush isn’t.  He’s a relatively young man. He’s a natural politician.  He’s left himself a good position from which to hit next if he loses. (“I’m guileless! I tackled the problem head on!”)

Yet, emotions being what they are, there is a good chance that his presidency will never recover from this first miscalculation of his second term. Ignoring Ronald Reagan’s considerable success, Bush has set the Way-Back Machine for 1964, when he went off to Yale College and began to form his adult political views, and Barry Goldwater was running for president.

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