"This much is certain: The welfare state as we know it cannot survive." So Charles Murray writes in The Wall Street Journal in an article on his new book, "In Our Hands."
"No serious student of entitlements thinks that we can let federal spending on Social Security, Medicare and Medicaid rise from its current 9 percent of gross domestic product to the 28 percent of GDP that it will consume in 2050 if past growth rates continue."
You can quibble about the numbers, but the overall trend is clear: We're on a collision course. On the one hand, we have a private-sector economy that is vibrant, creative, continually transforming itself and producing millions and millions of new jobs -- overcoming the stagflation of the late 1970s, the sharp recession of the early 1980s, the savings and loan bailout of the early 1990s and the trauma of the attacks of Sept. 11, 2001. On the other hand, we have a public sector that is threatening to gobble up more and more of that economy as time goes on.
We know what things look like somewhere down the road: France. As students, union members and public employees riot in the streets against the outrageous notion that people should not be given lifetime jobs until age 26, France seems immobilized.
It is not that France does not have a vibrant private sector. "Private-sector France," says the Economist, "is marching brazenly wherever globalization allows." But at home, the French private sector is getting squeezed out. Certainly it is not interested in creating new jobs in France with generous pay and benefits and lifetime tenure.
We can see something of France in Michigan. Delphi, spun off from General Motors in 1999, is in bankruptcy and threatening to drag its parent down with it. The problem is overgenerous pay and benefits and lifetime tenure (GM has a jobs bank that pays laid-off workers not to work). High costs have hampered Delphi and GM in competing in the marketplace. They tend to produce second-rate stuff that can bring in enough cash to meet the payroll.
Delphi and GM workers don't have public employees and students rioting in the streets to protect their jobs, and many will lose what they were told were entitlements. It's a sad human story. But surely we don't want to see the whole country end up like France or Delphi.
But at the moment, we don't have anyone working to stop it -- not the Republicans, not the Democrats. In the late 1990s, President Bill Clinton seemed ready to work with Sen. Pat Moynihan to put an investment component in Social Security and with Sen. John Breaux to institute market reforms in Medicare. But Clinton, at the behest of the liberals who rescued him by opposing his impeachment, pulled back, even though the political stars were otherwise aligned.
George W. Bush came to office with plans for market reform in Social Security and health-care finance. But he got only a little of the latter -- health savings accounts and demonstration projects in the 2003 Medicare law. On Social Security, he was stymied by united Democratic opposition in 2005.
White House domestic adviser Allan Hubbard argues that health savings accounts are being rapidly embraced and can inject more market mechanisms in health care. Maybe so. Health-care finance in this country is not one single system that never changes, but many systems that change every year in response to government regulation and market pressures. But no one has the political stomach to tackle what many recognize as a major problem -- the link between health insurance and employment. Until that happens, health-care costs, and Medicare and Medicaid, will likely grow faster than the economy.
The far-sighted Charles Murray suggests another solution: Replace all entitlements with payments of $10,000 a year to every adult -- enough he says, to enable them to provide for their own retirement and health-care needs. Plausible but not, as Murray admits, politically feasible anytime soon.
Meanwhile, presidential candidates aren't addressing these issues as much as did Bush in 2000 or even Clinton in 1992. Some Democrats want us to move toward the model of France, and many Republicans calculate that any long-term gain is not worth the short-term political price. Bad news if we don't want our grandchildren to live in a country more like today's France than today's United States.
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