Keeping employee health benefits is, alas, very popular. But Harvard economist Jonathan Gruber convincingly explains why this loophole should go.

To reach their goal of universal coverage, the consensus among Congressional Democrats is that Medicaid eligibility will have to be expanded. Kaiser Health News offers some insight into what this might look like. Right now, Medicaid covers roughly 60 million people. One recent estimate from Avalere Health estimates that the House Democrats’ proposal will increase that number to 83 million, reducing the number of the uninsured by 18 million. That would mean all parents and children up to 150 percent of the poverty line would be covered, as would adults earning up to 115 percent of the poverty level. A number of scholars, including Leighton Ku, believe that Medicaid expansion is far preferable to subsidized private coverage as a means of expanding insurance access for the poor. Stephen Somers and Michael Sparer argue that Medicaid offers valuable lessons on containing cost growth across the healthcare system, though they place a great deal of weight on unproven pilot projects. Conservatives tend to prefer subsidized private coverage, but so does liberal Democratic Senator Ron Wyden of Oregon, the driving force behind the Healthy Americans Act, who decries Medicaid as a “caste system.”

The biggest downside of expanding Medicaid is that it is, for all its virtues, a deeply dysfunctional program that incentivizes massive fiscal irresponsibility on the part of the states, which determine Medicaid eligibility and how much providers will be paid while bearing less than half of the costs of the program. If we really do expand Medicaid to the point where it covers 83 million people, we’ll need to either tighten federal control, to better align responsibilities, or make the most generous states bear more of the fiscal burden. But expanding Medicaid without forcing structural reforms seems profoundly unwise.

On Friday, Ezra Klein, drawing on a new report from the Center on Budget and Policy Priorities, noted that $140 billion of the $800 billion federal stimulus went to the states, and thus helped plug 30 to 40 percent of state budget shortfalls on average. Because state governments can’t borrow with the freedom of the federal government, there is some logic to this. But why stop at closing 30 to 40 percent of the shortfalls? Say we more than doubled the share of the stimulus that went to the states so that we closed just about all of the shortfalls, in exchange for long-term fiscal sustainability plans. (Granted, there would be no small irony in the federal government imposing this requirement on the states.) Would that have been preferable to the stimulus package that actually passed, which included a great deal of temporary, and thus quite possibly ineffective, tax relief? There is a strong case for the $111 billion in infrastructure spending. Even if we include that, however, we still get a smaller stimulus, one that gives far more discretion to the states to respond to their particular economic challenges. The package would be smaller, but it would also act more quickly via state governments. And it would give the federal government more leeway to pass bigger stimulus legislation in the future if necessary.    

Sorry for being AWOL, my friends. I’m in Germany for a conference of American and German young professionals. I’ve been learning as much as I can about the failures and strengths of the German social model. Next week I’ll be in London, where I’ll be meeting with a number of British policy thinkers. Expect a full report when I get back next week. For now, I’ll offer some brief thoughts on the domestic political scene. 

A number of liberals are celebrating the CBO’s new score of the Kennedy-Dodd plan, now with an employer mandate. Coupled with a Medicaid expansion, which will of course impact the states, this approach will cost $1.3 trillion over 10 years rather than the dreaded $1.6 trillion and it will cover roughly 40 million of the uninsured. Of course, as James Capretta suggests, there’s a lot that can go wrong: these cost estimates rest on rosy scenarios of cost savings, etc.

As a mark of how far we’ve come, Senator John Kerry’s proposal from 2007 looks very attractive in comparison. At its core is the concept of federal reinsurance, an idea I’ve long wanted conservatives to embrace. 

One percent of patients account for a quarter of healthcare costs. And 2 out of 10 patients account for more than 80 percent of all healthcare costs. Under Kerry’s plan, the federal government would reimburse a percentage of these high cost cases if employers include preventative care and health promotion benefits in their health plans, make quality coverage available to all full-time workers, and implement practices proven to make care more affordable. This means lower costs and lower premiums for both employers and employees.

This concept of federal reinsurance, which was championed in a somewhat more modest form by Senator Bill Frist, is the brainchild of Brandeis University economist Stuart Altman, a Kerry advisor. As Altman has suggested, we can further limit the cost of reinsurance by limiting it to low-wage employers, those most likely to need the help.

One possible approach would be for the state to pay 75% of the expenses of cases that exceed $75,000. The state should require any insurance company receiving such premium assistance to operate an effective high cost case management program. Such programs, when well run, have been shown to both lower the total cost of care and improve the health outcomes of the patients treated. To moderate state spending, I would suggest that the state re-insurance system only be available to companies and individuals insured through the Connector and, only if the employers have wages that average less than $50,000 and if the insured has a wage of less than $75,000.

My long-term preference is for the logic of catastrophic coverage to replace the logic of insurance as pre-payment. The federal government’s responsibility should be providing social insurance against income shocks, not to subsidize health spending per se. The reinsurance approach can help get us there. 

Bruce Bartlett recently wrote an instructive column on the apparent inefficacy of President Obama’s stimulus package. As the unemployment rate continues to climb, it’s very much worth a look.

Since 60% of the stimulus package had a multiplier effect of less than one, only 40% of the package went to programs like public works that have a high multiplier. Moreover, the programs with a low multiplier were the fastest ones to implement; those with a high multiplier take much more time to come online. According to Elmendorf, by the end of fiscal year 2009, which ends on Sept. 30, about a third of the least stimulative spending will have been spent vs. only 11% of the highly stimulative spending.

Then, of course, there is the fiscal collapse in the states, which willl lead to a decline in spending. To be sure, much of the stimulus package was meant to prop up state spending. But closing state budget gaps will presumably have an anti-stimulative effect. Harold Pollack and Ed Kilgore wrote a neat post at Economix on how this should inform future efforts. The basic takeway is the following:

federal budget debates should expand to include the national budget, the sum total of spending, taxes and policies that implement and finance national governance. At a minimum, the Office of Management and Budget and the Congressional Budget Office should routinely scrutinize the financial impact of proposed federal policies on every level of government.

This relates to unfunded mandates, implementing Medicaid expansions, and much else. As Ramesh writes on The Corner,

To understand the cause of today’s budget brinkmanship, we would probably be better off looking at such things as the percentage of state budgets spent on Medicaid — something that has changed, largely in response to federal policy.

Most Congressional Republicans rightly embraced extensions of unemployment insurance, etc. But one wonders if we’d be better off with pre-commitment. Earlier today, I spoke with Johns Hopkins political scientist Steve Teles — a frequent interlocutor I’ll be bringing up often — who suggested that the federal government simply ramp up revenue-sharing when a state’s unemployment rate goes above a certain amount. Rather than craft a grab-bag stimulus package, one that represents the political priorities of the moment, we’d have an “automatic stabilizer” that would be built into our budgetary assumptions, thus making it more sustainable.

The idea reminds of Jeffrey Sachs’s brilliant critique of the stimulus approach in Scientific American. 

President Barack Obama’s economic team is now calling for an unprecedented stimulus of large budget deficits and zero interest rates to counteract the recession.  These policies may work in the short term but they threaten to produce still greater crises within a few years.  Our recovery will be faster if short-term policies are put within a medium-term framework in which the budget credibly comes back to balance and interest rates come back to moderate sustainable levels.

Of course, Sachs also argued that we need a sharp increase in tax revenues. 

Reducing Congressional discretion would have a number of interesting and positive side-effects. For example, South Carolina’s severe economic downturn would, under this approach, guarantee a large transfer from federal to state coffers. And Mark Sanford’s proposal to use stimulus funds to pay down the state’s debt would have been within South Carolina’s reach. We could then evaluate the wisdom or foolishness of the anti-Keynesian approach on the merits. 

To understand the favorable noises about Wal-Mart’s embrace of an employer mandate, it helps to remember the vitally important role played by Leslie Dach, a veteran Democratic fundraiser and the mastermind behind Wal-Mart’s media and government relations strategy. Lest we forget, Wal-Mart was a target of abuse among liberal Democrats as recently as the Democratic presidential primary, when then-Senator Obama represented the anti-Wal-mart forces. In 2007. Jeffrey Goldberg wrote an excellent dispatch on Dach’s early efforts.

Dach and Edelman have been innovators in their field. A press release issued in 2000 outlines a strategy that Dach has used repeatedly to good effect. “You’ve got an environmental disaster on your hands,” the document reads. “Have you consulted with Greenpeace in developing your crisis response plan? Co-opting your would-be attackers may seem counterintuitive, but it makes sense when you consider that N.G.O.s (non-governmental organizations) are trusted by the public nearly two to one to ‘do what’s right’ compared with government bodies, media organizations and corporations.” The document goes on to describe Amnesty International, the Sierra Club, and the World Wildlife Fund as “brands” that the public believes “do what’s right.”

Once again, co-option is yielding dividends.

At The New Republic, Jonathan Cohn has a post on Wal-Mart’s support for an employer mandate. Cohn, who has forgotten more about the U.S. healthcare sector than I’ll ever know, finds this very encouraging.

By endorsing the idea of a employer mandate, Wal-Mart has made the idea more difficult to demonize. It has also–and I can’t stress this enough–given some political cover to members of Congress who might be sympathetic to the idea of employer mandate but hesitate to take a vote that might be perceived as anti-business. 

And Wal-Mart is indeed backing two promising proposals.

One, which Senator Jay Rockefeller has been championing lately, would strengthen the power of the Medicare Payment Advisory Commission (MedPAC) to guide the way Medicare pays for medical services. The other, which comes from the Bipartisan Policy Center, would create a “trigger” mechansim; basically, if health industry groups couldn’t deliver savings they’ve promised, automatic payment reductions would ensue.

But here’s the thing: Wal-Mart’s support for an employer mandate isn’t remotely surprising. Cohn rightly notes that “Wal-Mart is acting–as it always does–out of pure self-interest.”

My undestanding is that, after all of these years, Wal-Mart has suddenly found itself in the same situation its competitors once did: Dealing with unpredictable health costs and facing new competition from businesses that have found ways to spend even less on employee health benefits. Is there some justice there? You bet.

On the other hand, politics is all about channeling self-interest so that it serves the public good. And the timing of this is pretty telling.

There is another way of looking at this. As a large, powerful, deep-pocketed firm, Wal-Mart can sustain regulatory burdens that mom-and-pops and new entrants can’t. And so burdensome regulations are invariably Wal-Mart’s ally. Jonathan Rauch explained this dynamic brilliantly in his book Government’s End. It makes perfect sense for Wal-Mart to back a regulatory initiative that hurts its bottom line as long as it hurts its competitors more. 

So I have to disagree with Cohn’s contention that Wal-Mart will provide much in the way of political cover. Pro-business and pro-market are, as many conservatives have argued for many years, different concepts. Collusion between big business and big government is a time-honored tradition.

To overgeneralize, conservatives and libertarians like Wal-Mart when it lowers prices for people of modest means. Liberals like Wal-Mart … when it colludes with government to squeeze its competitors? That’s obviously not right. 

This isn’t to say we shouldn’t have an employer mandate. But I don’t think we should assign much weight to the views emanating from the head office in Bentonville.  

At The Atlantic, Graeme Wood has an excellent new blog dedicated to a variety of global hotspots. He’s just left Iraq for Afghanistan, and his Iraq posts give you an excellent sense of the state of the country as the American combat presence slowly winds down. Check out “Striking Camp.”

Graeme also has an article in the latest issue of The Atlantic on geoengineering that is well worth your time. David Victor is leading a project on the international implications of geoengineering at the Council on Foreign Relations. And for a visionary take on the subject, I recommend futurist Jamais Cascio, who alienated and enraged a lot of readers with his recent polemic in the Wall Street Journal. 

Here is Graeme’s description of one of the most attractive geoengineering proposals.

Stephen Salter, a Scottish engineer, has mocked up a strategy that would cool the planet by painting the skies above the oceans white. Salter’s designs—based on an idea developed by John Latham at the National Center for Atmospheric Research—call for a permanent fleet of up to 1,500 ships dragging propellers that churn up seawater and spray it high enough for the wind to carry it into the clouds. The spray would add moisture to the clouds and make them whiter and fluffier, and therefore better at bouncing sunlight back harmlessly into space. Salter, who has investigated the technical feasibility of this idea minutely (down to the question of whether ship owners would mind affixing spray nozzles to their hulls with magnets), estimates the cost to build the first 300 ships—enough to turn back the climatological clock to James Watt’s era—to be $600 million, plus another $100 million per year to keep the project going.

The one that seems the most effective, however, is rather less attractive. Read the article, which will give you a broader perspective on efforts to mitigate climate change. 

Jim Manzi has been doing a tremendous amount to educate the public about the costs and benefits of ACES, so I won’t go into too much detail. Rather, I’ll revisit a favorite theme of mine, namely comparative insights on carbon pricing. 

Last year, Monica Prasad wrote an Op-Ed on carbon pricing that is a useful introduction to the complexities of the subject. I’ve written about it quite a lot, as I think it’s extremely valuable. The Op-Ed was a brief summary of the conclusion she reached in a longer paper on “taxation as a regulatory tool,” which weighed the evidence from a number of carbon pricing efforts in Europe. Her conclusion is sobering: only one country, Denmark, has put in place a carbon tax that has led to an appreciable reduction in emissions. And in Denmark, there was an accessible alternative to carbon-intensive energy: wind power and bicycles. They key issue, as Prasad emphasized in a guest post at the environmentalist blog Grist, is the availability of substitutes. 

Without substitutes, you’re creating a new revenue stream and there will be powerful incentives to preserve that revenue stream. Note that the Obama White House had intended to use carbon tax revenues for everything from a Making Work Pay tax credit to healthcare. But as Prasad explains, carbon taxes tend to succeed when succeed when the revenue it generates is applied to the regulatory aim. Otherwise, it is possible that the state will set rates to maximize revenue rather than to achieve the aim.

ACES, of course, generates very little revenue, so that’s not the danger. The real threat posed by ACES is that it will prove to be burdensome yet ineffective, and that it will advantage incumbent firms that are able to influence the regulatory regime over new entrants. The consensus among environmentalists, for obvious reasons, is that the ideal regulatory regime will involve either an auction-based cap-and-trade system or an actual tax in order to avoid a massive corporate giveaway. The cart that should be driving the horse, though, is the cultivation of alternatives. The hope is that the tax will accelerate this process, and over time it just might. It’s not clear, however, if it will happen before the regulatory regime is corrupted beyond recognition.

In fairness, the story has changed a bit since Prasad’s paper. Brad Plumer, one of America’s best environmental journalists, has an interesting post on the European Union’s Emissions Trading Scheme, which has been Exhibit A for anti-cap-and-traders like yours truly on the vulnerability of cap-and-trade systems to regulatory capture. His basic argument is that after early fumbles, the ETS has evolved into a fairly effective system for reducing carbon emissions. 

Moving on, in Phase II, the EU tightened its caps and started auctioning off a greater chunk of the pollution permits. According to Lehman, once the initial kinks were hammered out, the system “succeeded, and fairly quickly, in imposing a price on carbon.” Emissions have now fallen for four straight years. According to the European Environment Agency (EEA), the EU-15 has slashed emissions 5 percent below 1990 levels, and is on pace for a 11.3 percent cut by 2012—easily exceeding the 8 percent goal required by the Kyoto Protocol.

Brad offers a useful proviso.

And, to be sure, some of the recent drop has been due to the global recession, but not all of it. In 2008, the EU economy shrunk 0.8 percent, but emissions fell much faster—3 percent. The European Commission credits the ETS with much of that drop.

I also wonder about what happens when you factor in population growth and decline in the ETS states. The overall EU population growth rate is 0.11 percent, though I can’t speak to the ETS participants. Political scientist Bruce Berkowitz has convincingly argued that a country’s stance on curbing carbon emissions can be reliably predicated by its rate of population and economic growth.

Because Brad is very intellectually honest, he zeroes in on another huge issue, namely “outsourced emissions.”

My biggest caveat is that, when you look at Europe’s “outsourced” emissions, the picture looks much grimmer. According to the Stockholm Environment Institute, Britain’s carbon emissions have actually grown by 20 percent when you factor in imports from China. No domestic cap-and-trade system can fully work unless it’s placed in a global context.

And as Jim has argued convincingly on many occasions, the prospects for a binding international agreement are not very good.

This is not a foreign policy blog, I know, but I wanted to point you to Bruce Reidel’s terrifying “Armageddon in Islamabad.”

 I’m not nearly as pessimistic as Reidel, but he’s very close to the action and he takes the threat of a jihadi-ruled Pakistan seriously. Definitely the scariest thing you’ll read all week.

On Monday, Ryan Bubb and my friend Alex Kaufman published an Op-Ed in The New York Times in which they argue for “a fairer credit card.”

The credit card act is under fire for limiting a number of fees commonly used in credit card contracts, like the charge for going over the credit limit and the increased interest rate that applies once a borrower has missed a payment. These changes might look like a boon for the average card user, but industry advocates claim that fees on delinquent borrowers subsidize the perks for those who pay on time. Take away the lucrative fees, the argument goes, and credit card issuers will be forced to ax free plane rides, slash generous credit limits and impose hefty annual dues for all.

Some in the industry even say that profitability would require issuers to charge interest from the moment of purchase, thus eliminating the grace period of interest-free lending that borrowers have long enjoyed.

But after surveying credit cards issued by investor-owned banks as well as “fairer” cards issued by customer-owned credit unions, Bubb and Kaufman conclude that the industry is overstating the case. They also suggest that rewards programs might become less generous, but that this is a feature and not a bug.

But is this necessarily a bad thing? While you may be reluctant to sacrifice your airline miles, rewards programs are anything but free for the nation as a whole. Debt-laden and often low-income borrowers tend to pay high fees to subsidize the vacations of those who manage to pay on time.

And I suppose this is what I find so irksome about the proposal. I have a hard time seeing why regulators should make these decisions. The fact that some consumers “manage to pay on time” doesn’t strike me as an incidental fact. Indeed, it strikes me as pretty valuable information for credit card issuers.

Credit unions are, for all the reasons Bubb and Kaufman suggest, terrific. I do think, however, that there is a value in pluralism, and that heavy regulation can stifle useful economic innovation.

This leads me, however, to a heretical thought. In President Obama’s financial reform proposal, he calls for a new regulatory body dedicated to guaranteeing the “safety” of financial products. And the proposal suggests that all credit card issuers offer a “vanilla” product line of heavily regulated financial products. Rather than mandate vanilla products, why not have the government issue a credit card of its own?

Conservatives will recoil at this idea for good reason. The government already does more than it should, so why start issuing credit cards? I see this as a philosophical question: is the government interfering more if it forces private firms to issue vanilla cards or if it chooses to issue its own vanilla card?

A few weeks ago, Steve Randy Waldman at the blog Interfluidity had an intriguing idea.

First, he draws a distinction between transactional and revolving credit. To oversimplify, transactional credit allows you to spend money that you have without actually carrying around cash. Revolving credit, in contrast, allows you to spread out payments, so that you can spend money you don’t have now — and, frankly, that you might not have for a long time. And so, Waldman goes on to explain, transactional credit is like an insurance product while revolving credit is like a traditional loan. Waldman advocates heavy regulation of revolving credit, so that less creditworthy borrowers simply can’t gain access to it. This makes sense for many reasons. For one thing, it might forestall panicked post-hoc regulation. Yet I wonder if Waldman’s next proposal might serve as a good substitute for heavy regulation. For transactional credit, he thinks it is perhaps best understood as a public good that could be provided by the state.

Every adult would be offered a Treasury Express card, which would have, say, a $1000 limit. Balances would be payable in full monthly. The only penalty for nonpayment would be denial of access of further credit, both by the government and by private creditors. (Private creditors would be expected to inquire whether a person is in arrears on their public card when making credit decisions, but would not be permitted to obtain or retain historical information. Nonpayment of public advances would not constitute default, but the exercise of an explicit forbearance option in exchange for denial of further credit.) Unpaid balances would be forgiven automatically after a period of five years. No interest would ever be charged.

What exactly would be the point of this exercise?

One nice aspect of a low-limit, indiscriminate, mechanical public credit system would be educational. Many younger people would spend some period of time modestly in debt and shut out of the credit economy. This would provide a more gentle lesson than the current practice of running up revolving balances in college and working desperately for years to pay them down.

It’s a clever idea. Wouldn’t it be nice if we could leave the private sector alone to issue any kind of credit card they’d like, and allow Treasury Express to scratch the plain vanilla itch?

Conservative support for the Wyden-Bennett Healthy Americans Act died down noticeably after Ramesh Ponnuru published his incisive critique (here’s a subscriber link) in NR last April, in which he argued that the goal of universal coverage was the wrong goal for Republicans on political and substantive grounds. 

One reason Republicans are embracing Bennett’s bill is that they have mistaken the public’s real anxieties about health care for a demand for universal coverage. Covering everyone sounds desirable to most people, but they do not seem eager to take the steps this would require.

The most obvious of these steps is the tax increase it would require. Ramesh also criticizes Wyden-Bennett on the grounds that it represents a doomed effort to utterly reinvent the practice of insurance. 

Bennett-Wyden makes it illegal for insurance companies to discriminate against people based on health status. It also makes it illegal for them to charge different rates based on customers’ age, sex, or occupation, although it does let them give discounts for people who do healthy things like quitting smoking. These prohibitions make insurance a rip-off for young and healthy people. The bill keeps them from opting out by forcing them, and everyone else, to buy a minimum level of insurance. (Obama shrinks from taking this step.) It also cuts the price of insurance for poor people. The Lewin Group estimates that to administer the plan and enforce this mandate, the IRS would have to expand by a quarter. 

And it might not even work. The senators are probably underestimating the ingenuity of the insurance companies, who might find subtler ways to attract healthy customers and dump the sick ones. (They could pay half the cost of a gym membership, for example.) If it does work, insurance companies will no longer be pooling risks so much as they will be the government’s tool for socializing costs. They would, in effect, become regulated public utilities. The government would have made it impossible for them to act as insurers, and in return provided subsidies to keep them in the business of paying claims. 

This strikes me as an entirely plausible scenario, and it also undergirds Booth School economist John Cochrane’s case for health-status insurance. In Cochrane’s view, the essential problem with our medical marketplace is our reliance on forced pooling arrangements. 

Most policy proposals aimed at providing better long-term health insurance try to further limit competition and expand forced pooling. They strengthen incentives for employer-provided group insurance, create pools based on geography (e.g., the Clinton administration’s 1993 proposal), force insurers to take all comers at the same price, assign high risks to insurers, prohibit competition for healthy customers, force (or “mandate”) healthy people to buy high-priced insurance, mandate payment levels and treatments for expensive diseases, and so forth.

Alas, each of these steps reduces competition, and reduces people’s freedom to choose the insurers and providers that best serve their needs.

The logic of forced pooling eventually leads us to national health insurance, a single pool that will eliminate putatively destructive competition among insurers. Cochrane goes on to suggest that health-status insurance can resolve the tension between the desire for competition and choice and reliable long-term insurance. He makes a persuasive case, political realities notwithstanding. Cochrane is best known for his work on asset pricing, and he is far from from a health care wonk. And so his intention is not to develop an actionable plan that will address the political challenge posed by rising health care costs in the short to medium term.

One can also make the case that the forced pooling that Ramesh and Cochrane both object to is inevitable. In 2007, Stephen Cecchetti of Brandeis made explicit a claim embraced by many center-left health economists.

While I may shy away from knowing the details, I am interested in the medical equivalent of my credit score – call this my “health score.”  Without revealing the specifics of any future diseases I am likely to contract, a health score will summarise my overall health-care risks.  And, each year, with new information on my weight, blood-pressure, and the like, my score will be refined.

The fact that we will all have health scores has profound implication for insurance; or, more accurately, for the failure of market-based insurance. If I have the information revealing that I am likely to be healthy, living a long and low-medical-care-cost life, this knowledge alone will create adverse selection, causing me to forgo insurance for everything except treatments arising from accidents, which can never be forecasted.

For Cecchetti, the upshot is the death of private insurance.

Looking into the future, we see that technology will force private health insurance to disappear at the same time that the social pressure to provide equal access to care will remain.   This makes it inevitable that health care systems everywhere will provide universal coverage and be publicly run.  Governments will replace markets, insuring that the poor and uninsurable receive medical treatment at the same time that the healthy are forced to participate in a comprehensive system.

Of course, this is all speculative. Cecchetti could be wrong about the ease of constructing a reliable “health score” in the near future. But he’s not a crank.

In a sense, the Wyden-Bennett plan is best understood as a way of anticipating the Cecchetti scenario, and creating in effect a single national pool that nevertheless gives individuals and families access to a variety of competing private — or, as Ramesh suggests, quasi-private — insurance plans. And its most attractive aspect, certainly when compared to the plans coming out of the Senate Finance Committee and the HELP Committee, is its fiscal impact, as scored by the CBO last year. The CBO concluded that the plan would be self-financing by 2014, and that the fiscal burden of the plan would steadily decline because it links the size of its health insurance deduction, which means it would grow less quickly than today’s tax exclusion for employer-provided benefits. Ramesh explained why this might not fly politically in his article.

We’re being asked to make very profound judgments concerning the nature of the medical marketplace in an insanely compressed period of time. I don’t like it. Virginia Postrel’s Medicare First approach is looking better all the time. 

Let’s state the obvious: the Obama White House has painted itself into a corner on health reform. And though schadenfreude is a natural response, I worry about what might happen next.

The basic problem is that coverage expansion will be extremely expensive and it will have to be paid for through a new revenue stream, e.g., Senator John McCain’s sober and responsible call for taxing employee health benefits or, more ambitiously, a VAT. But of course the President Obama promised not to tax health benefits during his presidential campaign, and the labor unions are aggressively pushing back against any reversal on this front. And though I think conservatives should embrace the McCain approach, Ramesh notes at The Corner that Senate Republicans do not.

There may be one or two Senate Republicans who want the Democrats to include a cap on the tax exemption for employee health benefits, but that is not what “the Republicans” as a whole want. My impression from talking to congressional Republicans and their aides over the years, and especially over the last few weeks, is that they favor modifying the tax break for health insurance so that it applies to individually-purchased policies as well as employer-provided ones. But they are not in favor of simply raising taxes on employer-provided health insurance and using the funds to create a new, even more government-heavy health-care system.

This is a politically attractive strategy for Republicans, but it will also blow a huge whole in the federal budget. As someone who strongly believes that conservatives need to relearn fiscal responsibility, that gives me pause. The fact remains that coverage expansion will prove very costly. And because President Obama has, unlike Republican reformers like Coburn and Ryan, promised to preserve the dominance of employer-provided coverage, we’re left with a political dilemma: Americans will keep getting roughly the same employer-provided health insurance, yet they’ll have to pay for cheaper coverage for other people. This might be a good and noble thing to do, but it’s not very politically attractive. Granted, Obama’s concept promises to allow employees to enter the health insurance exchange to choose a plan they prefer, including a public plan, but the basic political dilemma remains.  

My fear is that Democrats believe that because Republicans didn’t pay for their tax cuts through unpopular spending cuts, they are under no obligation to pay for huge spending increases through unpopular tax hikes. In The American Prospect, Matt Yglesias has a bracingly honest essay on the dangers of this approach. In particular, he notes the fundamental flaw of Obama’s tax-the-rich and leave the bottom 95 alone approach.

Higher taxes on the rich are arguably more egalitarian, but they can only raise a limited amount of revenue. This is especially true when you consider that the extremely wealthy are a very small proportion of the population. An extra annual tax of $500 per capita could raise almost $150 billion. Obtaining a comparable amount from the top 1 percent of individuals would require $50,000 from each of them, an amount that the very wealthiest could easily pay but that is probably an unrealistic burden on those near the bottom of the top 1 percent. To get a lot of money you need to be willing to take at least a little from a broad group of people.

But if you’re going to “take at least a little from a broad group of people,” you have to promise them something in return — which leads us back to the coverage expansion dilemma. 

All this is to say that I think it’s very possible that Obama’s effort to remake how we finance health care could fail. So what happens then? One possibility is that the Democrats will embrace an aggressive incremental strategy by simplifying and expanding eligibility for Medicaid and S-CHIP. This would make political sense for the Democrats, as Republicans haven’t developed an effective means of countering this approach. Or they could rebrand the public plan effort by proposing that employees of small businesses and individuals could choose to pay into a “Medicare Plus” system, a half-way version of Jacob Hacker’s influential pay-or-play proposal. And those efforts to slow entitlement spending? Forget about them. It’s not obvious that this is a particularly happy outcome.

Then again, the failure of ObamaCare could lead Democrats to scale back their ambitions and take a second look at a more decentralized conservative approach. This could be wishful thinking on my part.

Matt Yglesias wonders why Republicans are so enthusiastic about nuclear power. 

A reasonable approach to nuclear power would, I think, just start with the reality that the waste problem is both serious and also potentially solvable. Put a solution in place, and then the country could accommodate more nuclear power. Then put a carbon price in place, and more nuclear power could provide to be part of the solution. But if you’re going to pour billions in subsidies toward something, you should focus it on truly clean sources of energy.

I see where Matt is coming from, and there are a few decent clean sources that are probably underrepresented in our energy portfolio, including concentrated solar polar. But I think there are two pretty good reasons to support a massive push on nuclear power. The first is an issue that I’ve worried about for a while and that Matt has written about very persuasively, namely what he calls “The Growth/Oil Hammer.”

What if six months ago, the economy is actually growing? Not growing rapidly. But just growing. Like, the number is above zero rather than below it.

Well it seems to me that we’ll be right back where we were in the summer of 2008 where sky-high gas prices were clobbering everything. And we haven’t really done anything over the past year to leave ourselves better-prepared for that situation. 

That is, the coming energy crisis is urgent. We need to take drastic steps in the near term. I don’t go as far as Edwin Black in his book The Plan, but a true energy crisis would prove far more wrenching the economic downturn thus far. The second is that for all of the downsides of nuclear power, we have a good sense of what it can do, how to produce it safely, and how to scale it up, leaving aside the admittedly tough NIMBY/BANANA questions.

Keith Johnson of the WSJ makes an excellent contrarian case. 

In the meantime, wind and solar power are significantly more expensive than nuclear. T. Boone Pickens’ Texas wind farm, to pick one high-profile example, was meant to cost $12 billion for four gigawatts of power. Make that 1.6 gigawatts of power, since wind farm output rarely exceeds 40% of nameplate capacity.

That’s $7.5 billion per gigawatt—more than recent large-scale nuclear cost estimates, and a lot more than boosters of mini nuclear plants are promising: Under $5 billion per gigawatt.

I tend to think that this is a cultural divide more than anything else. If we want to go with the cheapest alternative, well, we can keep burning coal (except for that minor “peak coal” problem …). If you want a reliable, carbon-free source of energy, nuclear is your best bet. It’s worth noting that with most clean sources, the core concern is baseload power. For example, new concentrated solar plants tend to include natural gas plants to guarantee that they can reliable produce over longer periods of time. Wind farms require extremely long transmission lines that are very difficult to build. Not as difficult, granted, as a nuclear plant near a suburb, but this is not a trivial concern. Once you factor in the higher intrinsic costs of wind and solar, the cost of rebuilding our energy grid, and all of the baseload power we might need to make a nuclear-free or nuclear-light approach to reducing carbon emissions work, you have to wonder if the Congressional GOP has outwonked the wonks. 

I’ll note, in fairness, that the nuclear power industry has made a number of terrible environmental missteps, particularly in Britain. This has engendered a great deal of distrust. 

Like NR’s Mark Hemingway, I’m a slightly fanatical admirer of Indiana Governor Mitch Daniels. In his latest column, Rich Lowry makes an excellent case for Daniels as a role model for 2012 Republicans.

Daniels counsels national Republicans to adopt a “no, but” approach. As he told an interviewer from National Journal, on cap-and-trade he’d say: “No, let’s not double the tax on poor people in the vain hope of moving the world’s thermometer. Here’s a way to conserve energy and protect the environment that doesn’t impoverish the nation.” On health care, he’d say, “Sure, let’s get people covered with health insurance, but here’s a much better way.”

His success has stoked speculation about a possible 2012 presidential run. Daniels has made Shermanesque disavowals of national ambitions, and expressed confidence that new national leaders will soon emerge. When they do, they should heed the lesson and the message of Mitch Daniels, an exemplar of a winning conservatism. 

One thing I find interesting about Daniels is that he was not very effective in the Bush White House, where his deficit-hating impulses were apparently checked by more powerful voices, he’s really come into his own as governor. When he first came into office, he called for a tax hike on the most affluent Indianans. Though the surcharge was never passed, Daniels played against type and demonstrated his seriousness. His foresight has helped Indiana absorb crushing economic blows. The Economist profiled the state last week. After noting Indiana’s relative success in managing the transition away from heavy industry, the piece outlined difficulties ahead:

Lay-offs in manufacturing and construction helped push the unemployment rate from 4.5% in December 2007, the start of the national recession, to 9.9% in April. Northern Indiana has endured the most extreme turn of fate. In parts of this lush country the world’s pace slows to a trot, with horses pulling buggies of men with beards and women with bonnets. But the long arms of the recession touched even the Amish, lured to the local recreational-vehicle (RV) industry by good wages. As the RV industry collapsed Elkhart County’s unemployment rate shot from 4.8% in December 2007 to 16% a year later, a leap so big that Barack Obama went there for his first trip as president. GM’s fall begins a new chapter of uncertainty. One plant in Indianapolis will close. Fort Wayne’s factory is among those that will stay idle for the summer. Small suppliers are likely to suffer most.

Indeed, this was part of Daniels’ case against the 2008 bailout of the Big Three. As he told the Indianapolis Star at the time, “I didn’t notice anyone throwing money at the RV industry, and that cost Indiana a lot of jobs.”

In November, I argued that Daniels was the perfect foil for Obama, and I still believe it. Conservatives are eager to find another Reagan. But what conservatives really need is an unostentatiously smart, accessible tightwad.

NRO has now posted the second of its online debates between yours truly and Chris Hayes. We discussed the notion of a right to healthcare. The question of rights is immensely difficult, as Chris would agree. In our brief discussion, we barely scratched the surface of the relevant issues. And because I’m pretty far from a trained political philosopher, I’m wary of wading too deeply into this territory. But why not?

My basic argument, rather crude in hindsight though it does reflect my gut instincts, is that a right to healthcare implies a right to health. Consider the ongoing debate concerning the cost and efficacy of medical care. If decency demands that the state provide medical care, this inevitably raises the following question: if the state is left holding the bag, so to speak, surely the state can demand that one lead a basically healthy life, hence the ever-expanding imperatives of public health. A right to healthcare implies a right to health, or rather an entitlement to health. If this isn’t a recipe for an unlimited state, what is?

The Polish sociologist Zygmunt Bauman coined a useful phrase: “the gardening state.” One of Bauman’s central ideas was that the advent of modernity in Europe was fundamentally about the surrender of freedom for security. A world that seemed chaotic and crazed and unpredictable was rendered well-ordered and sane and predictable through the emergence of a hierarchical bureaucracy that offered interpretive order. James Scott’s brilliant Seeing Like a State referred to projects of legibility and simplification — when they state encountered things it could not understand, it rendered them legible, even if that meant running roughshod over valuable informal arrangements. The nationalization of language in France is an excellent example of what both Bauman and Scott are talking about, and the same goes for the projects of ethnographic ordering undertaken by Soviet anthropologists in the 1920s. Ethnicities were literally invented as a means of managing “difficult” populations. The gardening state has to be weeded, occasionally.

Yet the gardening metaphor also has an attractive aspect, particularly to those of a social democratic bent: it implies that the state exists to help humans flourish by gently pruning and liberally applying compost and all the other things that conscientious gardeners do. In Gwendolyn Mink’s The Wages of Motherhood, she describes the various ways in which the New Deal was informed by social workers who aimed to transform family life by encouraging male breadwinner families, discouraging female entry into the workforce, etc. This is an example of the gardening state at its most ambitious and intrusive.

The critique of the gardening state is normally associated with the post-modern left, though of course it has had considerable resonance with libertarians of all stripes. But it also underlies a number of conservative causes, including Ward Connerly’s Racial Privacy Initiative, an effort to ban the classification of individuals in the State of California by race or ethnicity. (Interestingly, republican France has a strong taboo against racial classification, though the country’s dirigiste tradition has certainly involved heavy intervention in the intimate sphere, as reflected in the école maternelle system, etc.) And of course discomfort with the gardening state has a lot to do with conservative objections to sin taxes on high-fructose corn syrup, a notion that has grown increasingly popular on the left and the right. 

Here’s a worthwhile question: once you socialize pensions, as in Social Security, must you effectively socialize reproduction? The pay-as-you-go structure of Social Security relies on increasing productivity and a growing population. Should we thus embrace pro-natalist policies to keep the program viable? That was the provocative argument advanced by my friend and colleague Phil Longman. I’m a fan of certain pro-natalist policies, and I’m aware of how pro-natalism strikes many as troublingly illiberal. Because falling birthrates are a sufficiently serious public goods problem, if not in the United States than certainly elsewhere in other advanced economies, I’m willing to put those qualms to the side. It is important, however, to set limits with the dangers of the gardening state in mind, hence my concerns about the idea of healthcare as a right.

As Chris noted in the debate, providers are obligated to provide emergency treatment to those who seek it. This is a kind of right. And on prudential grounds, we need to pursue a variety of measures — structural reforms to our healthcare financing regime, some of which I’ve gestured at below; public health campaigns, etc. — but I’m wary of following the logic of the gardening state to its conclusion. 

In True Security, a fantastic if slightly dated book by Michael Graetz and Jerry Mashaw, the authors outline a healthcare reform that is dedicated to basic economic security: no family will go bankrupt due to an economic shock caused by a serious illness. This strikes me as an attractive, limited ideal. It still begs the question of whether socialization can ever end there. But we’re more likely to keep the role of state limited if we eschew rights-talk and instead think of the state’s role in healthcare as fundamentally about managing economic risk.

Less abstraction to come, I promise. I blame the online debates!

Earlier this week, Will Cain very kindly asked me to participate in a series of online debates with Chris Hayes of The Nation, a leading left-of-center thinker. To his credit, Hayes describes himself as a social democrat, a political tradition that remains obscure in U.S. political discourse. Unlike left movements in Europe, the American left has traditionally had a strong individualist streak, hence the resonance of the “liberal” label that many center-left Americans now eschew in favor of “progressive.” The best book I’ve read on the origins of social democracy is Sheri Berman’s The Primacy of Politics: Social Democracy and the Making of Europe’s Twentieth Century, a sympathetic account that describes the movement as an outgrowth of the various revisionist movements that emerged in tension with and in opposition to Marxist orthodoxy. Another movement that emerged from the intellectual ferment of revisionism is, of course, fascism, and Jonah Golderg has vividly described the awkward relationship between these traditions at great length. Though it should go without saying that egalitarian social democracy and racial fascism are deeply different, both see the creation and cultivation of social solidarity as vitally important.

One could argue that the neoconservatives of the 1960s and 1970s remained committed to liberal individualism, and so they abandoned the political left in response to the emergence of what they saw as a pernicious racialized solidarity politics. Like a lot of folks at NR, I’ve often thought that the turn against the liberal label speaks to a deeper intellectual shift towards a different kind of solidaristic politics — not a racialized politics, but an American version of class politics that, as in John Edwards vision of Two Americas locked in contention, pits both the lower-upper-middle class (in Matt Miller’s excellent turn-of-phrase) and working families (a useful catch-all) against an elite minority of moneychangers and other rakish ne’er-do-wells. This is a social democratic turn. You saw it in Barack Obama’s 2004 campaign for the U.S. Senate, where he drew on the emotive appeals of Michael Harrington and the Christian socialism of the late Martin Luther King Jr. For obvious reasons, you saw it far less often during his presidential campaign. So is Barack Obama a socialist? I tend not to think so. But that doesn’t mean that the cumulative result of successive interventions won’t be an economic regime that deserves the name.

We’re living through a politics of emergency. Earlier on, the politics of emergency was about the national-security state. Now it is about the economic-security state. The result, as Chris suggests, is “lemon socialism,” which, in fairness, we’ve also seen during Republican administrations. (Reagan backed SEMATECH, for example.) The intention of the federal government is to transform GM into a viable business. And in the past, the federal government has had some success in this regard, e.g., with Conrail. The troubling question is: have we passed the point where such an effort is even politically possible? For example, the transformation of GM into a viable business enterprise might require a much leaner, more global profile. Yet the political case for the intervention is the rescue of jobs in the Great Lakes region. The tension should be obvious, and who believes that politics won’t play the dominant role? Some on the left are disappointed that GM isn’t being transformed into a vanguard of the green-jobs economy of the future. It’s not obvious to me that GM won’t eventually be used to that political end.

The most worrying sign to me is that the charge of socialism is losing its sting. Lawrence Lessig recently wrote a post criticizing Kevin Kelly for favorably characterizing the economics of peer production as a species of socialism, and Kelly’s Wired essay was clearly a playful provocation. And yet it’s a sign of the times.

When it comes to countering the destigmatization of socialism, Lessig has the right idea.

Unlike statists of later years, Smith was fascinated by emergent public goods — goods that were public goods (since nonrival and nonexcludable, as economists later would formalize the concept), but that were created not by any central actor like the state, but by the mutual and voluntary actions of individuals. Language is the simplest example — language is a quintessentially public good, but no central coordinator is necessary to produce language. But Smith was eager to describe a wide range of emergent public goods that set the preconditions to a well functioning market.

Obviously, in this focus on civil society, Smith is not alone — even among the heros to libertarian/capitalist/free marketeers. In this respect, Hayek continues the tradition Smith began. He too was deeply sensitive to the health of civil society, and recognized how civil society was produced by “masses of people who own the means of production [and] work toward a common goal and share their products in common, [people who] contribute labor without wages and enjoy the fruits free of charge.” But Hayek too was not “socialist.”

Lessig, who was once a right-leaning libertarian, gets that the partisans of anti-statism are at their best the partisans of society, and that peer production is a paradigmatic example of spontaneous order.

All that said, Hayes makes a powerful and compelling point regarding the capacity of the American state. Denmark, for example, is the only country in the Western world that has succeeded in sharply reducing per capita carbon emissions without the aid of a collapsing economy. Monica Prasad explained why and how in an Op-Ed for the New York Times last year. This was possible in part because the Danish bureaucrats are highly-regarded professionals. The culture of public service is strong. Though there are slices of the U.S. federal government that draw elite professionals, and DARPA is everyone’s favorite example of a nimble, entrepreneurial, highly-effective public agency, our government has never worked all that well. And it arguably works less well now after Clinton and Bush both sought to replace bureaucrats with contract employees. Consider that overages on defense contracts have sharply increased since the oversight of said contracts has been outsourced. The irony is that a government-cutting measure has in effect swelled the size of government, but with no added benefit for the taxpayer.

David Brooks and Daniel Casse and other conservative thinkers have often said we need a limited but energetic government. I think I’d settle for limited but competent. And that means having the federal government retreat from some sectors of economic life — I’d start with the ridiculous way we limit access to the spectrum and education and, as I discussed in the last post, even health care — and do a better job in its more limited domain. For a sophisticated normative case on these grounds, one that I don’t agree with in every detail, I recommend the work of Ilya Somin.

Welcome to The Agenda, our new blog on politics and policy. My name is Reihan Salam. Among other things, I am the co-author, with Ross Douthat, of Grand New Party: How Republicans Can Win the Working Class and Save the American Dream, which has just been released in paperback. Right now I’m a fellow at the New America Foundation, a post-partisan think tank that includes hawks and doves, conservatives and centrists, and liberals, policy wonks, and big thinkers. I’ve been blogging on and off since 2002, and I’ve worked as an editorial researcher, an editor, and a news producer. But my main interest throughout this period has been reviving the American social model.

When conservatives fret about the Europeanization of the American economy under President Obama, they’re getting at something very important. Though generalizations about Europe’s diverse economies can be misleading, there is a real sense in which inflexible labor markets have excluded large numbers of people from the economic mainstream.

So-called automatic stabilizers protect immigrants and the poor from the worst ravages of poverty, yet worklessness, like homelessness, has contributed to intense social isolation and poor health and, at the risk of sounding overly sentimental, a pervasive sense of despair across the continent. The high-employment American model, in contrast, has much to recommend it.

Yet you have to wonder: Is the American welfare state as it exists the best imaginable expression of the underlying American social model?

Consider the onerous payroll tax, the most punishing burden facing the vast majority of American workers. Or take our unreformed, unreconstructed Social Security system, which sends millions of retirees to their graves by discouraging productive work. Opponents of single-payer and socialized medicine rightly note the flaws in those approaches. At the same time, we have to recognize that our current healthcare system is statist to the core, only it is built on an overlapping series of collusive arrangements between supposedly “private” insurers and the IRS, not to mention Medicare and Medicaid.

And while those of us on the right have tended to prefer tax subsidies to direct spending, we need to start recognizing that there is little difference: When the feds parcel out money like a child’s allowance, provided you buy this or that good, it’s spending through the backdoor.

The enduring popularity of the big middle-class entitlement programs merits a serious policy response from conservatives. The good news is that a number of elected officials, like governors Mitch Daniels and Bobby Jindal, Sen. Tom Coburn, and Rep. Paul Ryan, seem to get it. Conservative fiscal policy can’t begin and end with fighting earmarks, or trimming the slice of the budget that goes to discretionary domestic spending. If we’re going to make government cheaper and more effective at a few core functions, we need to look at the whole pie. That’s what I intend to do at The Agenda. I hope you’ll keep reading.