"A Guided Tour of the 'Ownership Society'" -- Michael Kinsley in The Los Angeles Times, 9/5/04:
At the moment, we are a Debtorship Society. The government is spending far more than it is bringing in. And even so, our commitments, primarily to supply pensions and healthcare to the elderly, exceed the amounts we are putting aside to pay for them. Then there's the rhetorical commitment of all politicians to do something about the nearly 45 million Americans with no health insurance.
Bush proposes "ownership" as a cure for debtorship. As a general concept, it's fine: Assets are empowering, people spend their own money more carefully than other people's, and market forces promote efficiency. But how does all this apply to the specific problems we face?
Taxes. Our complex tax system is costly in itself and messes up the economy with perverse incentives. Bush says he wants to simplify taxes, and everyone likes tax simplification in the abstract. But people also like deductions. Bush has already promised to protect charity and home mortgage interest deductions. And, he wants to introduce new deductions for healthcare savings accounts and whatnot.
Any change in the tax system that raises the same amount of money means higher taxes for some and lower taxes for others. Are you still for tax simplification if it means higher taxes for you? Bush will probably try to hide this effect by combining simplification with a tax cut. But these are different issues. You can have a tax cut with or without simplification. Are you still for simplification if it makes your tax cut smaller?
Healthcare. This is one area where the ideas grouped under the label "ownership society" hold some real promise. There are vast inefficiencies in the current healthcare system and vast potential for improvement by using market forces -- putting the money in people's hands and letting them make more of the decisions is one way to do this.
However, no one seriously believes that improving the efficiency of healthcare delivery will be enough to pay for our healthcare commitments and goals. There are important limits on market forces in healthcare. You're not going to price-shop for a brain surgeon or negotiate for a visit to an emergency room. There's also a basic conflict between the "ownership society" notion that people should shoulder more of their own risks and the basic idea of insurance, which is to protect you from risks. The more that market forces are built into healthcare, the more people will not have access to the healthcare they need. The more you protect people from that, the harder it is to create market incentives.
Social Security. Here, the "ownership society" solution is a simple mathematical fraud. The concept: Government lets you keep some portion of the taxes you now pay into the Social Security trust fund, you invest those dollars and end up with more than you would have in the form of government benefits, and then (the rarely mentioned third step) your Social Security benefits are cut because you're doing so well. Basically, the idea is that profits on private investments will close the gap between projected Social Security revenues and payments.
The problem is this: The money in the Social Security trust fund is invested in government bonds. This money helps to finance the deficit. Every dollar of Social Security tax revenue that gets siphoned away to private retirement accounts would require the government to borrow one more dollar from the private sector in some other way. Of course, the government could also spend less, but (as with tax simplification) it could also just spend less and not bother with Social Security privatization. Privatization by itself doesn't add to the total pool of capital in the economy or reduce the amount claimed by the government.