PRESIDENT BUSH'S "ownership society" is like his war in Iraq: It may have merits, but these do not include addressing the problem it is intended to solve.
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 health care 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 45 million Americans with no health insurance. Mr. Bush is right that assets are empowering, that people spend their own money more carefully than other people's and that market forces promote efficiency. But how does all this apply to the specific problems we face?
1. Taxes. Our complex tax system is costly in itself and messes up the economy with perverse incentives. Everyone likes tax simplification in the abstract. But people like their own deductions. Mr. Bush has already promised to protect deductions for charity and for home mortgage interest. And he wants to introduce new deductions for health spending accounts and whatnot.
More fundamentally, who is in favor of simplification if it means a higher tax bill for you? But it's got to mean lower taxes for some folks and higher taxes for others, unless it is combined with an overall tax cut. And we can have a tax cut without simplification if we want.
2. Health care. Health care is one area where the ideas grouped under the label "ownership society" hold some real promise. That's because health care involves delivering an actual service, whereas taxes and Social Security are just a matter of writing checks to the government and getting checks from it. There are vast inefficiencies in the system and vast potential for improvement by using market forces. But no one seriously believes that improving the efficiency of health care delivery will be enough to pay for our health care commitments and goals.
There are important limits on market forces in health care. You're not going to price shop for a brain surgeon or negotiate for a visit to an emergency room. You don't even know what medical tests you need, let alone how much they should cost. There's also a basic conflict between the 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 market forces are built into health care, the more situations where people will not have access to the health care they need. The more you protect people from that, the harder it is to create market incentives.
3. Social Security. Regarding Social Security, 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 earn a better return than you would 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 privately. Basically, profits on private investments will close the gap between projected Social Security revenues and payments.
The problem is this: All 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 will 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 it could also spend less and not bother with Social Security privatization. The net effect of Social Security privatization itself on the amount of money in the private sector is zero.
So where does the extra money for Social Security come from? There is nothing about Social Security privatization that even theoretically increases economic growth. Millions of small investors are suddenly making decisions previously made by professionals. Will this make the economy more efficient, or less so?
Social Security privatization can only bring in extra money to close the projected gap between revenues and benefits by somehow reducing the amount of capital available for investment in the private sector. And that would make us poorer, not richer. But it wouldn't happen, because the money sucked out of the private sector and the money poured into it would exactly cancel each other out.
And that's if it worked.
Michael Kinsley is the editorial and opinion editor of the Los Angeles Times, a Tribune Publishing newspaper.