China, India, Brazil, the USA and Change

Reply Fri 15 Oct, 2004 01:42 pm
I apologize for the length of this WSJ essay, but I don't know how long it will be available at the website. I won't attempt to dictate here, but would enjoy a discussion of the concepts expressed here as I believe all are critical to our prosperity, pursuit of happiness, and promotion of the national welfare for several decades to come.

Change Is Inevitably Not Popular
Why many Americans hesitate to embrace the Bush revolution.

Friday, October 15, 2004 12:01 a.m. EDT

If the people of the United States hand him victory in the 2004 election, George W. Bush could emerge as the Deng Xiaoping of American politics. Mr. Bush would become the leader who sent his people forward into a world both uncertain and inevitable.

Deng, who died in 1997, was the former Communist Chinese revolutionary who recognized in the 1980s that the moment had come for China to break from an irrelevant status quo, which had determined economic policy for the entire postwar period. Led by Deng, China changed its economic policies to make them appropriate to the world as it existed, not as China wished the world would be. China flourished. And it is not alone.

India the past five years has similarly broken with its longtime statist past. Brazil is attempting a similar transformation. All three are huge countries in the process of rapidly creating a smart, globally relevant business class. This country's biggest problem isn't "Halliburton" but the realization, just sinking in, that internal U.S. labor costs are being set by a suddenly thriving, truly global marketplace. This is the real cause of the famous "middle-class squeeze," and it's a force more powerful than any one person sitting in the Oval Office.

After three presidential debates, it is clear that George Bush is asking the American people to make a similar, abrupt break with the comforts of the political past. Proposals such as Social Security privatization or individually run health-savings accounts are not being offered as just an intriguing "policy" alternative. These ideas are an historic necessity to surviving in the world economy as it exists today.

Intellectually, the case for making the leap is compelling. Emotionally, the way forward is less obvious. Most Americans have already adjusted to the disturbing realities of Iraq and of waging--and leading--a war on global terror. But it's quite a lot to ask them in the same election to step away from 50 or more years of federally guaranteed social protection. That would have been large without Iraq and terror.

The Kerry campaign is riding on the belief that the American electorate, at the margins in places like Ohio, Pennsylvania and Wisconsin, isn't ready to make the break. And they may be right. That to me is the meaning of the relentlessly close poll results that persist in this election. John Kerry is a fundamentally weak presidential candidate, but about half the electorate is uncertain whether it is able to sign up for all the risk and uncertainty implicit in the next Bush presidency.

The choice in the 2004 election is about much more than merely aligning oneself with this or that party. Politics alone, and certainly not campaign politics, rarely alters the social or economic course of this country. More often it is an event that "changes everything."

Back in the 1920s, Republicans won presidential elections with whopping 60% majorities. Calvin Coolidge presided over an economy growing at nearly 5% annually. A nation tied to business success was working. The Depression changed everything.

With the New Deal, Franklin Roosevelt reset the economic philosophy of the United States, and the nation validated it by giving him nearly 61% of the popular vote in 1936. Then World War II changed everything.

Historians may argue whether war demand rather than Roosevelt's economic policies rescued a depressed U.S. economy. What is undeniable is that from 1930 to nearly 1950, the American electorate experienced massive blows to its sense of personal and economic security. It is hardly a surprise that in the postwar years, the system of unprecedentedly broad federal economic presence and protection, created by Democrats, lived on, no matter the size of Gen. Eisenhower's large electoral majorities for the GOP.

It would now take a force much stronger than the normal process of American politics to change the nation's political economics. Despite periodic displays of strength by both parties (the two-term presidencies of Reagan and Clinton) our politics has invariably reverted to a steady-state stand-off. Since and including 1960, the popular vote in presidential elections has split nearly 50-50 in 1968, 1976, 1980 and 2000. It remains so today.

The belief that September 11 changed everything is false. The support accumulated by Mr. Bush in the immediate aftermath, realized with historic GOP gains in the 2002 elections, has receded. Self-identified partisanship informs most issues again, surely stoked by Iraq.

Alas, this doesn't alter the reality that the economic trains of China, India and Brazil have left the station. John Kerry's comments on Social Security Wednesday evening ("I will not privatize it") and his federally led health-care proposal makes clear that he expects the electorate to put off responding to this irreversible global reality for another four years. George Bush wants the big decision made in three weeks.
The Ownership Society is the appropriate, 21st century replacement to the New Deal. It's about making it possible for the economy to turn on a dime, not once a decade. The bad news is that George Bush didn't bother to bring up the idea until a few weeks ago, in his convention speech.

Neither Mr. Bush, two anonymous Treasury secretaries nor anyone else in this administration has spent significant public time the past four years preparing American voters to make a change that I'm certain most of them know has to come. All those lunch-bucket Democrats carting DVD recorders out of Wal-Mart know those prices weren't delivered by the tooth fairy, or by a factory on the other side of town.

Bill Clinton understood these realities, as shown in his trade policies. But Bill Clinton never really changed his party; he never prepared the party to transition out of its New Deal mindset. With John Kerry, the Democratic policy stone has rolled a long way downhill.

Too bad. Amid war, terror and global economic upheaval, this election is a tough and too-sudden call for many voters. My guess is that the American electorate knows full well that the world is changing, and that come November 2, will decide the moment is now to change with it.

Mr. Henninger is deputy editor of The Wall Street Journal's editorial page. His column appears Fridays in the Journal and on OpinionJournal.com.
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Reply Fri 15 Oct, 2004 01:52 pm
Um, what exactly is this inevitable change?
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Reply Fri 15 Oct, 2004 01:57 pm
It is multifaceted I think and requires thinking about things differently and doing things differently. A couple of examples cited in the article are medical savings accounts and privatization of some of social security. George Bush presents both as economically sound and that, over time, they will do much to fix existing problems. John Kerry says no to both.

I think Bush is right on this and Kerry is wrong.
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Reply Fri 15 Oct, 2004 04:22 pm
The chief difference betwen goverment run and private run social security is that while the goverment charges those who are young now to cover payments to those who are elderly now, private run social security would charge those who are young now, invest their money, and pay back with interests when those who are young now have themselves become old.

Private social security would provide better rates of return due to interest earned from peoples payments as they age, but goverment would have to get a loan to cover the payments to people who are old now, or will be soon, and who has only paid inn to govermental social security. In fact, the interest of the goverments loan would exactly cancel out the interest on capital in the funds of private social security organisations, and the goverment cover their expenses by taxing those same people.

Off course the government could pay down the loan, and people would still be earning interest on their social security, but for the government to save that same money, and subsidise social security with the interests would have the same effect.

The core of the argument seems to be that people should earn interest on some sort of institutionalised savings, but if that is the presidents position, why is the people instead paying interest on some sort of institutionalised loan, that is a goverment deficit?

The last president you had that was practicing what this president now preaches was Clinton who presided over both a goverment surpluss, and a social security surpluss. The president currently in the oval office has turned the goverment surpluss into a deficit, and raided the social security fund.

As for medical savings, I'm not sure how that is supposed to work, so I won't comment on it.
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Reply Fri 15 Oct, 2004 11:06 pm
Clinton had a lot of help from a GOP controlled congress to produce that balanced budget and surplus, and some of it was a house of cards that was collapsing as Clinton left office. I'm not excusing the current Congress spending like drunken sailors, you understand, but these are different times and comparing apples and oranges. There was no social security surplus by the way. There hasn't been in decades. There is only an empty account full of IOUs from the general fund, but the U.S. economy is capable of covering them.

The fact is, most people cannot live on social security alone, and Bush is advocating the most gradual of transitions of social security from the public to the private sector. And the government would still hold the money--the citizens would just decide how much risk they were willing to take and where they wanted their money invested. If those of at or near retirement age now had had that option when we entered the workforce, we would have a comfotable retirement now just from social security. As it is, social security benefits are well below the U.S. poverty level.

Only 5 or 10% of funds could be invested at first and that wouldn't break the bank. The best part of it is, the money held in stocks, bonds, mutual funds, etc. would not be available for Congress to spend so we would finally actually begin rebuilding the social security trust fund.

I think it's an idea who's time has come.
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Reply Fri 15 Oct, 2004 11:12 pm
Medical savings accounts are based on an insurance plan whereby citizens would be able to set aside say $2000 of their income in a medical savings account and supplement it with a low cost $2000/deductible health plan. The first $2000 of medical costs would come out of that savings account--in other words, when we go to the doctor we write a check that is charged against the account. Whatever isn't used up in the account at the end of a 12-month period, the taxpayer can use, tax free, and way s/he wishes.

The theory is, if we are spending our own money directly for medical costs, we're going to question $10 aspirins or an unneeded procedure.

This coupled with tort reform so doctors wouldn't be paying $100,000 to $200,000 in malpractice and would no longer be required to practice expensive and wasteful defensive medicine would do wonders to bring our horrendous health care costs down.
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Reply Fri 15 Oct, 2004 11:35 pm
Foxfyre wrote:

Only 5 or 10% of funds could be invested at first and that wouldn't break the bank. The best part of it is, the money held in stocks, bonds, mutual funds, etc. would not be available for Congress to spend so we would finally actually begin rebuilding the social security trust fund.

So that's the point, locking the money away in a trust fund so that silly politicians like Bush can't get their hands on it. I would tend to agree with you then, that sort of thing seems (sadly) to be necessary in america. You also need some sort of mechanism to keep your politicians from running the country innto a deficit.

But do you really think it is a good idea to discourage people from seeking medical advice? I would think people not seeking medical advice would be a larger problem than people seeking medical advice they didn't need.
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Reply Sat 16 Oct, 2004 10:08 am
The only part of the 'trust fund' the Dems or GOP couldn't get their hands on would be those tied up in investments. That in the end may actually save social security if the Dems ever allow it to happen. As it is structured now, EVERY administration has drained it for other spending, and that includes the Clinton administration.

The medical savings accounts would in no way hinder people getting medical advice. It could only be used with health care provided or prescribed by a licensed medical doctor.
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