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What I Said to Eleanor Clift

September 22, 2010

I just returned to Beijing, from a week-long trip to the U.S., to discover an interesting article in my inbox.  It’s by Eleanor Clift, columnist for Newsweek and liberal pundit on the McLaughlin Group, and it’s called “The Social Safety Net Greases the Wheels of Capitalism.”  I immediately recognized that quote, because it came from me, and I remember her furiously writing it down after I said it when we met over coffee early last week.

I met Eleanor about two weeks ago when she visited Beijing, and we met to continue our conversation — mainly on China — in DC.  So I was a little surprised — perhaps more than I should be — that her column focused on U.S. politics and drew a sharp contrast between my comments and those of Dick Armey, the former House Majority Leader turned Tea Party-activist.  I didn’t realize that Eleanor was already planning to hammer Dick Armey (who I much admire) and that I would be the anvil.  One might guess from reading her column that I was railing against Armey, but that isn’t so.  I’m not saying I was misquoted, merely that the argument she constructed out of my comments is hers, not mine.

Some of what I was quoted as saying involves political tactics, rather than principles or policy.  For instance:

When Chovanec got off the long flight from Beijing, the story that caught his attention was about Republicans saying that if they took back the House, they would shut down the government to make their point about deficit spending. Not smart, said Chovanec, shaking his head.

I stand by that statement — and I say that as someone who was, unapologetically, a “foot soldier” (as Eleanor puts it) in the 1994 government shutdown.  That shutdown (or series of shutdowns, in fact) was never, as it is commonly portrayed these days, a grand strategic move by Republicans to make some kind of an ideological point (“let’s burn down the house!”)  It was, in fact, a tactical move to gain leverage with the Clinton Administration during negotiations over achieving a balanced budget.  The fact that there were actually two shutdowns is important.  During the first shutdown, the Republican Congress was largely successful in placing the blame on President Clinton for his unwillingness to sign the budget bills before him.  Then the Republicans lost their nerve and “temporarily” reopened the government in exchange for some rather ephemeral promises by Clinton to negotiate (I distinctly remember Armey arguing, unsuccessfully, to stay the course).  When Clinton defaulted on his promises, the Republicans shut the government down again, but by that time, the moral burden had shifted and Clinton was able to portray Congress as the obstructionists — an impression that would prove lasting.  Given this history, which I know firsthand, I think it is entirely counterproductive for Republicans to “wave the bloody red shirt” of a government shutdown as though it were an ideologically-motivated crusade, rather than a tactic to be carefully considered.  From what I’ve seen in the press, Armey himself has said much the same thing.

I also was quoted as saying the following:

He thinks his old boss John Boehner made a smart move in supporting a tax-cut extension for the middle class, as opposed to holding out for the wealthiest taxpayers to be included.

Let me be very clear:  like Boehner, I believe in extending all of the Bush tax cuts and making them permanent.  I do not think it makes economic or moral sense to have a marginal rate for anyone higher than 35%, and I think it’s foolish to raise capital gains taxes when one of the key obstacles to recovery is people’s reluctance to take money out from under the mattress (in the form of US Treasuries) and invest it.  But again, tactically, you can play this two ways.  One is to oppose Obama’s tax package as an effective tax increase (which it is) and block it.  Taxes for business and the middle class would rise (not what the GOP wants), and Republicans risk getting blamed.  The other is to take the half loaf, pass whatever tax cuts the President will sign, claim credit, and continue pressing for more.  The drawback is, without winning a filibuster-proof majority in the Senate (nearly impossible), Republicans might never get the chance to push for a second round of tax cuts, and Obama probably wouldn’t sign them anyway.  I’m not a legislative tactician, I’m not out there campaigning or counting votes, so I can’t say which approach is most likely to achieve the maximum results.  But if, in the end, Boehner feels that something is better than nothing, I fully support that position.

Last but not least, my views on social security and medical insurance were contrasted with Armey’s:

I asked him what he thought about former House majority leader Dick Armey’s insistence at a breakfast earlier that morning that the first thing he would do to balance the budget is go after the two “biggies”—Medicare and Social Security. Chovanec winced. Armey must have been off script, he said. It was a GOP proposal to cut Medicare in 1994 that allowed Clinton to gain the high ground.

Again, the key issue here is tactics.  Tackling expanding entitlements is absolutely essential if the U.S. is going to avoid national bankruptcy down the road, much less balance its budget.  Republicans such as Congressman Paul Ryan, a friend and colleague of mine from my days on the Hill, have some good ideas on how to go about it.  But coming out swinging, saying Republicans are going to “go after” Medicare and Social Security (if that’s what Armey did say, out of school), plays into people’s worst fears and misconceptions.  Let’s face it, however flawed these programs may be, there are voters who depend on them to make it from day to day.  Scaring those people (“let’s burn down the house!”) is going to make it harder, not easier, to make real progress towards solutions.

Politics is the art of the possible.  Even given the same set of ideals, what’s possible in America might not be possible in China, because the starting points and expectations are different.  That might help explain the context of what I find the most puzzling paragraph in Eleanor’s piece:

Chovanec married a Chinese woman, and they have a baby son. His in-laws work for the Railroad Ministry in Beijing and get health insurance through their job, but it covers almost nothing: a doctor’s visit and some antibiotics, and that’s it. “Dick Armey might like that,” he says, but there’s no private insurance available, which means the Chinese people have to save. “Dick Armey might like that too,” he says. The high savings rate in China is equivalent to the medical IRAs that Republicans advocate, but a lot of people don’t have that money to save, in America or China.

What we were talking about was China’s health care system, and how some of the ideas proposed by Republicans in the U.S. might not really fit the Chinese context.  It sounds like I’m saying Dick Armey might like a system in which people have terrible or non-existent coverage — that’s not what I’m saying.  For some time now, I’ve actually been an advocate of greater privatization of health care in China, including allowing the sale of private insurance, as well as private practice by doctors outside the state hospital system.  The problem is that without any viable insurance system — public or private — people have no choice but to save.  And that while private savings accounts (medical IRAs) may offer an attractive solution for some wealthy or even middle-class Americans — which Armey and I both think is a good idea — in China we’re talking about a population of farmers and migrant workers for whom savings is a huge burden.  The challenge in China is to liberate that savings and transform it into buying power.

That’s how I arrived at the observation that “the social safety net greases the wheels of capitalism.”  I could see by her response that Eleanor thought this was a remarkably shocking thing for a Republican to say, and that she might run far with it in a direction that I myself would not go.  But as someone who teaches American Business History to MBA students, I stand behind that statement.  Take health insurance.  Prior to the 1930s, private health insurance was non-existent; people paid all of their doctor and hospital bills out of pocket.  To be able to do that, they had to put aside money for an emergency — and whatever they saved couldn’t be spent.  The arrival of Blue Cross/Blue Shield — a private insurance scheme organized on the basis of social groupings (in this case, workplaces) — enabled risk to be spread and savings to be implemented far more efficiently.  People only had to pay premiums, not stockpile huge lump sums, so they had more left over to spend and enjoy in the meantime.  Other countries, like Britain, adopted public rather than private insurance schemes, on a national basis.  These had the advantage of being all-embracing, leaving nobody out, but they had the disadvantage of hiding from people the real economic costs of providing care, under the rubrick of making medical care a purely social (i.e., political) good.  Even private insurance, to some extent, can have the same effect, due to the time gap between payment and payoff.  (If you want to carry the analogy forward, grease can be good, but slopping on too much grease like it’s a good thing can make you slip and fall).

The point is that I don’t have to be an ardent socialist to recognize that that socializing (pooling) risks — using either a public or private mechanism — can have benefits, whether the risk is medical costs, unemployment, or destruction from natural disasters.  But eliminating the cost of risk entirely also has costs.  Whether the benefits outweigh the (often unintended) costs, or whether a public or private mechanism is to be preferred, depends on many factors, and leaves plenty of room for debate.  In China, the public single-payer mechanism that once existed has completed fallen apart, and nothing — either public or private — has replaced it.  As a result, people have no alternative but to individually save, a suboptimal solution that contributes to global economic imbalances.

But I wouldn’t say that implies Medical IRAs are a bad idea to offer Americans, or that Dick Armey’s desire to rein in government entitlements is “unworkable and unrealistic” (the analogy between iron rice bowls and tea cups breaking is Eleanor’s, not mine).  Nor do I necessarily think I’ve developed “a more tempered view of what government can and should do for its citizens,” although I’m sure she means it as a compliment.  As readers of this blog know, I’m awfully skeptical of what governments in China, America, or Europe can and should do for their citizens.  Not blind, I guess is the point.  Just skeptical.

“Chovanec,” Eleanor writes, “is not abandoning his conservative principles, but he’s adjusting them to reality.”  I agree.  But I’m not sure Eleanor and I would exactly agree on what that “reality” is, and what conclusions follow.

2 Comments leave one →
  1. Daniel permalink
    September 23, 2010 10:34 am

    There is private health insurance in China, anyone can buy it and use it. Companies can also purchase for their employees insurance which goes well beyond just a doctor visit and some medicine. Of course, what you will get for the money is another question all together.

    • prchovanec permalink*
      September 23, 2010 10:58 am

      The first private health insurance plans were introduced in China in 2006. The market is still very small — the last figure I saw was that 6% of the urban population had some form of insurance — and is limited by, I wouldn’t say a hostile, but certainly an unsupportive regulatory environment. The government has not made it a priority, although in my view it should play a central role in reforming and opening up the health care system. The fact remains that the vast majority of Chinese citizens pay out of pocket for medical expenses beyond the bare minimum of care.

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