A Visit with Bill Clinton

The conflict between the "A student" and the "pol"

"What I explicitly said," the governor told us, "was that I thought the way to reform the entitlements was to make upper-income recipients pay more of their load, but that I thought the universality of the entitlement programs was important. It may be an important symbolic issue of fairness to ask older people with higher incomes to pay more for Medicare and to subject most or all of their income from Social Security to taxation. I think you can make that case pretty plainly, that it's important symbolically. But more than that is getting control of health-care costs."

With that we were off on an A-student alternative: Clinton's argument that we shouldn't waste our time on Social Security, since the only entitlement costs that really matter are the costs of the health-care programs, mainly Medicare. He said, "The major entitlement reform that swamps everything else--nothing else is even close--is doing what it takes to get health costs into line with inflation." The real reason for this approach must be Clinton's calculation, as a pol, that Social Security is a minefield. But Clinton made an extended A-student case for emphasizing medical costs.

"You know that the insurance companies, the health-care administrative costs, and the providers are doing very well in this system, and we have no system for controlling health-care costs," he said. "Health-care costs are going up eleven to twelve percent per annum, while revenues are going up five percent, four and a half. That's basically where the entitlement choke is. So I say, let's go after health-insurance costs, where the big bucks are, reduce poverty with earned-income tax credits and other strategies, and make the wealthy pay more of their fair share of Medicare."

Is it possible to limit these costs without limiting care--itself as difficult an issue as limiting Social Security?

"That depends on whether we have the courage to reform the system. But the answer has to be yes, if you analyze where the dollars are going in the American system as compared with any other. We spend thirty percent more than any other country and do less with it in terms of basic coverage. It makes you say, Where are the dollars going here that they're not going in other places? It's not so much exotic surgery but prolonged care for people in the last weeks of their life. We do spend more on that than other people do; the problem is, it's hard to know when the last week of your life is.

"But the real dollars are in insurance and administrative costs, where we're sixty or seventy billion dollars out of line with any other country with a comprehensive system. Doctor fees are not so much the problem as the repetition of services is--and the lack of a network of primary and preventive care, which leads too many people to get care only when it's too late and too expensive and at the emergency room, on somebody else's nickel. So if you were to reform those central elements, there's no doubt in my mind that within a matter of just a very few years you could bring health-care costs down in line with inflation." This sounds clean and logical, and it may suffice for the campaign. But Clinton must know that such reforms will be very hard to enact and at best will reduce, rather than solve, the medical-financing problem. And the minefield of Social Security will remain.

The other unresolved issue in Clinton's economic policy concerns international competition and trade. His plan, which takes its name from his slogan "Putting People First," says that America must be robustly committed to the principle of free trade. But if other nations don't play by these rules, then "we'll play by theirs." This is like saying "We believe in peace, but if we have to, we'll use the F-15s." It leaves out all the details about where and why you would fight.

On this issue the difference between A students and pols is clear-cut. "We'll play by their rules" implies protectionism, and for A students protectionism is always wrong. No respectable national-newspaper editorialist, and almost no academic, will praise a candidate for suggesting protectionist measures--ask Richard Gephardt after his campaign in 1988. The term "protectionist" is less damning than "racist," but it is similar in suggesting a benighted view. In fact every nation practices protectionism of some sort. (The only obvious exception is Hong Kong, and it's not really a country.) Nations vary in how deliberately they plan the policies and which industries they protect, but they all do something. Pols instinctively realize this and know that protectionism can be popular in us-versus-them terms: Who's going to have those jobs in steel mills, the Koreans or us?

Two conflicting world views shape current discussions of trade policy. One might be called the Field of Dreams concept: If we improve it, they will come. The "it" is America's productive infrastructure--schools, research facilities, roads, fiber-optic networks, and the other things that make factories comfortable. "They" are the global corporations that, according to this theory, are no longer attached to any nation but flow rapidly from site to site in the now borderless world. If we prepare properly, the investment will arrive--and it won't matter if it's from Daimler-Benz, Ford, or Toyota, because they're all stateless capitalists now. The other concept, which might be called The World As We Know It, assumes that the borderless future is not quite at hand. Other countries take active steps to promote their own industries--which they continue to think of as their own. In this view the welfare of American workers is tied to the strength of American companies, so in addition to building the schools and fiber-optic systems, the government should care how Ford, Boeing, and Motorola fare. In practice, the difference between these outlooks boils down to the question of whether the government should discriminate in favor of U.S.-based companies, preferring them over foreign competitors when granting contracts, supporting technology, or imposing tariffs.

Probably the strongest case against the Field of Dreams outlook is exemplified by the U.S. semiconductor industry. Every Field of Dreams reform you can think of for, say, Chrysler had already been applied in Silicon Valley in 1980. Employees were happy and well trained. Companies were run by engineers, not evil financiers. They invested for the long haul, and they had a good infrastructure. Labor relations was not really an issue, because most companies didn't classify the employees as "labor." And over the next five years the industry caved in more rapidly than the steel and auto industries had.

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