George W. Bush Hugged the Third Rail

by | Jan 15, 2003

The shake-up of the Bush economic team has been the occasion for a lot of criticism of the administration’s domestic leadership. Indeed, I’ve been one of the harshest critics. Yet I think the Bush administration has done one thing very, very right when it comes to economic policy — and it’s about time they got […]

The shake-up of the Bush economic team has been the occasion for a lot of criticism of the administration’s domestic leadership. Indeed, I’ve been one of the harshest critics. Yet I think the Bush administration has done one thing very, very right when it comes to economic policy — and it’s about time they got some credit for it. This administration has begun to successfully take on the greatest economic challenge of the new century, one that was universally thought to be politically impossible to even touch. I’m talking about Social Security.

Throughout the 2000 presidential campaign, Bush spoke of radically reforming Social Security by using personal investment accounts. In an economic platform marked by blandness and timidity, this plank stood out as uniquely imaginative and revolutionary — almost quirky.

But he didn’t forget after he was elected. Bush quickly formed the President’s Commission to Strengthen Social Security. In a masterstroke of staff selection — that he has duplicated nowhere else on his economic team — two nearly smear-proof men were selected to co-chair the commission: a Democratic former Senator, Daniel Patrick Moynihan, and a Black American business executive, AOL Time Warner chief operating officer Richard Parsons (now CEO). The commission’s mandate was set with equal finesse, immediately defusing the hottest of the hot-button objections to reform. The first two “guiding principles” for the commission were that benefits for retirees could not be changed, and that the Social Security surplus must be dedicated only to Social Security.

The commission’s findings a year ago were both venturesome and modest at the same time. Its three proposals involved the creation of personal accounts, but on a limited basis, and in a way that left today’s familiar system quite recognizable. To the defenders of the status quo the proposals were too radical, and to the radicals the proposals were too deferential to the status quo. Nevertheless, the commission’s report proved that a bipartisan group could work together and come up with results that were at least credible — and nobody got borked in the process.

Then came the elections. With Bush focusing attention on the war on terrorism and campaigning vigorously for GOP candidates, the Democrats were left looking for an issue. The economy looked like a GOP soft-spot, and one way to probe it was to play to fears that the GOP would gut Social Security. Throughout the campaigns, senior Democrats and party leaders said repeatedly and explicitly that the election would be “a referendum on Social Security.”

At first it seemed that the GOP would allow itself to be cowed on the issue. In September it was reported that the National Republican Congressional Committee was guiding candidates to back off any talk of Social Security reform. But a closer reading of their gameplan reveals that they were just optimizing the spin. GOP candidates were coached to drop the inflammatory and inaccurate expression “privatization” when describing Bush’s personal-account approach to reform.

It worked. Most Republicans who backed Social Security reform in their campaigns won — often by surprisingly large margins, and against opponents who were violent reform opponents. Most who came out against Social Security reform lost.

How significant is this win in the “referendum on Social Security”? Quite simply, the debate will never be the same again. As NRCC spokesman Steve Schmidt told the Washington Post last September, “In order for there to be an honest debate on Social Security, Democrats have to lose this election. Only after they’ve lost another election where they’ve put all their chips on the Social Security issue will honest-minded Democrats step forward to work on the issue.”

Indeed. We recently saw two Social Security reform breakthroughs that would be been unthinkable a month ago. First, the left-leaning Washington Post editorial page opined that “this may be the last chance to talk calmly about Social Security for a long time, and it shouldn’t be squandered.” Warning against “ideology and politics” on both sides, the Post noted that all reform solutions have huge costs, but warns that there are “huge costs to the preservation of the status quo.”

Then former president Bill Clinton addressed a Democratic Leadership Council event in New York, saying “If you don’t like privatizing Social Security, and I don’t like it very much, but you want to do something to try to increase the rate of return, what are your options? Well one thing you could do is to give people one or two percent of the payroll tax, with the same options that federal employees have with their retirement accounts; where you have three mutual funds that almost always perform as well or better than the market and a fourth option to buy government bonds, so you get the guaranteed social security return and a hundred percent safety just like you have with Social Security.”

If that sounds familiar, it should — Clinton’s vision is virtually identical to the first of the three proposals put out by the President’s Commission.

With the Washington Post’s editorial and Clinton’s remarks, the conventional wisdom has completed a tectonic shift: smearing is no longer a viable political solution, doing nothing is no longer a viable economic solution, and personal accounts are a credible way to improve Social Security’s rate of return (even Democrats can talk about it).

How did the Bush administration — the administration that is supposed to be so inept on economics issues and their communication to the public — manage to pull off this miracle? Simple. Reforming Social Security just happens to be something that George W. Bush believes in deeply. He may not have a lot of strong or bold economic convictions, but he’s sure got this one. He’d have to. From the very beginning, no sane man would have taken on this issue out of cynical political calculus.

It had to come from the heart. It did — and it worked. President Bush has transformed Social Security from a ticking bomb sitting on the third rail of American politics into something that we can finally do something about. Good job!

Don Luskin is Chief Investment Officer for Trend Macrolytics, an economics research and consulting service providing exclusive market-focused, real-time analysis to the institutional investment community. You can visit the weblog of his forthcoming book ‘The Conspiracy to Keep You Poor and Stupid’ at www.poorandstupid.com. He is also a contributing writer to SmartMoney.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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