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Back To The Future?

Bill Galston's piece yesterday over at the American Prospect yesterday on the enduring popularity of big government ends with this interesting nugget:

[W]e cannot expand government indefinitely without reducing long-term economic growth. ... To be sustainable and pro-growth, we will need a new approach toward the large entitlement programs--especially Medicare and Medicaid--that drive so much of the long-term increase in the federal budget. While universal health insurance would give us a fighting chance to restrain the rate of growth in medical costs, we will probably have to go further.

I think this is one of the more interesting long-term fiscal policy questions on the horizon: To what extent would conservatives be willing to accept a modest (say, 3 percent of GDP) increase in the overall size of government to fund the expanded social safety net Galston envisions, if reductions in entitlement spending are on the table? James Capretta, for instance, outlines in this week's Weekly Standard a vision of Medicare reform many liberals, with a few caveats, could probably live with, modeled closely upon the proposals of the Breaux–Thomas commission in the '90s.

President Clinton and most other Democrats were wise to ultimately reject the commission's proposal to convert Medicare from a universal fee-for-service plan into a defined-benefit subsidy toward the purchase of a public or private health insurance plan. There are a number of sticking points to such a reform, including difficult questions of how generous the subsidy should be and to what extent the government should require plans to offer certain services. It's also clear, though, that one of the central objections Clinton and other Democrats had was that Republicans refused to agree to use the budget surplus to shore up Medicare and other safety-net programs. It made little sense to agree to painful benefit cuts if the money would simply be used to slash taxes for the rich. As Steven Gillon details in his new book The Pact, Clinton and Newt Gingrich had been at work behind the scenes on an agreement to do just that--rein in entitlements and eschew major tax cuts--until the Lewinsky saga intervened and brought Clinton's presidency, functionally, to an end.

Of course, the surplus soon evaporated and we ended up getting both the tax cuts and ballooning entitlement spending. But maybe the time's right for another go at the grand bargain that never materialized in the '90s. It's hard to say whether an Obama administration would be interested, but the decision to bring deficit hawk Jason Furman on board with the campaign as economic policy director is a good sign, and is ruffling the right feathers. And maybe, after utterly failing in their attempt to address entitlements on their own, congressional Republicans will get the message that cutting a deal is the only way to go, and that meaningfully reducing the size of government just isn't in the cards.

--Josh Patashnik