Wednesday, April 6, 2011

Is the Ryan Budget Politically Suicidal?

Nothing reveals more about an ideologue’s foundational beliefs than his incomprehension. Mickey Kaus is a smart neo-liberal who has made a career of exposing wishful thinking on the part of his more doctrinaire ideological comrades. So it’s a little surprising to see him reflexively affirming a proposition about the Ryan budget that seems tailor-made to relieve cognitive dissonance among liberals (emphasis in the original):
“I have to reluctantly conclude that it’s …a near-suicidal act that will lead Republicans off the cliff. Voters like Medicare, for good reason. It provides them with more security than the alternatives. The threat to Medicare is a big reason why they reject Obamacare. So the GOP strategy is to replace Medicare with something that looks a lot like the private insurance exchanges in Obamacare. Huh? …”
Pay particular attention to the “Huh.” Let’s try to reconstruct the syllogism behind Kaus’s incomprehension.
Major Premise: People are especially risk-adverse when it comes to their health;

Minor Premise: Ryan’s Medicare reforms would substantially shift health-related risk that’s now spread out among taxpayers back onto the shoulders of individual seniors who may well lack the financial wherewithal to bear it;

Conclusion:  risk-adverse seniors and near-seniors (who tend to vote in unusually large numbers) will punish Republicans who get behind Ryan’s Medicare proposals.
It’s hard to quibble with either of the premises. But note that the conclusion only appears to follow as long as we ignore one species of risk. Think of how we decide whether to buy insurance of any type in the private market. That’s mostly a matter of a prospective insured’s figuring out whether it’s worth it to him to a pay a pre-set premium in order to have an insurer assume a risk that he’s currently running himself. To that end, however, the insured has to reckon with the possibility that, when the time comes for the insurer to honor the insured’s claim under the policy, it won’t have the money to discharge its obligations.

When we buy insurance we usually don’t worry much about the credit risk we’re running because we only contemplate buying policies from blue-chip insurers (like AIG was in August 2008) and we rely on state insurance regulators to guarantee that insurers can meet their obligations. But insurers do occasionally go under.  The greater our doubts about an insurer’s creditworthiness, the smaller the premium we should be willing to pay for a given level of protection. And if his insurer’s creditworthiness becomes sufficiently suspect, it will make sense for us either to cancel the policy or to renegotiate its terms.

In less interesting times, most of us thought as little about the creditworthiness of the federal government as we thought about the creditworthiness of AIG.  Ryan’s telling prospective Medicare beneficiaries under the age of 55 that they’d better start thinking about it now because, legally speaking, their Medicare “entitlements” are a lot less substantial than an insured’s rights under a private insurance policy. A private insurer has a legally enforceable duty to the insured that that it has to discharge as long as it remains out of bankruptcy. A cash-strapped federal government can change its obligations to seniors under Medicare unilaterally simply by rewriting a statute. Theoretically, there must come a point at which the threat of public insolvency is substantial enough to make reasonable people conclude that they’ll be better off with enforceable rights under a (publicly subsidized) private health-insurance policy--not despite their aversion to health-related risk, but because of it.

Ryan and the Republicans are putting their political chips on the proposition that voters are beginning to think that we’re approaching that point. Like Kaus, I’d still take the other side of that bet.  Yet it's not now as much of a long shot as liberals reflexively presume, and it's becoming less of a long shot all the time.

1 comment:

Lone Wolf said...

This was essentially the argument we had about Social Security at the beginning of Bush's second term. The inducement he offered to get younger people to buy into private accounts was that they'd have a property right to their publicly subsidized savings. No one was buying it and opposing Bush on this issue enabled the Democrats to recover from a devasting election loss. I'm betting it will work out the same way now.