David Frum

02.21.12

David's Book Club: The Age of Austerity

Thomas Edsall offers a bleakly pessimistic assessment of American politics in his new book, The Age of Austerity.

[W]e have entered of period of austerity markedly different from anything we have seen before. The two major political parties are enmeshed in a death struggle to protect the benefits and goods that flow to their respective bases, each of attempting to expropriate the resources of the other.

For three-quarters of a century, American politics has been softened by economic growth. Growth generated new wealth that could be shared between society’s major groups. No longer.

A stagnant economy, ballooning deficits, and the mushrooming strength of antigovernment forces are producing a … new politics of scarcity.

Edsall feels no confidence that returning economic growth will change the direction of US politics. Fiscal deficits have accumulated too onerously. The ranks of the poor have swelled too large. And the population is aging too rapidly.

For each of us to preserve our particular status quo—whether that means a particular tax rate or a particular program—somebody else must lose.

The inescapable question becomes: Who will get the short end of the stick: kids, the elderly, the handicapped, government employees, single women, entrepreneurs, doctors, bankers, CEOs?

To survive in this environment of dwindling resources, Americans have arrayed themselves into two grand coalitions, one representing the “Haves” (and those who identify with them) and the other the “Have Nots” (and those who champion them).

The parenthetical qualifications matter because Edsall recognizes that the coalitions are shaped as much by culture and ideology as by material calculation.

The GOP is [not only] the party of the affluent, of CEOs, of the managerial elite, of successful entrepreneurs, of viable small businesses. It is [also] the party of those blue-and white-collar workers with a record of holding their own in market competition, the party of more stable families, and of those belong to ascendant rather than waning religious communities.

The Democratic party, conversely, is the party of the so-called ‘subdominant’ and of those who identify with the subdominant, including those upper-income voters who have taken the side of the insurgents in the sexual, women’s rights, and civil rights revolutions.

So much is an old story. What is new in this era of the Tea Party, Edsall argues, is that the Have coalition has come to include not only the economically successful, but also the winners in previous rounds of government expansion: today’s elderly.

Once the primary have-not beneficiaries of New Deal and Great Society Democratic programs, the elderly recipients of Social Security and Medicare are now among the haves in that they have Social Security and Medicare and are determined to protect those benefits from liberals seeking to redirect tax dollars to pay for health coverage for the younger poor.

Conservatives may flatter themselves that their coalition is composed of “makers,” while Democrats represent “takers.” Edsall argues that in fact the Tea Party GOP has reinforced itself by recruiting the most successful of the “takers” into its own ranks.

An American who turned 65 in 2010 paid on average $345,000 in Social Security and Medicare taxes over his or her working lifetime. That person can expect to collect benefits averaging $417,000 over the remainder of his or her life. Those who require costly Medicare treatments will receive benefits worth much, much more.

Meanwhile, those Americans now under age 40 can expect to pay much more into Social Security and Medicare than they will receive back. Under Paul Ryan’s proposals, for example, they will continue to pay into Social Security and Medicare at today’s high rates—much higher than today’s 65 year olds paid in their thirties—while receiving benefits worth far less than those paid to today’s beneficiaries.

Since the under-40s are less white than the over-65s, this battle between generations also acquires an unmistakable racial cast.

As I said: bleak.

And it gets bleaker!

Edsall, a man of the left, puts his money on the coalition of the Haves as the most likely winner of today’s struggle, because (in his telling) the very fact that somebody is a Have tends to prove his or her superior ruthlessness.

The main hope for the Have Nots is a Republican tendency to overplay their hand. (It should be noted here that Edsall is a famously skilled poker player: when he uses card metaphors, he know what he is talking about.)

[T]he GOP has often proved to be an inconsistent risk manager, overreaching when victory is at hand and overestimating ideological support from the general public.

Edsall’s main advice to his own side seems to be: We may not have the strength to win—but they are very likely to miscalculate and lose.

Yet here are two considerations that Edsall may have miscalculated.

The first is that he shrugs off—almost as unworthy of consideration—the possibility of accelerated economic growth. Resumed growth won’t in itself address all America’s demographic problems. But growth would mitigate them, and healthcare cost control would do much more than mitigate.

Edsall excoriates the cost of the Afghanistan and Iraq wars. Yet the mesmerizing fact in US fiscal policy is not the cost of defense, but the wastefulness of US health spending. The US spends 17 points of GDP on healthcare. Runner-up Switzerland spends 13. Four points! That’s the whole defense budget right there! Given that US health spending breaks down 50-50 between public sector and private sector, the elimination of healthcare waste could add 2 points worth of GDP to the spending power of both the public and private sectors.

To put that in perspective: the public sector’s 2 points of GDP would have sufficed nearly to eliminate the federal budget deficit in the Bush years.

For the private sector, 2 additional points of GDP would have qualified as a 4% pay increase for the average worker.

These are serious sums of money that ramify through every economic calculation.

Edsall’s second miscalculation is his over-enthusiasm for the economic benefits of current immigration policy. Again and again Edsall remarks on the irony of tomorrow’s immigration-shaped workforce paying the benefits of today’s retirees.

But that immigration-shaped workforce will on average be less skilled and less highly paid than the work forces of the 1990s and 2000s, as the Educational Testing Service has warned in an important and under-appreciated 2005 report.

Trying to sustain today’s level of benefits by taxing tomorrow’s less-productive workers is the equivalent of losing money on every sale and making up the difference on volume—or (to adapt one of Donald Rumsfeld’s rules) solving an otherwise unsolvable problem by making it bigger.

Edsall dismisses as mere prejudice and ignorance the concern that immigration policy has been a “drain on tax revenues.” But that concern is true! Because US immigration policy (unlike Canada’s and Australia’s) favors the poor and unskilled, immigrants do typically consume more in services than they pay in taxes, at least in high-service states like New Jersey and California.

At the federal level, immigrants pay more than the consume—but only because the illegal immigrants who made up half the migration flow of the 2000s do not qualify for federal programs like food stamps, unemployment insurance, and Medicare.

Once granted a “path to citizenship,” however, today’s ill-paid immigrant workers will also became net “drains on tax revenues” at the federal level as well as the state.

As President Obama likes to say, “that’s just math.”

The most useful way to read Thomas Edsall’s book, or so it seems to me, is as a visit from the ghost of Christmas future, offering glimpses of things that may be, rather than things that must. However, the moral of the story in Dickens’ tale was that:

Men's courses will foreshadow certain ends, to which, if persevered in, they must lead. But if the courses be departed from, the ends will change.

So it is with the vision of politics presented in Edsall’s grim story.