We're All Chicagoans Now

For years, there's been a quiet argument in progressive circles about the appropriate design of the social contract, the public programs that ensure health care and economic security. Originating with the "New Democrats" of the 1990s, a centrist faction argued that programs appropriate to the modern economy should be built around consumer choice, market mechanisms, and incentives in the tax code, rather than having comprehensive, universal federal programs like Medicare.

In books such as 2001's The Next Deal , by former Al Gore speechwriter Andrei Cherny, the logic of "choice" liberalism rests on both a political calculation--that in a conservative country, Democrats need to distance themselves from the big public institutions of the Great Society--and an economic one--that in a world of rapid technological change and shorter job tenures, the safety-net programs built for the older industrial economy are as obsolete as its factories and warehouses. Price systems, multiple options, and private-sector incentives will create programs that are both more flexible and efficient than the "one size fits all" of traditional government programs.

Other writers (including me, in a column a year ago questioning the overreliance on tax credits) questioned the fad for choice, again for both sound economic and political reasons. "One size fits all" is exactly what social insurance is supposed to be about, since none of us knows exactly the risks we will face in life. And private-sector incentives, far from being efficient, can cause all sorts of distortions as we try to induce individuals or companies to do things they wouldn't do for ordinary economic reasons--as the collapse of the privatized public institutions Fannie Mae and Freddie Mac reminds us. Politically, we value the sense of social solidarity and respect for public goods created by large initiatives, and we think citizens are not consumers.

But the battle is over for now. "Choice" prevails. The near future of social policy in the United States is unlikely to involve large public-sector interventions and more likely to involve ideas like tax incentives and other "nudges" to encourage public-spirited behavior, choice among private-sector health and pension plans, and charter schools and public school choice to encourage improvement.

This is only in part because the new standard--bearer of liberalism, Barack Obama, embraces a soft version of University of Chicago doctrine, influenced by economist Austan Goolsbee and law professor Cass Sunstein, who have integrated the empirical insights of behavioral economics--which reveal the limits of markets--with a grudging respect for what only markets can achieve. As David Leonhardt wrote recently in The New York Times Magazine, "Compared with many other Democrats, Obama simply is more comfortable with the apparent successes of laissez-faire economics."

Just as significant is the fact that even traditional advocates of a single-payer approach to universal health care have embraced a model of regulated competition among private-sector insurers. The 100 organizations that make up the Health Care for America Now! coalition favor a robust public health-insurance plan modeled on Medicare, but as one option within a structured market. In a November 2007 speech in New Jersey, Roger Hickey of the Campaign for America's Future, a leader of the coalition, predicted that "at least half the population would eventually choose the public plan, due to its better efficiency and better benefits." While these groups, who represent the left wing of what's possible in health reform, still hope to achieve something like a universal public health-care system, they are now betting that they can get there more easily by market mechanisms--efficiency and incentives--than by a political fight.

It's a high-risk bet. If the market doesn't work, and even if it does, Americans would still face a confusing array of options and marketing pitches, with little help to know which policy is more efficient or offers better benefits for their circumstances. Whether it's in health care, housing, education, pensions, or job retraining, without intermediary organizations that can help people navigate the choices that choice liberalism makes possible, many Americans will make decisions that leave them more vulnerable, more mistrustful of government, and cost taxpayers more.

For those of us who have been skeptical of choice as a principle for government programs, though, it's time to stop fighting. The next stage is to focus on building the kinds of mediating institutions, whether public or nonprofit, that will help people take advantage of their options and "nudge" these new initiatives to the better outcomes, such as those Hickey foresees, rather than to the worse possibilities.

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