By Mitch Daniels (2011/2012)
I. Obligatory Intro
The process I
have set up for book reviews goes like this: I read the book, then I re-read
the book while taking notes, and then I create a draft that becomes this posted
piece. I had immense difficulty picking out the most important notes from each
chapter and page. This difficulty led to this review taking months longer than
intended. However, I believe this is a testament to the vision Mitch Daniels
lays out in Keeping the Republic. Daniels provides a unique blend of
intellectual rigor, governing experience, and genuine trust in the American
people to provide readers insight into how he believed governance in America
could be altered to make the 21st century another American Century.
An important
consideration: Daniels wrote this book likely as a precursor to a potential
presidential run for the Republican nomination for the 2012 election. Some of
the books contents, such as what he believed to be the best fiscal policy
direction for the US in 2012, are outdated. And yet, much of Daniels’s insights
into policies and political processes remain insightful to this day.
Daniels
provides many anecdotes from his time as governor of Indiana. He also covers a
wide array of issues. For the sake of conciseness, I will cover what I consider
to be the most insightful themes from the book.
Section II will
cover “The Red Menace” (not of the Soviet variety). Section 3 will cover how
citizenship in America has been redefined. Section 4 will cover American health
insurance problems. Section 5 will cover a flurry of policy problems. Section 6
will conclude with my thoughts on Keeping the Republic.
*Note:
quoted sections will be from Keeping the Republic, with the page number
in brackets, i.e. [11] refers to page 11 of the book.
II. The Red Menace
“In the new
century, America faces a threat that, if somewhat less physical in character,
is at least as dangerous to our freedom and future as the Soviet Union ever
was. I refer, of course, to the debt, current and upcoming, that our federal
government has accumulated. Now we confront a second Red Menace, this time in
the form of the red ink that could destroy the promise of America and, with it,
our position as an influence for good around the world.” [18]
Most Americans
are clueless and mistaken about their own history and the history of nations
and empires that failed. “History teaches us that all national greatness is
temporary… Denial of reality is a powerful human impulse, as is the tendency to
mistake the status quo for the natural and inevitable order of things.” [4-5]
The US has had deficit spending for most people’s lives, with the last
president dedicated to balanced budgets being Calvin Coolidge in the 1920s. To
Daniels, this problem is an extinction-level threat.
How did we get
here? Society currently urges people to “think of themselves as victims of an
unfair system,” [5] searching for any villain for whom they can blame for all
of life’s hardships. The republican virtues of self-discipline, self-reliance,
and delayed gratification have been largely forgotten in American culture,
particularly when it comes to the civic duty of citizens.
Who are the
individuals in society urging this mentality? Daniels describes the way of
thinking by people called the Skeptics as responsible for this movement.
In short, the Skeptics believe human nature makes it impossible for
large numbers of people to practice self-discipline and delayed gratification;
people need wise, farsighted, enlightened leadership to guide people’s lives
for the common good. The people at large are just not suited for
self-governance.
Daniels does
not agree with the perspective of the Skeptics. He believes Americans
can respond smartly to the extinction-level threat posed by the burgeoning
national debt. There are three points Americans must know about our current
levels of debt. First, a tipping point exists where national economic decline
is inevitable – Daniels speculates that this point is when federal debt reaches
90-100% of national GDP. Second, interest rates on the national debt impose
drags on income and economic growth. Third, all American national defense is
presently funded by borrowed money (true in 2011 when written, true for 2020).
What are the
drivers of the new Red Menace? Broadly speaking, the buildup of debt is largely
due to American welfare programs. First is the current retirement system, where
today’s workers pay the taxes that fund Social Security payments to today’s
retirees (with no discernment on which retirees need these payments). Second,
the CLASS Act created during the Obama administration provides long-term
insurance for the most expensive health costs Americans face; it prevents
insurance companies from charging sicker people higher premiums, guaranteeing
this system will implode at some point. Third, state and local governments have
racked up debt levels that will greatly hamper possible future actions taken by
these entities; any state or local government that defaults on its debt would
almost certainly be bailed out by the federal government, exacerbating the
impact of the Red Menace.
Daniels
believes government of and by the American people can effectively respond to
this crisis. He notes that the citizens themselves must be up to the task of
changing their way of life to expect any politician to be in favor of change.
However, that is a choice each citizen must make.
III. The Shrunken American Citizen
The American
Founders believed that individuals are endowed by their Creator with
inalienable rights; rights are not special dispensations of government. The
only legitimate governments are those that protect and nurture these
inalienable rights – rights such as liberty (freedom to choose how to live
life), property (freedom to own the fruit of one’s labor and ingenuity), and
assembly (freedom to form private associations).
However, many current
government employees are not dedicated to that vision of America. Public
employees have higher salaries and better benefits than the average taxpayer.
Some states have public employees pay mandatory union dues, with dues withdrawn
before employees receive their income. These public sector unions demand higher
wages and better benefits for public employees, stances that just so happen to
coincide with increasing union dues (and thus the money union employees get)
should these demands be fulfilled. The special interest of public sector unions
is thus heavily invested in political power, particularly at the state level.
As governor of
Indiana, Daniels reversed a 1989 executive order that made union dues mandatory
for Indiana state employees. Union dues were thus optional for employees to
pay. After a few months, 90% of state employees chose to stop paying union
dues. These employees did not like losing roughly 2% of their annual income to
union dues, but the only way this systemic process could be changed was through
executive action by the governor in the face of aggressive backlash from the
unions. Daniels’s administration stood strong and enacted that structural
change.
On the federal
level, sub-Cabinet agencies have the power to make de facto law through the
Administrative Procedure Act. The American judicial system has mostly upheld
the legality of this structure, as Congress has voluntarily delegated much of
its legislative powers to Executive branch agencies. In what Daniels calls
“Fiat Government,” the Executive branch can reward its political allies by
changing laws to manipulate private sector outcomes to benefit the political
allies. For example, the United Auto Workers health plan was awarded 55% of
Chrysler’s stock (worth ~$4.5 billion at the time) while the federal government
managed Chrysler and General Motors’s bankruptcy.
Shifting gears
- people want to be happy. Based off of research done by social scientist
Arthur Brooks, there are three major factors that play huge roles in a person’s
happiness: hard work, belief that it is possible to climb the economic ladder,
and belief that a person’s family has the chance to improve their standard of
living. Ironically, this means that efforts to completely curtail income
inequality are counterproductive at increasing the social well-being of people.
The fewer benefits to moving up the economic ladder, the less happy people will
be at receiving promotions and the less well-off their families will be.
The profit
motive enables businesses to pay their employees who in turn produce wealth.
This wealth creates opportunities for other people to work, thus offering more
people the opportunity to improve their and their family’s standard of living.
Additionally, tax revenue comes from this labor. This tax money pays the
salaries of teachers and social workers – necessary professions in a society.
This tax money is also used to fund trillions of dollars of government
spending, particularly those welfare programs aimed at helping the
disadvantaged people in society.
Daniels goes
through this mental exercise to demonstrate that he is very much a proponent of
extending “the great benefits of our society to as many people as possible. I
would hope that advocates for pro-freedom and pro-government policies share the
same goal of increasing opportunities and benefits to all Americans. Our public
disagreements are about means, not ends. They are about who should decide as
much as they are about what our public decisions to be.” [60] Regarding these
decisions, the critical decision people must make is the kind of people to be.
Are people “autonomous creatures of dignity” who can make choices in life, or
are they “objects of therapy” who cede decision-making to those professing to
be wiser?
The Founders
predicted that democracy, government of/by/for the people/ would be destroyed
by an erosion of the personal virtues that created liberty in the first place. James
Madison said, “To suppose that any government will secure liberty or freedom
without any virtue in the people, is a chimerical idea.” [64] Benjamin Franklin
said, “Only a virtuous people are capable of freedom. As nations become more
corrupt and vicious, they have more need of masters.” [64] These virtues are
supposed to be taught through schooling. The original purpose of public
education was to produce citizens capable of governing their own lives
responsibly. That purpose has been lost on current American educational
institutions.
Daniels calls
for us to retire the word entitlement. Americans are “entitled to life,
liberty, and the pursuit of happiness, period. We are entitled to be safe in
our homes, and to the freedom to live our own lives, and make of ourselves
whatever our talents and hard work can produce. That’s what we’re entitled to
from our government, and our Constitution. Everything government does after
that is a matter of choices we make as a caring and compassionate people.” [71]
Daniels wishes to replace entitlement with either safety net or social
welfare. When government uses force to transfer money from one to another,
it tells the recipient, “You are not fit to provide for yourself and your
family… You are incapable of looking out for yourself. You need us to protect
you.” [76] Daniels wishes for the generosity of Americans in the form of social
welfare payments to be viewed by recipients as assistance to climb out of an
unlucky environment, not some permanent income stream implying the recipient
cannot make the choices necessary to live.
IV. American Health “Insurance”
What is
insurance? It is protection against “unexpected, inordinately expensive events”
that only a few people will experience in any given time period. People pay
money (premiums) into a common pot from which the unfortunate people can draw
when unforeseeable events happen. However, for health insurance, people draw
from that common pot for nearly every expense. People have become accustomed to
being bystanders in the process of paying for their health. “It is natural to
give great deference to the medical judgment of a trusted physician; it is
something else to say that people, having heard the odds of a given therapy
working for them, are incapable of judging what price that potential relief is
worth.” [89]
This type of
health system leads to overconsumption and high prices for services. The
product seems free/prepaid. The seller can incorporate unnecessary services and
charge for said services. The seller will also be under constant threat of
lawsuit should not every conceivable test be given to a patient. These listed
features are how the Affordable Care Act (i.e. Obamacare) impacted the American
health system.
Daniels
provides one fun/demoralizing anecdote on Obamacare. Congressional convention
is to provide the costs of a bill over an arbitrary ten-year period. However,
while taxes will start to be collected immediately, spending only occurs over
the last six years of that ten-year time period. This makes most Congressional
bills more deficit-friendly than they really are. The Affordable Care Act
followed this convention.
Daniels
proposes two alternatives to the Obamacare health insurance system. First,
Daniels advocates an expansion of health savings accounts (HSAs), which are
personal savings accounts that pay for medical expenses. HSAs would pay for
routine medical costs while insurance would cover infrequent, expensive health
care costs. Second, Daniels proposes a low-income health care program based
around personal accounts. People pay a percentage of income as premiums (around
3%) into the account while the state provides a contribution. Account owners
manage fund expenses up to a certain amount (~$1100). If funds in the account
are exhausted, participants are fully covered by the state. Any funds not spent
in the year are rolled over into next year’s balance. Non-emergency services at
the emergency room have a $25 cop-pay. This model was called the Healthy
Indiana Plan for those interested in learning more.
V. Policy Potpourri
Keeping the
Republic has many stories and anecdotes concerning policy decisions made by
the federal and state governments, as well as more detail regarding Daniels’s
worldview. This section will try to capture as many points as I can in a short
amount of space.
Daniels
advocates a “limited but active” approach to governance. [116] Government
should have limited, delineated functions, and it should strive to perform
those functions exceedingly well. This style of governance must be accompanied
by individuals exercising responsibility for their own lives and the success of
their communities. [128] Good governance has a clear purpose, where every
department understands that it is their responsibility to try and achieve that
strategic objective. For example, Daniels’s stated purpose while governor was
to raise the disposable income of Hoosiers. That goal is simple, and it allows
each department to decide how best to meet that goal – a model for
decentralized leadership.
Daniels opposes
the “mad pursuit of zero” when it comes to the limits for certain pollutants.
There comes a point where there is no social benefit to 100% reduction compared
to 99% or 99.5% reduction, primarily since economic costs are exponentially
increasing. We should be content with great while pursuing perfect. [162]
Daniels does
not appreciate how political differences are materialized via lazy, formulaic,
boring attack ads aimed at demonizing opposition. [169-170] He proposes a
“truce” on social differences to focus our attentions on the Red Menace.
Daniels isn’t advocating for either side to surrender; he wants both sides of
the culture war (including his own) to cease hostilities while they unite to
defeat the enemy that can end the republic. Americans must come to trust each
other by accepting the good character and motivations of all people involved in
saving this republic from its debt crisis. [175-178]
Daniels
promotes the idea of “perpendicular thinking,” where we examine potential
alternative solutions to our problems. For example, a consumption tax is “not
an illegitimate idea for a nation in an emergency to consider, or at least it
shouldn’t.” [184] While Daniels is generally against consumption taxes, he is
willing to consider that such a measure may be necessary (though not the only
possible solution) to contain our spiraling debt levels.
Daniels
proposes using the term “Reconstruction” to denote rebuilding the US. “We must
simultaneously restore – or reconstruct, if you will – a sense of responsible,
participatory citizenship among the broadest possible majority of Americans. We
need a national government that treats its citizens with respect, and citizens
who demand the respect they deserve.” [195]
The safety net
must be saved. Changes should focus on those decades away from receiving
benefits. Social Security should involve means testing, where dollars are
concentrated on those people who most need them. The retirement age should also
reflect longer lifespans. Benefits increases should be tied to inflation
instead of wages (or at least for higher income recipients). Medicare is a
harder challenge. Americans should be assured, up to some high-income threshold
adjusted for health status, of a set amount of money that can be used to
purchase health insurance. Health insurance should protect against the most
expensive costs while routine expenses are paid for by the patient.
“The increasing
marriage gap between well-educated, well-to-do Americans and their
less-educated, working class counterparts is now the biggest driver of income
inequality in our country. Sadly, most of those who profess to be offended by
this inequality continue to turn a blind eye to its principal cause, apparently
because to do so would run counter to their outlook on social mores. They
pretend that family structure is not the huge problem it is.” [207]
The US needs to
begin major reductions in federal spending. Reform of Social Security and
Medicare are necessary starts. Federal employment should be frozen; agencies
could gain an exception to the freeze based on unique skills if they can
demonstrate to a staffing board created in the Office of Management and Budget
that these skills do not presently exist within the agency. Obamacare should be
repealed, replaced with a true insurance model focused on consumer choices.
Military spending must undergo critical inspection. The “national interests” of
the country must be strictly defined, and military spending should be adjusted
to fit the needs of those interests.
The tax system
should be dramatically simplified. Nearly all deductions and exclusions should
be removed. Only compensation would be taxed; income from savings (including
interest, dividends, and capital gains) would not be taxed. An adjustable,
fixed exemption for low-income people can be added. There can also be two or
three flat, fixed rates for varying income levels. The business tax base would
be revenues minus wages paid to workers and purchases from other businesses
(i.e. a business consumption tax).
Daniels is in
favor of disassembling the current system of transfer payments in favor of
Milton Friedman’s negative income tax (NIT). Here, a minimum income threshold
would be set (like $20,000) that provides “a very basic standard of living,
while not so high that it bankrupts our governments’ budgets”. Then, for every
$1.00 in income a family earns, the family would only lose $0.50 in NIT
benefits. Central to the NIT is that it replaces the litany of present social
welfare programs. A simplified social safety net to go along with a simplified individual
and business tax system. [219] This vastly reduces the number of government
bureaucrats needed to operate the safety net. This also allows individuals to
decide how to spend the funds they receive from the NIT. The NIT provides
individuals regardless of reason a minimum standard of living while treating
its recipients with dignity.
VI. Closing Thoughts on Keeping the
Republic
Daniels
provided a sensible outlook in sensible language and scope for individuals
wishing to see structural change occur in the US. You cannot adopt an “all or
nothing” approach when it comes to social reform. Calling for a truce on other
issues to focus the collective societal attention on solving an
extinction-level problem is the only way to truly focus the minds of millions
of citizens. The solutions proposed by a leader advocating for such a path must
be understandable while respecting the complexity of large social problems/solutions.
Daniels makes
an exemplary effort to take into consideration all the major areas the US can
affect to bring down the Red Menace. He is also not proposing a silver bullet:
while the Red Menace can only be eliminated via national policy changes,
national policy changes themselves can only occur if the American people are
equipped to handle such an altered society. We have become stagnant regarding
our adoption of the republican virtues of self-discipline, self-reliability,
and delayed gratification. Only by making a conscious effort to adopt these
values will American society be prepared for structural societal changes to
retirement, health care, safety net, defense, and tax systems. We are naturally
inclined to take paths of least resistance; the Red Menace will devour our
society should we keep taking these craven paths.
Daniels
proposed an approach of intellectually serious and good-faith interpretations
of the motivations of others. American society has moved heavily in the
opposite direction. While I may be disappointed in that trend, I cannot control
the whims of society. “The most important part of your life is how you choose
to live it” (props to anyone who knows where I got that quote). I can choose
how I react to the world around me. I endeavor to integrate republican virtues
into my personal habits to be equipped for self-governance. That will be my
contribution in trying to keep this American republic.
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