The Grand Bargain

A week or two ago, I mentioned that one of the unresolved issues in the Medicare legislation was how to prevent companies that are paying for prescription drug coverage for their retirees from withdrawing that coverage and moving them into the federal system, dramatically increasing the costs of the new program. Fortunately, our president is not one to shrink from tough problems, and he took a stand and got it solved:
GeorgeWBush.com :: President Bush Optimistic on Modernizing Medicare with Prescription Drug Coverage

a corporate executive who is from Caterpillar ... assures me that corporations have no intention of -- if there's a Medicare reform bill signed by me, corporations have no intention to what they call dump retirees into a system they don't want to be dumped into. And I appreciate that commitment by Rich Lavin.

Rich Lavin, you da man! Perhaps one day seniors will have pictures of you in their living rooms, replacing FDR.

Seriously, are our leaders incredibly gullible or do they just think we are? Mr. Lavin is a human resources guy at Caterpillar, with no more power to make a long-term "commitment" for his own company than for all of American business. Of course corporations will shift retirees into a federal system if they can. They would probably be irresponsible not to, at least according to the viewpoint that the management's sole responsibility is to maximize returns to shareholders, a view which management still seems to hold except when it comes to their own pay packages.

The twelve conferees actually working on this legislation have a tough choice to make. If they add some provision to penalize companies that "dump" retirees, they will face a tough fight with guys they don't usually say no to, big-company lobbyists. On the other hand, if they do nothing, they risk producing a bill that the Congressional Budget Office will have no choice but to score as costing far more than they have room in the budget for, because they will have to assume that many of these retirees will flow into the Medicare system.

It's a fair bet that in the end they will find some "incentive" for companies that keep taking care of their retirees -- in other words, throw money at the companies as a reward for doing exactly what they're doing now. Or, as the Times reported just as I was writing this, they will structure some sort of cap on total Medicare spending, which means that as costs go up because companies dump their commitments to retirees, Congress will be forced to cut other aspects of Medicare. Either way, we'll pay!

There's an opportunity here for liberals to do more than just yell about the outrage (although we should also yell) or acquiesce in a bad bill because we can't be against prescription drug coverage. The key is to stop trying to fight the trend. Big business is going to try to get out of it's obligations to retirees, as well as to current employees, and there's no point either trying to block the door or bribing corporations to stay in the room. "Make the trend your friend," as they say on Wall Street.

We should begin thinking about the outlines of a Grand Bargain between business and government, one that could take our economy and our society to a new level of both economic dynamism and security for all.

The fact is that companies like Caterpillar and the auto companies really are saddled with very costly burdens, dating back to a long-ago era when strong unions negotiated their members' way into the middle class, by demanding that in exchange for a lifetime of hard and dangerous work, the companies provide economic security for the last years of that lifetime. That was a wonderful era, part of what made this country great in the '50s, '60s, and even the '70s. But it's also long gone. Today new companies emerge without any of those burdens from the past and without any intention to take them on in the future, and international competitors also don't carry health and pension burdens from past decades. That's the biggest challenge facing several of the industries that are responsible for most of the job losses in the swing states of the next election.

Ultimately, many of these costs are going to be "socialized." That is, the companies are going to push them onto the public through bankruptcy or other means, forcing the Pension Benefit Guaranty Corporation to absorb their pensions and federal programs such as the expanded Medicare benefit to pick up some of their health benefits for retirees. And for current employees, they will continue to pull back health benefits or ask workers to pay more.

Since this is going to happen anyway, let's offer business a deal: the government will absorb these responsibilities, in exchange for a significant increases in taxes on corporations themselves and on those whose income comes from corporate profits, and also for an increased minimum wage to allow workers to bear some of these costs themselves. The net result would be an advantage for American business. Higher taxes would be more than offset by reduced health and pension costs, and older companies would be able to compete more effectively against newer companies without the burden, and foreign companies. The cost of taking on a new employee would be lower, even though the minimum wage was higher and the employee would still have pension and health benefits.

It would also provide the spur for a complete revamping of the American social contract and tax structure, which, it seems to me, is the only way out of the mess that has been made by the current administration.

This is really just the roughest sketch of a pretty big idea, but the Medicare paradox got me thinking about it and I wanted to get the outlines of a thought written down. So thanks, Rich Lavin! I'll try to expand on this and add some numbers over the next few weeks.