The New Social Contract

By DAVID BROOKS

Published: September 7, 2007

In 1942, Franklin Roosevelt imposed wage controls on American companies. Unable to lure workers with higher salaries, many employers began offering health insurance and other benefits. Then, in 1952, officials at the Internal Revenue Service ruled that these benefits wouldn’t count as taxable income.

And so, accidentally, the modern American health and pension system was born.

The system, in which families received social protections through their employers, worked well for decades. But now it’s coming apart at the seams. The proportion of people insured is falling. Rising health care costs burden employers. Workers can’t chase opportunities because they can’t bring their health insurance packages with them.

As Jason Bordoff points out in the current issue of Democracy, the old employer-based social contract is eroding and the central domestic policy debate of our time is over how to replace it.

Some liberals, believing that government should step in as employers withdraw, support a European-style, single-payer health care system. That would be fine if we were Europeans. But Americans, who are more individualistic and pluralistic, will not likely embrace a system that forces them to defer to the central government when it comes to making fundamental health care choices.

And so some distinctly American social contract is going to be required. Beneath all the fluff of the campaign season, that’s what the domestic side of the presidential race is about. In early, halting and half-formed ways, several candidates are offering broad visions of a new social contract and plans married to those visions.

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Few have thought about these matters as long or as well as Stuart Butler of the Heritage Foundation. Butler grew up in Shrewsbury, England, got a doctorate in American economic history in Scotland and became a U.S. citizen in 1996. As a result, he’s acutely aware of what makes American civilization unique, and which policies fit the national character.

As you read his work, you quickly see what priorities the new social contract should embrace. It should offer basic security, so Americans will feel comfortable enough to move around and seize new opportunities. It should demand reciprocity; if you contribute to society, you’re protected from catastrophes no one can control. It should foster personal responsibility, stimulating private savings and self-insurance among those who can afford it.

Finally, it should foster self-sufficiency; if people do slip and require government support, they should be induced to rebound and take care of themselves. If you are fortunate enough to be upper-middle class, you shouldn’t be rigging the game so you grab benefits that should properly be allocated to the needy.

Butler is no libertarian. He doesn’t believe individuals should just be given Health Savings Accounts and then sent off to shop for health care. Nor does he believe that the primary social relationship is between individuals and government.

He sees America as a thick society, and believes that unions, churches and community groups should be involved in health care and social support. He sees America as a decentralized society. The worst thing we could do is get the smartest people in a room and build one system from Washington. Instead, Washington should set parameters and states should be left free to innovate and compete.

He also sees society as a continuum between the dead, living and unborn. We shouldn’t disrupt the lives of those who are happy with the insurance they have. On the other hand, it’s immoral to shift the costs to our children and grandchildren. Long-term expenses should be calculated into every decision we make.

Butler’s specific health care plan is well-summarized at the Web site of the Hamilton Project. First, he would create tax-exempt “insurance exchanges.” These would be sponsored by trusted agents — unions, churches and other social groups. Organized like the Federal Employees Health Benefits Program, they would offer menus of coverage choices and create diverse risk pools.

Second, employers who did not offer their own coverage would oversee payroll deductions and tax withholdings, but they would no longer have to sponsor programs or make choices for employees. Third, Congress would offer a health care tax credit to families making up to 200 percent of the poverty level, and would tighten benefits for the affluent. Fourth, states could come up with their own ways to regulate this system.

This isn’t the laissez-faire social contract of the 19th century. But neither is it the centralized, big bureaucracy contract of the 20th century. It’s a contract that envisions society as a dense but flexible web of social networks, the perfect vision for 21st-century America.