Social Policy After the Economic Crisis

On December 5, 2008, the New America Foundation’s Next Social Contract Initiative hosted a three panel discussion about the future of social policy after the economic downturn. David Gray, Director of the Workforce and Family Program at New America, opened the event with preliminary remarks. Karen Kornbluh, formerly of the New America Foundation, policy director in the office of Senator Barack Obama and the primary author of the 2008 Democratic Party Platform, delivered the keynote address. She was followed by a series of experts who discussed how the global meltdown will affect programs in three crucial policy arenas: Medicare, Social Security, and retirement savings; workforce and family policy; and healthcare. The experts contemplated the future of these policies in the Obama Administration, and offered proposals for reform going forward.
Karen Kornbluh began her keynote address by discussing her experience writing the party platform. The proposals that wound up in the platform, she believes, are similar to many of New America’s ideas. The section “Renewing the American Dream,” in particular, emphasized a renewed social contract in which government and citizens uphold their respective ends of the bargain. It’s time for policies to catch up to our expectations, Kornbluh asserted, and offered three guiding principles: social insurance is “social,” the New Deal isn’t “new,” and the way we’re operating right now is cheating the future.
Social insurance is inherently social, Kornbluh argued. From the Social Security Act of 1935 onward, there has always been a family-oriented component to social programs--the survivor’s benefit, aid to dependent children, etc. Social insurance is not about the individual saving for himself, it is about ensuring all families are secure. Although that philosophy remains relevant today, specific New Deal programs are not new: the single breadwinner model upon which these programs are based is now completely outdated. Other industrialized nations have updated their social insurance systems to fit their changing economies, Kornbluh noted, and the U.S. must follow suit by adopting such 21st century policies as paid leave and the right to work flexibly. The unfortunate result of our current, outdated system is that we are cheating the future. America is now a knowledge economy, and we rely on families to produce the essential human capital for the next generation. But our current social policy subjects too many families to cycles of economic insecurity and long-term stagnation.
In terms of making an immediate difference, Kornbluh contended that health insurance should be the primary issue. It was the “strongest and longest” section of the Democratic Party Platform, and the party is committed to guaranteeing health insurance coverage for every American. However, the necessary policy reforms go far beyond the healthcare system. “We’re in one of those moments,” Kornbluh concluded. When the New America Foundation was founded, there was not the same sense of urgency that there is now, but founding Director Ted Halstead always warned everyone to “be ready.” The time for which we have been readying ourselves has come.
Panel I: Entitlements
Len Nichols, Director of the Health Policy Program at New America, opened the first panel discussion by “being a bit of a curmudgeon” and objecting to the term “entitlement,” which he considers a 1980s libertarian pejorative. He instead prefers “promises,” which better reflects the sacredness of the social contract. Nichols went on to discuss Medicare, which he sees as a healthcare cost-growth problem rather than an entitlement problem. Medicare’s cost growth per capita is 2.5 times per capita GDP growth, meaning that Medicare is consuming an ever-larger share of our output. More troublingly, one-third of healthcare spending (equivalent to about 5% of GDP) does not add any clinical value. Medicare and the broader healthcare system are inexorably linked, Nichols argued, and Medicare must be the catalyst for systemic reform. There is substantial political impetus for universal coverage, but reforms must enable citizens to buy smarter and “exercise stewardship” over our healthcare resources.
Maya MacGuineas, Director of the Fiscal Policy Program at New America and President of the Committee for a Responsible Federal Budget, argued that the economic crisis is revealing the deep cracks in our existing social insurance system. Although the focus right now is on stimulus and economic growth, we must start talking about our institutions and how to update them. The federal budget deficit will reach at least $1 trillion next year, MacGuineas said, and policymakers need to review the budget line-by-line and think hard about how we are going to pay for it all. Because most of our money currently goes towards “mandatory spending programs,” these programs cannot be ignored when we rethink the budget. MacGuineas would like to link stimulus and long-term entitlement reform. The sums of current stimulus proposals are so large as to enable major, lasting investments in our economy. We should borrow money now, MacGuineas argued, but offset costs once the economy is stabilized. Without neglecting the importance of greater individual responsibility, we must think about vulnerable populations in our country right now--children and those hurt by globalization. Government must become more progressive, and focus its limited resources on those that need them most. The current economic climate demands major reforms, MacGuineas concluded, and the national discussion about the most appropriate policy choices is just beginning.
Mark Iwry, Nonresident Senior Fellow at the Brookings Institution, discussed the retirement savings and private pension aspects of the entitlements debate. In the wake of the election, and in light of the financial crisis, Iwry argued, retirement policy must move in three basic directions. First, we must prop up the defined-benefit pension system, which is suffering from “long-term secular trends” that run against it. Second, we must reform (not eliminate or replace) the 401(k) defined-contribution system, downplaying its “every-man-for-himself” characteristics and encouraging moderating reforms such as annuities, automatic enrollment, and automatic investment. Finally, we must pursue universal retirement savings through President-elect Obama’s proposal for an Automatic IRA.
Michael Calabrese, Vice President of the New America Foundation and an expert on retirement security, moderated the question and answer session that followed. Questions touched upon the costs of Medicare reform, the long-term sustainability of the Pension Benefit Guaranty Corporation, the question of raising the retirement age, and effects of policy choices on inter-generational relations.
Panel II: Workforce
Ray Uhalde, Director of the Workforce Development Strategies Group at the National Center on Education and the Economy, opened the second panel by asserting that the current system of unemployment insurance is not up to the task. Fewer than 40% of unemployed people receive unemployment benefits, but such benefits are a crucial economic stabilizer. Uhalde went on to note that only a few states have long-term job training and skills programs for the unemployed. Policy reforms should tie unemployment insurance to long-term occupational training, he believes. Uhalde also discussed the 400,000-strong apprenticeship system in the United States--the most demand-driven training system that we have, and almost totally private-sector funded. The apprenticeship system is small, but important for the kind of skilled workers that we will need for ongoing infrastructure renewal programs over the next decade. We need to develop the next generation of public workforce programs, Uhalde concluded, and link adult education, technical training, and workforce investment.
Katie Corrigan, Co-Director of Workplace Flexibility 2010, argued that the question on the table is whether the issue of workplace flexibility is still relevant, given today’s the big-picture economic problems. Corrigan believes that now is, in fact, the ideal time to think about how to build in workplace flexibility programs up-front, rather than trying to retrofit them after the crisis. The reality of the American workforce is no longer education, career, then but rather an undulating line that includes unexpected illnesses, off, and extended leave. The workforce has undergone enormous changes in recent decades, but without any comprehensive public policy response. We made big gains on flexible scheduling in the 1980s, Corrigan claimed, but very little has changed since the late 1990s. However, the current economic crisis “blows things open” and encourages a lot of new thinking. Now is the time to integrate the various strands of contemporary workforce policy, and implement the major reforms that the next generation of workers requires.
Phil Longman, Schwartz Senior and Research Director of the Next Social Contract Initiative at the New America Foundation, opened his talk with a sobering fact: even before the current economic crisis, more children experienced their parents’ bankruptcy than their parents’ divorce. The state of the economy is tied to the state of the family. In the past few months, Longman noted, a tremendous new consensus has emerged that we need to spend “a whole bunch of money, real fast,” on infrastructure. Longman proposed a single policy lever that would “stimulate the economy, make driving faster and more fun, reduce the cost of highway repairs, prop up home prices, save thousands of lives, and reduce greenhouse gases”--a “steel wheel interstate” of long-haul freight railroads to complement the nation’s creaking interstate highway system. Wall Street should direct the world’s capital into smart infrastructure projects rather than “credit cards and sub-prime loans,” and railroads are a remarkably efficient investment: trains are 11 times more fuel efficient than trucks, and far less polluting.
David Gray, Director of the Workforce and Family Program at New America, moderated the subsequent question and answer session. Questioners asked about the wisest use of federal discretionary research funding, the potential for significant community college investment in the next , the consequences of the 1996 welfare reform, the effects of the new GI Bill, and how to protect the achievement of anti-discrimination in employment during a period in which layoffs will increase.
Panel III: Healthcare
Joe Minarik, Senior Vice President and Director of Research at the Committee for Economic Development, began the third panel by identifying the aggregate problem with America’s healthcare system: excess healthcare cost growth over GDP, and healthcare consuming a growing share of our economic output. Minarik then noted that corporations have been squeezed by the rising cost of healthcare. This cost squeeze is transferred onto employees--deductibles and co-payments are rising, and employers are increasingly telling workers that their families will not receive coverage. For the past eight years, there has been no increase in employer-based coverage, despite continuous population growth. For Minarik, the biggest problem is one of choice: 77% of those offered employer-based health insurance are only offered one choice of carrier. Consequently, health providers have no reason to worry about the cost of the services they offer, leading to over-treatment. This lack of choice, Minarik believes, is a key reason for the system’s rising costs and disregard for value or quality.
Genevieve Kenney, Principal Research Associate and Health Economist at the Urban Institute, noted that, given the number of Americans who rely on their employers for health insurance, the recession could have huge implications for Medicaid and SCHIP. There is strong evidence, she argued, that the need for these programs grows during tough economic times, and they constitute an important component of the economic safety net. Many of the state governments that fund these programs are facing budget shortfalls in the coming fiscal year. Therefore, Kenney believes, a large infusion of federal funds is needed to prop up state budgets and support these crucial programs during the economic downturn. Medicaid is incredibly important to low-income families and the disabled--the most vulnerable members of our society. To the extent that Medicaid relies on state funding, therefore, policymakers must think seriously about implementing a counter-cyclical funding system.
Elizabeth Carpenter, Associate Policy Director of the Health Policy Program at New America, discussed the new political realities of healthcare reform, given the economic crisis. Since the conclusion of the campaign, many pundits have speculated that Obama’s domestic priorities--especially healthcare reform--would be relegated to the back-burner, in favor of the more pressing need for stimulus to spur economic growth. Carpenter sought to demonstrate that the long-term cost of doing nothing would be far greater than the one-time cost of systemic reform. She noted that the poor health and shorter lifespan of the uninsured costs the U.S. economy as much as $207 billion annually in lost productivity. Moreover, healthcare costs are growing faster than wages, which will make healthcare even more unaffordable in the years to come. Perpetuating the status quo comes with a price, Carpenter argued--employers are asking their employees to bear an ever-greater share of the healthcare cost burden, and the insured pay a “hidden tax” to provide healthcare to the uninsured. Although the economic picture looks bleak, Carpenter asserted, we should not believe the cynics. On the contrary, a broad consensus has emerged among the incoming Administration, voters, Congress, and other coalitions to make healthcare reform a reality in the years to come.
Julie Barnes, Deputy Director of the Health Policy Program at New America, moderated the question and answer session that followed. Questions touched upon the potential for huge tax increases in the years following a major reform, the prospects for SCHIP reauthorization in 2009, and the political realities of reform today versus in 1993.


Introduction 12:00 p.m.
David Gray
Director, Workforce and Family Program, New America Foundation
Keynote 12:00 – 12:15 pm
Karen Kornbluh
Principal Author, 2008 Democratic Party Platform
Former Director, Workforce and Family Program, New America Foundation
Entitlement Panel 12:15 – 1:15 pm
Michael Calabrese
Vice President, New America Foundation
Len Nichols
Director, Health Policy Program, New America Foundation

Maya MacGuineas
Director, Fiscal Policy Program, New America Foundation
President, Committee for a Responsible Federal Budget
Mark Iwry
Nonresident Senior Fellow, Brookings Institution
Workforce Panel 1:15 – 2:15 pm
David Gray
Director, Workforce and Family Program, New America Foundation

Ray Uhalde
Director of the Workforce Development Strategies Group at the National Center on Education and the Economy

Katie Corrigan
Co-Director, Workplace Flexibility 2010
Phil Longman
Schwartz Senior Fellow and Research Director, Next Social Contract Initiative, New America Foundation
Healthcare Panel 2:15 – 3:15 pm
Julie Barnes
Deputy Director, Health Policy Program, New America Foundation

Joe Minarik (PowerPoint Presentation, PDF, 12 pps.)
Senior Vice President and Director of Research, Committee for Economic Development

Genevieve Kenney
Principal Research Associate and Health Economist, Urban Institute

Elizabeth Carpenter (PowerPoint Presentation, PDF, 13 pps.)
Associate Policy Director, Health Policy Program, New America Foundation

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