Hostage to Granny

Howard Dean is losing no time in the commitment department. On his election on Saturday as chairman of the Democratic National Committee, the former candidate for his party's presidential nomination swore that the Democrats were "the party for young Americans" and the "party for older Americans".

Wonderful promise. Nearly impossible to keep. The big domestic policy challenges tend to pit the two groups - or their lobbies - against each other. The battle between old and young slows the political process and, increasingly, the national economy.

Consider Social Security, the topic consuming Washington. President George W. Bush said he would devote the political capital accumulated in last year's election to reforming and privatising the public pension programme. This month he is sending out his most credible men in their most credible coats and ties - Joshua Bolten from the Office of Management and Budget and Greg Mankiw, chairman of the Council of Economic Advisers- to make the case.

Everyone knows change is not optional: as Mr Bolten reminded bond traders in New York on Friday, postponing Social Security reform by just one year means an extra $600bn in costs (read: tax increases) in the future. Social Security privatisation, especially the Bush plan, is eminently reasonable. The plan will narrow deficits in the long term and erase trillions of dollars in unfunded liabilities. (Indeed, anyone who natters on about US fiscal imbalances and does not mention Social Security in the next breath is a hypocrite.) Such reform is the most important domestic step a president can take.

Privatisation is something Democrats could in theory support. In the 1990s Mr Dean's own Democrats, led by President Bill Clinton, joined hands with Republicans to end welfare, another historic social programme. Robert Rubin, Mr Clinton's Treasury secretary, taught the country that Democrats also care about fiscal responsibility. The Bush men who are making the case for Social Security privatisation this week are not so very different from the Clinton men who once argued, in an analogous campaign, for the retirement of the 30-year long bond. Blink, and Josh Bolten becomes Bob Rubin.

Still, Social Security privatisation, the 2005 version, is facing serious obstacles. Some are misrepresentations propagated by Mr Dean's more disingenuous allies. Jano Cabrera of the DNC said recently: "We welcome any opportunity to run against Republicans in 2006 after they've cut Social Security benefits and added trillions to the federal deficit." But other criticism has come from more surprising sources: Republicans Bill Thomas, chairman of the Houseways and means committee, and Denny Hastert, House speaker.

How is it that Republicans could hurt their own on such an important project? Behind the battle between old and young is a larger battle between tax-payers and "tax eaters". As Steve Malanga, a public finance scholar and journalist, notes in a forthcoming book*, "tax eaters" are those citizens who receive cash from Washington, via wages or benefits. The old are not the only such group, but they are the largest. As America ages, the balance tips toward the tax eaters.

The change explains why the old labels of "left" and "right" often no longer apply. Mr Clinton could pass welfare reform because welfare, for all its fame, affected relatively few Americans. Mr Bush is a visceral free marketeer. Yet when re-election time came, he looked into the ghastly tax-eating face of Aarp, the senior citizen lobby. He realised its members counted 35m, all of them capable of voting, and he decided he must feed it something. Betraying his own principles, he provided an enormous and permanent benefit: government guaranteed drugs. This made arguing Social Security's numbers harder.

Which brings us to Howard Dean. One reason he won his new post was the success of his presidential primary campaign in reaching younger people through the internet. These are cohorts who neither know much about the history of the Social Security programme nor expect its dollars to be available when they retire. Such low expectations can work to the advantage of any reformer, including Mr Dean. But only if he ignores groups such as Aarp.

Aarp's reflex is to block reform, no matter the eventual cost to members' grandchildren. Failing that, it opts for punishing the more successful of its children now, through a tax increase on higher earners. Mr Dean did cross Aarp in the 1990s, a fact that competing Democrats used against him last year. But he is not crossing Aarp now. He apparently took time on Friday to announce he is a proud Aarp member. Such declarations make any later move against the giant that much harder.

The point here is not that all Americans are selfish. It is that when they morph into interest groups - becoming Granny the lobby instead of the granny who lives upstairs - they can do perverse things. These days, US lobbies are becoming more like European ones, so strong they constrain the nation as a whole. If Howard Dean, an iconoclast, wants to smash more icons, let him join the Bush team in writing Social Security law that improves the future. Otherwise he will find himself trapped, just another hostage to Granny.

*The New New Left, Ivan R Dee, 2005

© Copyright 2005 Financial Times

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