Social Safety Net Greases Wheels of Capitalism

Photos: Life on the Economic Edge Kenneth D. Lyons

Patrick Chovanec was a foot soldier during the Republican revolution of '94, working for Congressman John Boehner and editing a legislative digest for the newly enthroned GOP majority. Now he lives in Beijing, where he teaches business practices and economics at Tsinghua University. In between, he did a stint on Wall Street, the invisible bridge that took him from the world of unabashed conservatism to a more tempered view of what government can and should do for its citizens.

I caught up with Chovanec in Washington one morning early this week. He was in town to meet with some of his former buddies, and to see if it's true that another '94 is brewing. He recalled with some nostalgia the government shutdowns during the winter of '95—there were two, he said—when Republicans at first won praise for their hard line on the budget, but when voters saw essential services threatened, President Clinton emerged the victor.

When Chovanec got off the long flight from Beijing, the story that caught his attention was about Republicans saying that if they took back the House, they would shut down the government to make their point about deficit spending. Not smart, said Chovanec, shaking his head. I asked him what he thought about former House majority leader Dick Armey's insistence at a breakfast earlier that morning that the first thing he would do to balance the budget is go after the two "biggies"—Medicare and Social Security. Chovanec winced. Armey must have been off script, he said. It was a GOP proposal to cut Medicare in 1994 that allowed Clinton to gain the high ground.

If people could withdraw from those programs, within three weeks half the government's unfunded liability would be off the books, Armey told reporters. He quoted the late Sen. Ted Kennedy saying, "We can't let people have that choice—they'll take it." Kennedy meant that if you told people they could withdraw in a lump sum what they've contributed to Social Security, they would take you up on the offer. It would be like winning the lottery. But then if they gambled away the money, or lost it in a plunging 401(k), would they be left penniless, or would the government step in?

Armey recounted his humiliation at having to accept Medicare payment for a hospitalization he had last year. He got so exercised telling the story that he looked like he might burst a blood vessel. "You would think they would hug me and say, 'Bless you, my child, for letting us off the hook' " in a program that is oversubscribed, but no, he continued, assailing Medicare as "heavy-handed coercion" by government, a violation of the Constitution. "There are many, many people of means that would be happy to take care of themselves in their old age," he said.

Chovanec married a Chinese woman, and they have a baby son. His in-laws work for the Railroad Ministry in Beijing and get health insurance through their job, but it covers almost nothing: a doctor's visit and some antibiotics, and that's it. "Dick Armey might like that," he says, but there's no private insurance available, which means the Chinese people have to save. "Dick Armey might like that too," he says. The high savings rate in China is equivalent to the medical IRAs that Republicans advocate, but a lot of people don't have that money to save, in America or China.

China's safety net, known as the iron rice bowl, has been broken under the strain of industrialization and nothing comparable has emerged to replace it. It's hollowed out so much that Chovanec says it dawned on him that this is why the Chinese save as much as they do and don't consume as much as Americans. This was a revelation for him as a conservative, and it brought him to this conclusion: "The social safety net greases the wheels of capitalism because it makes people feel more secure about the future and willing to spend." FDR's New Deal made capitalism politically palatable and, with the advent of unemployment benefits, created a more flexible labor market because if people lose their jobs, they have a cushion to fall back on and recover.

Chovanec is not abandoning his conservative principles, but he's adjusting them to reality. He thinks his old boss John Boehner made a smart move in supporting a tax-cut extension for the middle class, as opposed to holding out for the wealthiest taxpayers to be included. Unlike '94, which was a top-down revolution created by a handful of brash backbenchers and led by Newt Gingrich and his deputy Armey, today's revolution is marked by bottom-up disgust with both parties, and with ideas that are as unworkable and unrealistic as Armey's rants against government benefits. If the Tea Party ever got its way, a lot of people would be left with a broken tea cup.