Sunday, November 12, 2006

The Way Out

HW Brands on how the money question and the founding of the Federal Reserve hold the answer to compromise on Medicare and Social Security:
The act established the Federal Reserve system, which represented a compromise between the private sector and the public sector — between the demands of the bankers and holdover Hamiltonians for capitalist control of the money system, and of the Populists, Progressives and remnant Jeffersonians for democratic control. The dozen Federal Reserve banks were privately capitalized but were directed by a board of governors appointed by the White House. Otherwise, the Federal Reserve system was designed to be institutionally independent of both the business and the political classes. ...

The secret of the Federal Reserve Act — and of the subsequent success of the Fed — was the willingness, born of exhaustion, of the two opposing camps to turn the money question over to a partly capitalist, partly democratic agency — and thereafter to keep their hands off. It's a model that works and that might be applied to other vexing problems. The healthcare and pension questions, for example, have defied solution in much the way the money question did during the 19th century. On healthcare and pensions, both the private and public sectors have strong interests in the outcome — so strong as to prevent, thus far, any outcome besides a muddled extension of the status quo.

Reviewing the compromise that produced the Federal Reserve, modern reformers might well find the key to similarly happy, or at any rate acceptable, solutions. Details, naturally, would have to reflect the distinctive facets of healthcare and pensions, but the principle of a public-private compromise, followed by insulation from both the political and corporate spheres, would allow decisions to be made that can't be made in the current setting.

Whether the resulting agencies would achieve the success of the Fed is something only time would reveal. But, at the least, Ben Bernanke would have company. [Emphasis mine]

I think the key, unfortunately, is exhaustion, and I don't think either side will stop, even if a part-private, part-public solution is found.


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