Political conventions, as a rule, are no place for substance. Policy proposals mostly emerge in the form of rousing one-liners or glib promises. That's too bad, because this year, John Kerry is offering some intelligent, extremely substantive policy ideas. Earlier this year, The Washington Post observed a large army of economists and policy wonks advising Kerry's campaign. It shows. From health care to school reform, the Kerry campaign has put out a number of innovative ideas that not only make for great policy, but might even prove politically shrewd.
Health Care. The good news is that Kerry's health care plan (PDF) is as solid and as sensible as advertised. Kerry plans to expand eligibility for Medicaid and State Children's Health Insurance Program (S-CHIP), a long overdue move that will all but eradicate the number of uninsured children in America.
But the second, most expensive, part of his proposal -- the plan to have government insure catastrophic illness -- is the main event. Everyone has his or her own pet candidate for "the big problem" with health care in America. To give an example: health care costs rise dramatically simply because there will always be new health services, and people will pay nearly anything to get them. So in the absence of any financial disincentive, doctors will provide a lot of unnecessary -- even inappropriate -- care. On the other hand, look what happens if the government uses market competition to put bottom-line pressure on HMOs and insurance companies. The companies reduce unnecessary coverage, but they also try to avoid covering catastrophic illnesses. (This is known as "adverse selection"; a more detailed paper can be found here.) Furthermore, a few big illnesses can ratchet up premiums in a company pool, as The Washington Post recently discovered.
Under John Kerry's proposal, the government would pay for 75 percent of medical bills over $50,000 a year. Because the costs of covering catastrophic illness would be greatly reduced, insurance companies would no longer have incentive to avoid those who need health care the most. Insurance rates would fall, and younger, healthier people would be more likely to buy health insurance, since they no longer have to pick up the tab for the less fortunate. Kerry's plan attacks the worst aspects of private insurance, while preserving its benefits. If Kerry can stress this point, and allay fears about a government takeover of health care, he could well convince moderate Republicans to sign on.
Kerry has a number of other, smaller ideas for health care. Perhaps most significant is his plan to close the legal loopholes that allow "brand-name" pharmaceutical companies to stop cheaper, generic drugs from entering the market. Ever since the Hatch-Waxman Act was passed in 1984, drug companies have used hordes of lawyers to exploit the patent laws and extend their protections. It's high time to end corporate welfare for the drug industry.
Minimum wage. Conservatives have spilled a lot of ink attacking a minimum wage hike. The main gripes: a wage hike will raise unemployment, and will bite into profits and raise consumer costs, spurring inflation; and most minimum-wagers are wealthy teenagers working summer jobs. Don't believe it. John Kerry's proposal to raise the federal minimum wage from $5.15 to $7 makes eminent sense.
Critics rarely offer actual empirical evidence that wage hikes increase unemployment. In fact, past increases in the U.S. -- in 1990-91 and 1995-96 -- had a negligible effect on employment. (Britain and Australia had similar experiences.) Moreover, the Economic Policy Institute (EPI) has debunked the oft-invoked myth according to which states that recently raised wages suffered high unemployment as a result. There was a correlation, but alas, no causation. And as for the "wealthy teenager" argument, consider that after the 1995-96 increase, 35 percent of the gains went to the poorest 20 percent of the population. It was a progressive success, and if a few upscale teenagers also benefit, well, more power to them.
Smarter opponents of the wage hike, like Steven Landsburg, have argued that the Earned Income Tax Credit (EITC) is a more efficient means of boosting the earnings of low-income workers. But in the absence of wage controls, income tax credits tend to put a downward pressure on wages. So some combination of tax credits and wage hikes are necessary to help low-wage workers.
From a political standpoint, Kerry shouldn't shy away from being vocal about all his minimum wage proposal. Ignore the protests from business leaders. Polls have shown that voters love the idea of a wage increase, and the issue has been proven to boost voter turnout like none other. Focusing on wages will also highlight one of the key reasons why voters have not responded warmly to the Bush recovery--namely, the fact that wages have failed to keep pace with inflation. One of the under-reported stories in the 2000 election was that working class voters abandoned the Democratic party in droves. Kerry's wage increase is a decent first step towards reversing that trend.
Could the minimum wage hike pass through a Republican Congress? At the moment, Senate Republicans are trying to pre-empt their opponents by passing a more moderate wage hike. If President Bush nixes this plan, as is likely, then Kerry should have enough leverage to push the measure through come 2005.
Teacher reform. Perhaps Kerry's most radical idea, and the one that most dramatically bucks the party line, is his plan for teacher reform. Kerry intends to offer federal block grants to high-need school districts, to be used as raises for high-performing teachers. The catch is that, in order to receive these block grants, local teacher unions must agree to ease the restrictions on firing under-performing teachers.
On the merits, it's a fantastic idea. Hiking up teacher pay will entice more-qualified college graduates to enter the field. The demand is there -- the No Child Left Behind Act is going to create a dire demand for great teachers in failing schools. And let's face it, there needs to be better accountability for bad or incompetent teachers -- at the moment, the firing process can take years, and thousands of dollars.
The teacher plan is also good politics. As Jonathan Schorr discussed in this month's Washington Monthly, parents will likely swoon over a Democrat taking on teachers' unions and fighting for quality teachers. Indeed, Kerry's teacher reform perhaps has the best chance of passing through a Republican Congress, if the Democrats can get teacher unions to sign on board. Early reports indicate that tensions between Kerry and the National Educational Association (NEA) are running high. Still, Kerry may well be able to take advantage of the current Democratic party unity, and ram this much-needed reform through Congress.