Fareed Zakaria GPS, March 28, 2010

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ZAKARIA: On at least one extremist website, there was reportedly discussion of how to kill the poetess, with one poster going so far as to ask for her address. She says she takes the threats seriously but only slightly. Women still cannot drive in Saudi Arabia, yet some of them are demonstrating greater courage, intelligence and farsightedness than most men there. And we will be right back.


PAUL KRUGMAN, NOBEL MEMORIAL PRIZE WINNER IN ECONOMICS: In the past we had an escape valve (ph). In the past we could be irresponsible with health care spending and deal with it by basically reducing the number of people with insurance by casting the -- the most marginal people in American society out into the outer darkness. Now we can't do that, so we will, in a way, be forced to deal with the costs.


ZAKARIA: Joining me now, on my left, "New York Times" columnist, Paul Krugman, and on the right, "Newsweek" columnist, Robert Samuelson. Paul, you are probably the most influential person outside of government who has been advocating the passage of this bill. Now that it's passed, do you see it as fundamentally about economics or fundamentally about morality? By which, I mean is this really a bill about widening access or is this really a bill about reforming what I think most people regard as a dysfunctional system?

PAUL KRUGMAN, NEW YORK TIMES COLUMNIST: It's a little bit of both. I mean, the selling point, like, the sugar that makes the medicine goes down, it's expanding access. The United States has been alone among advanced countries in not having some form of universal health care. Now, we sort of are there. That's what makes it saleable. It's not purely a punishment. But there's a lot of cost control in there as well. Those things really have to go together. That's what history tells us. It's what the international experience tells us. There's big reforms which will be slow to take effect about the way we pay for health care, about how we decide whether treatments should be applied, but all of that wrapped inside a package that finally gives more or less universal access to health insurance.

ZAKARIA: Robert Samuelson, you have been long skeptical about the cost controls.

ROBERT SAMUELSON, NEWSWEEK COLUMNIST: By not controlling health spending, we are making this series of unintended political decisions about what not to spend it on. We're not spending on schools. We're not spending more on basic research. Ultimately -- or on defense, or national security, or national parks. Go down the list of things that the government does, most of which are very good, and provide this sort of leviathan to squeeze out all these other public goods, I think, to our detriment. And we're also putting enormous pressure, upward pressure on taxes, squeezing private incomes. So a decision is being made by the failure to control health costs. But you need to find some mechanism, either tighter government control or the substitute for the market-imitating mechanisms, to actually force the structure of the industry to change so it becomes less costly and offers more high quality care. And that's what we have not been willing to do. I don't think any of the mechanisms in the bill will do that.

KRUGMAN: I want to say, the bill is taking a lot of steps in that direction. They're not huge steps, but, you know -- Robert, I don't know what political system you have in mind that is going to do better than this. I mean, the fact of the matter is the expansion of coverage in this bill is for the uninsured who are basically, primarily young adults, and they're fairly cheap. It's actually not an expensive thing to go to universality. The expensive cases, the elderly, are already paid for by the government. The question you want to ask is, what are we getting in return for this fairly cheap expansion of coverage. The answer is we are getting more steps to control costs on the expensive stuff, the care for the elderly, than has ever been done before. This is, compared with what a philosopher king might have designed, this is not compared. Compared with anything the U.S. Congress has done, hereto, it's terrific.

ZAKARIA: Let me ask about going forward. Paul, you look at this bill. Do you have a worry, as somebody who has staked a lot of your reputation saying this will control costs, that Congress will start repealing or making concessions, amendments and exceptions to the cost-cutting part of the proposal over the next few years?

KRUGMAN: Well, in a way, those budget deficits are going to stand in the way of that. Once we've established this, once we've established there's a government responsibility to pay for essential health care for everybody, then you ask -- then we will be facing -- you know, it clearly going to be difficult to bring U.S. public finances under control. If Congress says, well, we're going to start taking off all the controls, all the cost-control measures here, they'll have to say, how are we going to pay for this? So I think actually, the belief that Congress is going to run wild and undermine all the cost-control efforts is actually wrong, because there will be a hard, fiscal reality, which will now be brought into firm contact with health care. In the past, we had an escape valve. In the past, we could be irresponsible health care spending and deal with it by basically reducing a number of people's insurance by casting the most marginal people of American society out into the outer darkness. Now we can't do that, so we will be forced to deal with costs.

ZAKARIA: Robert Samuelson, you're pretty sure that Congress is going to repeal a number of these unpopular measures based on its history.

SAMUELSON: I'm not sure of anything. But all I would say is that these deficits were on the record while this debate was proceeding. And they didn't restrain Congress from enacting a program that would increase spending over the next decade by roughly a trillion dollars. So my view is that Congress is not likely to be restrained until there's an actual crisis. And the only -- I reported this debate now for almost a year. And the only truly honest argument I've heard in favor of the proposals or something like the proposals that actually passed was from a doctor, M.D., who is also a PhD economist. And he said to me, this system is going to collapse. And the whole point of this is to get the uninsured in the system before it collapses, because if it collapses when they are out of the system, they will be victims. But he wasn't any great benefits for it. And he didn't think that it would control costs. His notion was, let's just get these people in, because the whole thing is going to collapse at some point. Then, there will be draconian changes and these people ought to be protected. I think that's a legitimate argument. I think it's kind of somber.

KRUGMAN: Can I say, think about -- we've had two major health reform measures, other health care measures passed. 2003 Medicare Part D, what just passed a few days ago. The first was completely without any concern for budget implications. The second one lived or died by the CBO score. They were not -- it was not even on the table that they would pass something that would increase the deficit as scored by the CBO. You might say you don't fully believe in the score or your think their going to do -- but clearly, clearly, the notion of fiscal constraints did play a big role in this legislation. So it's -- there's a point. I'm all for being as cynical as possible, but there's a point where you get to be too cynical. The fact of the matter is that, you know, this is, by the standards of how legislation has been done in the United States the past 30 years. This is a fairly responsible piece of legislation.

ZAKARIA: Paul Krugman, Robert Samuelson, we'll be right back.


KRUGMAN: The proof of the pudding is the United States has still got -- you know, we have the most privatized, most market-based health care system in the world. We also have the most expensive health care system in the world.


CANDY CROWLEY, CNN NEWS ANCHOR: Those are your top stories. Up next, much more "Fareed Zakaria GPS."

ZAKARIA: Robert Samuelson, what do you make of this argument that there is no market-based system you can point to that says, you know, this works better? You look at even emerging market economies, I can think of a country like Singapore, and health care is still basically a government-provided or government-paid, depending on the model. So can we be sure that a more marketized system would work better?

SAMUELSON: It is certainly true that health care is not part of the free enterprise system as we usually conceive it. Half the spending in the health sector is already by the government, Medicare, Medicaid, veterans, local support for clinics, so the spending is already heavily public sector. Almost every part of the system is regulated, nursing homes, drug approvals, on down the line. So the question is not whether or not we're going to have government controlled or a free market system. The question is what kind of system is going to help us reconcile these irreconcilable objectives that we have. How are we going to balance off the different things that people want? We have evaded that choice for most of my reporting career, which now goes back almost 40 years.

ZAKARIA: And what would you do? What would be the system you would put in place if you wanted to reform the system or widen access or do a combination? What would be the Robert Samuelson health care bill?

SAMUELSON: Well, let me concede Paul's point. Initially, this is not politically attractive. I'm not running for office. But I would start with Medicare, which is the largest insurance program in the country, which basically conditions the fee-for-service system. And I would change it to a voucher system. By giving people vouchers and saying go out and shop for the best health care system you can find, that would force the industry to restructure. You would create networks of doctors, hospitals, clinics, whatever. But we need to have people talk about these things candidly rather than just asserting that we're doing things that we're not doing. In my view, we are not bringing costs under control with this legislation?

KRUGMAN: Can I just say that this -- it's not just that it's not a popular proposal. Start to think it true. You give people a voucher. Clearly, elderly peoples' health condition is very, very different. So people, who are healthy, 66 years old, would be able to get great coverage with a voucher. And people who have a chronic condition, as many people do, would be unable to buy insurance at all. So you say give a voucher. Then you have to ban discrimination based on medical history. Then you have to regulate the care. Then -- you end up -- it actually turns out that -- it sounds like we can just give everybody a voucher and have a competitive market. But then you start the qualifications. You end up back with a heavily controlled system. The fact of the matter is -- it's actually the same logic that leads us to the health reform that just passed. You can't just say, let's let everybody buy insurance, and we'll ban discrimination based on medical history. A whole bunch of things follow from that. I think you really haven't thought this through.


KRUGMAN: The voucher system does not solve any of the problems. You do have to do something -- do you have to make some decisions that are made at a political level about what things we're going to pay for and what we're not going pay for. The idea that the market is going to absolve you from those decisions is just wrong.

ZAKARIA: And when you look at the -- the proposed budget cuts. You know, many of these measures are pushed out into the out-years. what about them makes you skeptical that they will actually happen?

SAMUELSON: Well, I am extremely skeptical. First place, I'm skeptical of the reductions in Medicare that are programmed into the system, into the bill, and are supposed to pay for substantial parts of the additional costs. I think that when Congress -- when those cuts are supposed to go into effect, that Congress will modify them or repeal them entirely. I think those cuts are iffy at best.

KRUGMAN: Basically, our system is so inefficient that there's a lot of low-hanging fruit. There's a lot of things that are being done in medicine that are expensive with no health benefit whatsoever. Just identifying those is a pretty big thing. You're talking about taking moves to at least start trying to reform the payment system for health care, which, right now, is basically by what you do, not by the results. All of those things are uncertain, but this is what it's going to look like. If you ask the question, what could you ever expect to see happen in terms of controlling health care costs, it would be with a series of partial, tentative pilot steps. The CBO scores most of those things as being worthless because it doesn't know whether any one of them will work. The odds are that some of them will.

ZAKARIA: Why not go down the road -- I mean, it seems to me there's two-ways you could bring health care prices down. The one is that the government in some sense rations the service. The other is that the market, that is prices, the consumer rations the services through price mechanisms. You are a very distinguished economist. Wouldn't the more efficient way be to have prices rationed rather than government rationing?

KRUGMAN: So if you do -- if you get to the late chapters in your textbook in Econ 101, you get to stuff about possible market failures, lack of information, market power, monopoly power, the various reasons why markets can fail. The thing about health care is every single one of those market failure arguments applies with a vengeance in health care. This is just not a case where the market can -- does a very good job. We have actually seen that, right? The proof of the pudding is the United States still has got -- we have the most privatized, most market-based health care system in the world. We also have the most expensive health care system in the world. That's -- in a way, the data are trying to tell you something. This is not a case where -- where the -- I'm a big believer in free markets. I think they do wonderful things in the market for wheat. They work pretty well in the market for cars, in the market for electronics. But health care is just not an appropriate domain for free-market ideology.

ZAKARIA: We will have to end on that note. Paul Krugman, Robert Samuelson, thank you very much for a spirited discussion. Thank you. Now for the question of the week. Here's what I want to know. As we head into the Easter period for Christians, and Passover for the Jews, I want you to answer an age-old question: Is religion more of a force for good or evil in today's world? Let me know what you think. As always, you can go to our web site to see some great answers to last week's questions. Now, as I do every week, I would like to recommend a book. It's called "The Great Inflation and its Aftermath: The Past and Future of American Affluence." It's by our guest today, Robert Samuelson. It's one of the best books I've read that, in a sense, sheds light on the causes of the recent financial crisis. Its thesis is one of the most intriguing. Samuelson says that the crash was not caused by greedy traders or lack of Wall Street oversight, but that fundamentally it was by the wealth that Americans accumulated in the 28 years before the crash and the period of low inflation. He says it is boom and bust all over again in a sense. Read it to understand the unusual times we live in. And now for the "Last Look." Don't bargain on women's rights. That's what this protest sign in Yemen says. But these women are not protesting for what we, in the West, think of as traditional women's rights, the right to vote, to hold a job, to be independent. No, they are fighting for a woman's right to marry even if she is a child. More than a quarter of Yemen's girls are married by the time they are 15. In some Yemeni provinces, the average marrying age for females is eight years old. Incredibly, these women want to keep it that way. And they are holding up their Korans because they believe the holy book backs them up. Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."

Originally broadcast, 3.28.10