The Public Option

by Ganesh Sitaraman

  Don’t Public Options Mean Unequal Services?

  Another objection to public options concerns inequality: won’t public options relegate poorer Americans to second-tier services, while the well-off opt out and patronize the private sector? There are two ways in which unequal services might arise, and we have to evaluate each one separately. In some cases, we should not be too worried about unequal services. For example, public parks, like Central Park in New York City, serve as a public option for thousands who don’t have a private option (that is, a big backyard). But the alternative to the public option isn’t yards for everyone in New York City. More likely, it’s no yard and no public park. Public libraries are similar. Wealthy people will buy books and build up their personal libraries, but for many people, access to books is enough, even if it is more limited. In these cases, a public option is better than no option at all.

  The other and more troubling possibility is that the optional part of a public option can lead to cream-skimming. What we mean here is that the underlying public option might itself be devalued, defunded, or eroded if some people opt for the private option. The classic example of cream-skimming is in health insurance (where it is called adverse selection). The “cream” of people to insure are healthy young people—they are the least costly to insure because they generally don’t need much in the way of health care. So insurers have an incentive to try to serve only these people while leaving out others, especially those who are older or very ill. This is part of the reason health care reformers focused a great deal on people with preexisting conditions (who were often excluded from private-market insurance), and it is why some reformers support a single-payer system.

  But cream-skimming can be addressed by careful policy design. For instance, a single-payer insurance system enrolls everyone in a baseline public health insurance plan. That means there is universal access to health care (no locking out the people with preexisting conditions). But universal coverage also enables cross-subsidies, as the payments from healthy people help fund insurance for less healthy people.

  Cream-skimming can affect other public options, too. Public schools stand as a troubling example. K–12 schools vary widely in quality and are segregated by race and class because admission to these schools depends on residence in a town or county, and much of their funding comes from local taxes, including property taxes. What this means is that richer people can move to areas with expensive houses (where poor families can’t afford to live) and send their kids to that community’s public schools, where their kids are less likely to meet, interact with, or socialize with the poorer kids. If rich parents live in areas with poorer families, they can send their kids to private schools where, again, their kids are self-segregated from poorer families. This is a form of cream-skimming. The public schools in poor areas don’t end up with all different types of students—the richer students are skimmed off by private schools. This can have an impact on school and student performance, investment, and more broadly on culture, as children aren’t interacting with people different from themselves.

  Once again, policy design matters. We agree that public schools need reform, but we reject the suggestion that new public options will necessarily replicate the existing public education experience. Public education in America has been distorted by the shameful legacies of slavery and Jim Crow. Deliberate racial segregation shaped the public schools, and residential segregation (combined with local politics) preserved school segregation long past Brown v. Board of Education and into today. Local financing, particularly the link between property taxes and school funding, helps perpetuate economic segregation as well. As Chapter 6 discusses, school reform poses thorny problems, but reform is possible, and there is every reason to think that reforming the public option is a better way forward than turning to voucher systems, which suffer from a variety of problems.

  Isn’t a Universal Basic Income Better?

  Some forward-looking liberals will offer another objection—that a universal basic income could accomplish everything public options can achieve, and perhaps even more. We do have some sympathy for this claim. A basic income could, indeed, promote liberty and equality by improving market access for many lower-income (and younger) people and by setting an income floor for everyone. So we agree that a basic income could do a great deal of good in furthering progressive ends. We agree, too, that a basic income tends to avoid some of the perverse effects of market subsidies (discussed earlier and in Chapter 2) and imposes some market discipline: if prices in one sector rise too high, citizens who have access to a basic income will leave that sector and substitute another good or service. In a sense, a basic income is actually a type of public option—it is a public option for wages.

  But we don’t think that a basic income is sufficient, because it cannot fully protect freedom and promote opportunity. A basic income operates against a backdrop of institutions, including markets, and it has only a limited capacity to correct matters when markets fail or when prices are so high that they preclude access to primary goods. Take higher education, for instance. A basic income of, say, $10,000 per year could certainly ease the burden of college education by providing living expenses. But the average public university today charges $18,000 for tuition alone. Even a very generous $20,000 basic income would only cover living expenses plus a portion of tuition.

  Put another way, basic income can’t (and isn’t meant to) solve all problems. A basic income can widen the range of life options for many people: everyone will have, say, $10,000 annually to spend as she chooses. But the moral case for basic income assumes that markets set fair prices for scarce resources, based on competing demand among individuals with equal endowments. Implicit is the idea that if one item (say, a college education) is expensive because of high demand, then citizens who don’t sufficiently value college will—and should—spend their money elsewhere.

  But our society doesn’t operate that way. Markets are often incomplete, uncompetitive, or distorted by market subsidies. And individuals do not enter the market on terms of financial or social equality. Higher education provides a telling example. Higher education today is the surest entry to opportunity, and there are extensive market subsidies for college. But the result is not a moral marketplace in which everyone confronts a wide array of options at varying prices and soberly weighs how much they value a particular college option against other uses of their money. Instead, the market charges an exorbitant price and offers a limited array of options, and the subsidies that are available for college are far greater than any provided for competing life options.

  Basic income can help by offering equal resources to the college-bound and the non-college-bound. But public options can add value by ensuring baseline access to opportunity and by helping correct some perverse market dynamics. In the end, then, basic income and public options can work together.

  Part Two

  THE HISTORY OF THE PUBLIC OPTION

  5

  Public Libraries, Social Security, and Other Successes

  The term “public option,” in the sense of a benefit provided to the general public at a controlled price, appears to be of relatively recent vintage. The Oxford English Dictionary has no entry for the phrase. A Google Books Ngram Viewer search, which tracks mentions of a phrase in printed sources starting in 1500, and a Google Scholar search show that the phrase was used only rarely in the 1980s. It became more common in the early 1990s during the Clinton-era health care reform debates. But while the public option is conventionally associated with health care policy, public options have been all around us for some time.

  The U.S. Postal Service, Libraries, and Pools

  Take the U.S. Postal Service (by now it should be clear this is one of our favorite examples). In the old days, you could hire a private courier to deliver a message.1 These days, you can go to private companies like FedEx or UPS. But the Postal Service provides an option that combines universal access at a reasonable price, making it possible for anyone to se
nd postcards, news, contracts, love letters, or holiday presents, regardless of wealth or location.

  The Post Office served these functions from the founding of the country. The Constitution empowers Congress to “establish Post offices and post roads,” and in the Post Office Act of 1791, Congress did just that. It created a postal system, guaranteed privacy in the mails (by barring officials from searching mail), allowed newspapers to be sent via mail, and established procedures for expanding post roads and postal services westward. The early Post Office was critical to the establishment of democracy in America. With citizens spread across a vast and often wild territory—and with limited transportation making travel difficult—the postal service spread information. With the rate for transporting a newspaper at 1 cent for less than 100 miles and 1.5 cents for more than 100 miles (lower than the cost of a private courier), citizens of the new republic had steady access to events happening all around the country.2 As one historian has said, “The citizen-farmer had no trouble securing access to a steady flow of information on public affairs, making it possible for him to participate in national politics without leaving the farm.”3

  While the Post Office evolved over time, its core mission remained: to ensure universal access to information. But there were significant ancillary benefits from the start. In the early republic, the creation of post roads helped the country expand westward, and the postal service was critical to subsidizing the stagecoach industry and encouraging road building. The postal service contracted with steamships and delivered mail by rail, even sorting mail on railcars to improve efficiency. In the late nineteenth century it created rural free delivery, linking even the farthest reaches of the country. When the Post Office lowered rates on magazine delivery at the turn of the twentieth century, it contributed to a boom in the magazine industry that helped educate and entertain Americans.4

  The postal service innovated frequently throughout its history—from stage coach to steam, rail to airmail. When the volume of mail doubled between 1945 and 1970, the Post Office was at the forefront of optical scanning technologies to sort mail more efficiently. In the 1980s and 1990s, leaders of the newly renamed U.S. Postal Service experimented with electronic services, recognizing that they would have to adapt to emerging technologies. The primary reason they failed wasn’t a lack of imagination—it was interest group lobbying. Private companies like AT&T, and later internet companies, didn’t want the postal system as a competitor, and they lobbied hard to keep it from providing new services. After decades of case-by-case battles, Congress ended the war and declared private companies the victor. The Postal Accountability and Enhancement Act of 2006 banned the postal system from providing any innovative services beyond traditional mail delivery.5 Today the U.S. Postal Service is sometimes portrayed as a sclerotic institution, slow to adapt to technological change and perhaps even unnecessary in the age of email, FedEx, and now drone delivery. But this reputation isn’t deserved. For most of American history, the Post Office was the quintessential public option, and it provided significant spillover benefits to the country in terms of democratic deliberation, infrastructure development, and commercial activity.

  Public libraries are another example of a public option that is hidden in plain sight. In a world without public libraries, individuals can buy books and have a personal library. Private organizations (like private universities) can also buy books and let their members use them. But books are expensive, especially if they only get read once. Most people can’t afford to purchase a large variety of books. Public libraries therefore provide a public option for books—universal access at a reasonable price (free). And you can still buy all the books you want.

  Ben Franklin helped create the library tradition in America in 1731 when he founded the Library Company of Philadelphia, which was the country’s first lending library. In the eighteenth century, America had both “social libraries,” which lent books for free, and “circulating libraries,” which charged a fee (and usually focused on more popular works). In the middle of the 1830s, reformers who believed in civic education established school district libraries. These proved hard to maintain, so by the 1850s libraries became identified with towns. Free public libraries would help schoolkids, house government documents, provide practical information for town citizens, and help the moral development of the community. Midcentury reformers saw part of their goal as ensuring that working-class people had access to information and knowledge so that they could improve their condition. During the Gilded Age, Andrew Carnegie gave millions of dollars to establish more than 1,600 libraries in 1,400 communities around the country.6

  Public libraries inspired generations of notable Americans. Thomas Edison read about electricity; Hemingway encountered books at the Oak Park, Illinois, library as a kid. A young Martin Luther King Jr. read everything by Gandhi in the Atlanta Public Library. Toni Morrison, Woody Guthrie—the list goes on and on. But the impact of public libraries was much greater than just a few notable names. During the Depression, the National Youth Administration (one of President Franklin Roosevelt’s New Deal agencies) employed 9,000 people at public libraries. The Works Progress Administration built libraries, employed librarians, and funded bookmobiles to reach rural areas. President Lyndon Johnson’s Great Society initiative expanded libraries further, from 9,500 public libraries in 1964 to almost 15,000 public libraries in 1980.7 Today, public libraries not only provide reading material to children and adults who couldn’t otherwise afford to amass a private library in their homes but also offer internet and computer access, lectures and readings, art appreciation, puppet shows, and much more. Anyone can take advantage of these opportunities.

  Public swimming pools are a third example of a public option, though their history is far more checkered.8 From the late eighteenth century, working-class people—boys especially—swam in nearby lakes and rivers for enjoyment. By the mid-nineteenth century, Victorian norms of modesty pushed municipalities to ban daytime swimming in lakes and rivers. The result was to block working-class families from both recreation and hygiene, because most were unable to afford baths in their homes or the expense of visiting a private bathhouse. With the emergence of a trend toward physical fitness, the advent of vacations (which made swimming acceptable to those with middle-class sensibilities), and the fear that dirtiness would lead to disease and criminality, municipalities started building public swimming pools.

  From the 1890s through the New Deal, public swimming pools went through a series of changes. They were first democratic, bringing together white and black men across class lines and justified for fitness purposes (because the germ theory of disease had become dominant, the “bath” justification was now unnecessary). But the working-class tradition of recreational swimming conflicted with middle-class preference for physical fitness, leading cities to charge fees in order to lock out working people.

  Eventually city leaders reopened pools on “free days” in hopes that working-class people wouldn’t cause trouble in town during their free time. When pools became integrated by gender, they became segregated by race. Mixing genders meant that pools became sexualized spaces, and fears of black men alongside white women led to segregation, enforced by private violence and intimidation. During the New Deal, the federal government built 750 pools and another almost 1,700 wading pools through the Civil Works Administration, Works Progress Administration, and Public Works Administration.9 These pools were not just jobs programs; they provided a respite from the economic stress of the Depression and refuge from the heat and drought in the Midwest.

  After World War II swimming pools were increasingly desegregated, and in the late 1960s cities started building pools for black neighborhoods that had been excluded during the age of segregated swimming. Whites soon fled public pools, establishing private neighborhood swim clubs and building in-ground backyard swimming pools. In 1950, only 2,500 American families had their own swimming pool; by 1999, 4 million did.10 With middle-class whites moving to private pools, cit
ies started to ignore the maintenance of the public pools used by the working class and minorities, leaving those facilities increasingly dilapidated. At the same time, Americans lost a central locus for community life—a place where people of different classes could come together.

  A Public Retirement Option for the Elderly: Social Security

  Thanks to the public options just described, we take it for granted that anyone can mail a letter or package to a loved one, or pay a bill for the cost of a stamp. We can be confident that anyone, rich or poor, can read or use a computer in a safe, clean space with access to plenty of books, movies, and software.

  But public options have also accomplished an even more ambitious task: how to provide for old age in a modern society. Today we take Social Security retirement benefits almost for granted, kind of like the Postal Service and public libraries. Shrouded in the mists of history is the program’s stunning achievement: it helped protect workers and their families and made possible the development of the United States as a major and thoroughly modern economic power.

  Many histories portray Social Security as an effort to address poverty among the elderly during the Great Depression, and that’s a reasonable starting point. In the 1930s, many older people faced a life of poverty when they could no longer work. The shortage of jobs in the Depression compounded the situation: older workers were competing with younger workers for scarce jobs. At the time, the only public retirement programs were means-tested, which is to say miserly and limited to the very poor. President Roosevelt’s big idea, which would take years to come to fruition, was that the federal government could create, and stand behind, a secure public retirement for all.