Q&A With Indiana Gov. Mitch Daniels

Daniels -- a former Office of Management and Budget director -- talks about the work of the super committee, and what Washington needs to do to fix its fiscal mess.
by , | October 7, 2011

This week Governing spoke with Indiana Gov. Mitch Daniels, who just released his new book, Keeping the Republic: Saving America By Trusting Americans. In the book, Daniels -- a Republican who served as budget director under President George W. Bush -- focuses on how the United States accumulated staggering debt and offers his recommendation's on how to recover.

Daniels discussed his new book, the president's jobs plan, and the work of the Congressional super committee tasked with finding at least $1.2 trillion in savings. You can listen to the audio of the entire interview or read the transcript below.

Ryan Holeywell: I finished reading your book earlier this week... I know you have this reputation for being very thoughtful, very even-keeled, very respected by both the left and right. But the tone seemed a little bit angrier than I expected. You talk about “czarina” [Health and Human Services Sec. Kathleen] Sebelius and President Alinsky as President Obama. I’m kind of wondering why the anger? Why the new tone?

Gov. Mitch Daniels: I’m sorry if you read it that way. There’s a whole chapter in there that argues for just the other approach. I don’t know, Ryan. It’s up to you to decide, but I think compared to the daily fare of modern politics, I think it was pretty darn tame. I certainly was striving for that.

I may have thrown in a word or two for effect somewhere that got outside my own boundaries. Most people – I’ll just say this -- most people who’ve read it have found it a lot less overheated than most of what gets said and written these days.

I’m not angry. I am alarmed, and it says that. So if there’s a tone of urgency in it, I guess I did intend it. I tried every way I could to avoid anger.

RH: A big part of the book is about your opposition to the Obama health reform plan. Obviously, the status quo wasn’t working. What’s the alternative?

MD: Total reform of Medicare, which I talk about in there. I’m in favor of consumerist health care, and I give the illustrations that are available from our Indiana experience there. The extension of that, of course, would be implicit in what I say about tax reform -- that you would move away from the current open-ended tax credit, or exclusion I should say, for health insurance. These are things that push the cost up. So I’m in favor of, frankly, much bigger reforms than he [Obama] is.

I think I make point in the book that I don’t think it should be called reform because it didn’t reform any of the drivers of high costs. It continues to divorce people from the cost of at least the routine care. It continues to pay for volume as opposed to quality. He didn’t do anything about defensive medicine or the legal system. As far as I’m concerned, that bill was simply taking our current problems and magnifying them, and those of us who disagree with it are suggesting the real reform.

Again, I don’t know how you perceived the book. I tried to say several times this thing’s not a manifesto. It’s not an exhaustive list of things I think need to be done. It’s not a healthcare book either.

The reason I devoted a chapter to the healthcare bill is because I thought it drew together these big concerns that I do have. One, the debt is going make it worse. Two, the continuing dominance of the private realm by the federal government, and [three] the diminishing autonomy of the individual citizen. I think they all came together -- the confluence of those three questions -- in that health care bill. That’s why it deserved all the stir it caused.

RH: Can you talk about what Indiana is doing now on the issue of health exchanges, because this is an issue that a lot of states are approaching very differently right now.

MD: We’re studying it very hard, and we don’t have a final answer yet. Of course, that’s in part because the feds are so far behind and can’t provide the answers. Just this week, or the end of last week, they denied our request. We had asked, based on the experience with the Healthy Indiana Plan (HIP) – that program for the low-income uninsured that you know about and read about -- we had asked, loosely speaking, to modify Indiana Medicaid and make it look like HIP. Under the bill as it stands, HIP will be abolished, and all those people will be pitched into Medicaid, which we think is maybe the worst possible answer.

We didn’t have many hopes. But we did think we’d ask whether we might be permitted to implement the principles that we think are working pretty well in HIP in Medicaid. But to the extent we could understand that letter we got back, I think it said no.

RH: Switching directions, I want to talk about infrastructure. Obviously Indiana has been fortunate with the timing of its toll road deal -- it hit the jackpot on that -- but that’s probably something that can’t be reproduced in other states, or at least certainly right now I don’t think can be reproduced in other states. So I’m wondering, as someone who appreciates infrastructure and understands infrastructure, how can we be improving the system and upgrading the system when, at least at the federal level, the money’s not there?

MD: I think the two most promising places to start are, first of all, to involve private capital. And you’re probably right. There are only so many opportunities to generate money out of an under-performing asset. There are plenty of them. As you know [former Pennsylvania Gov.] Ed Rendell came close to a much bigger one that we did. So, there are those possibilities, but there are only so many of them.

But there are large possibilities for private dollars to either build necessary infrastructure and be paid back either through tolls or through what are called availability payments over time from government. And we ought to take the wraps off all that, but Washington continues, as I mentioned in the book, to resist it at every turn which is a terrible mistake. I keep saying that this ought to be one of those issues that people from different points of view can come together on. It is a problem. And yet, some folks are determined to deny any creative financing approach a chance to play a large part.

The second thing is, as we should have learned in the failure of so-called stimulus bill … the federal government itself is the reason things are never shovel-ready. If we want to approach this as the genuine emergency it is, both the immediate economic problem and the long-term infrastructure problem, we ought to set the rulebook aside in favor of some more streamlined system. But again, not much luck with that so far.

Let me give you a tiny example. Because we have all that money of our own in Indiana, occasionally we do things with just our own dollars. If we build a walking and bike trail, when we build it with our own money, it’s $250,000 per mile. If there’s one dollar of federal money involved, it’s $1 million a mile. It takes a lot longer. I mean, just extrapolate that to the big projects, and you’ll see the opportunity.

RH: So I take it then the president’s jobs bill, which calls for billions of dollars in investments in infrastructure, is not the way you’d approach the situation?

MD: No. Especially not what he’s got. Look at what he’s going to build: school buildings. I’m not against nice buildings, but the infrastructure we need is the kind that enables, makes more likely, private-sector investment and jobs. That’s roads and bridges and rail and ports and the like. So I’ve got two problems with what he wants to do. One is he’s going use the same failed, protracted, wasteful system -- all the federal rules that run up costs and stretch out times -- and having done that, he’s not even aiming at the infrastructure that would really put people to work. (Reporter's note: the president's proposal does call for $50 billion in spending on highways, transit, rail, and airport improvements.)

RH: Speaking of the jobs plan, in the book and also in other interviews you’ve talked about your idea for jump starting the economy: a moratorium on new federal rules, new federal regulations. I thought that was kind of interesting because I imagine there’s probably a lot of people on the opposite side of the aisle who would probably argue that a lack or rules, a lack of regulation, is part of the reason Wall Street led us into the financial situation we’re in. I’m wondering how you respond to that, and how you’d strike that balance.

MD: I just don’t think we’re talking about the same subject. First of all, the government is probably more to blame for the housing bubble and everything that flowed from it than… inaction. Government created that bubble through active policies to shove mortgages at people who weren’t ready for them yet and with low-interest rates and easy money policy for too long.

The things I’m talking about here are just simple. Whether you’re on the left or on the right, we all have an enormous stake in a faster growing economy -- soon. In fact, ironically, those who believe as the president and his allies do in a very large and very expensive federal government have the biggest stake of all. We don’t have a prayer of avoiding a debt catastrophe, let alone paying for the government they want, if we don’t have rousing private sector growth. So the argument of the book and the argument I make everywhere I go is, in that situation, other priorities just have to step back a little bit. We have to break every tie right now, calling every close one in favor of whatever would generate more private investment and hiring and growth. And this administration has got a marvelous knack for getting it wrong every time.

RH: Talking about the deficit issue -- the super committee’s got about six or seven weeks before its deadline approaches. Say you get a call tomorrow morning from the co-chairs of the committee saying, “Governor, we’re scratching our heads, what’s your suggestion? How do we get to $1.2 trillion?” What’s your pitch to them?

MD: You cannot reduce too much. My first pitch would be: don’t be so fearful. Any reduction you might make will be noticed by many fewer Americans than you might think. Here’s the thing that worries me about the super committee. $1.2 trillion is a big number – not measured against the size of our debt or what’s coming – but let’s agree that it would be a very good step if they could take it. It’s a nibble, not a big bite, but it would be an important step. Remember the numbers that they’re looking at -- all these projections are based on the president and his people’s forecast of 4.2 percent growth this year. It’s going to be 1 [percent]. So the rule of thumb is every point is three-quarters of a billion dollars.

I guess the point I’m trying to make is, if they get the whole $1.2 trillion and it’s real, and those are two big “ifs”… that would be great, and they would deserve a lot of credit. But in the meantime we took that one step forward and two steps back because of a stagnant economy. So I’m back to where I was. Whether you like big government or small, everything right now should be aimed at growing the private economy. It’s the sine qua non of getting through this.

RH: I talk to a lot of state senators and state legislators all over the country. They’re obviously very concerned with how the cuts made by the committee could affect their own states’ pocketbooks. As a governor, are there any cuts you think should be off the table? Or is this such a big task that it’s bigger than what the state people have to deal with?

MD: I want them to do absolutely as much as they can. It’s in the interest of every American, and that means every Hoosier. We can handle anything that I’ve heard discussed so far, and probably more, in Indiana. I understand not every state is in as solid shape as we are. I still think they should take the long view and understand that if Washington doesn’t begin to match ends and means, none of our states will come out of this.

RH: Are you optimistic? Do you think the super committee will meet its goal in time?

MD: I don’t know what to say about it. I choose to be, but I have no basis for it. I sure hope so. I think they’ve got people of good will. I’ve actually heard from a couple of them. I think they are really determined to try to do it. I sure wish them well. As I say, if they get the whole $1.2 trillion, and it’s real, that would be a great step forward. But the next morning we ought to start talking about the next one because it’s a very partial step when you just look at the arithmetic of our situation.

RH: Last question I’ve got for you. Republican primary 2012: who are you voting for?

MD: Well I don’t know. Our Indiana primary isn’t until May. So I’ve got a lot of time to figure that out.

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