Niall Ferguson and Laurence J. Kotlikoff, writing in The New Republic (subscription required), propose to tackle the fiscal mess three ways. First, they suggest replacing existing Federal taxes (personal income, corporate income, payroll, and estate) with a consumption tax that amounts to 33 percent of consumption, which they say would be 21 percent of GDP.

Next, they would phase out Social Security and replace it with personal accounts (while taking great pains to distance themselves from the Bush Administration’s personal accounts proposals).

accounts would be private property. But they would be administered and invested by the Social Security Administration in a market-weighted global index fund of stocks, bonds, and real-estate securities. Consequently, everyone would have the same portfolio and receive the same rate of return. The government would guarantee that, at retirement, the account balance would equal at least what the worker had contributed, adjusted for inflation–i.e., the government would guarantee that workers could not lose what they contributed. This would protect workers from the inevitable downside risks of investing in capital markets.

Finally, they would

abolish the existing fee-for-service Medicare and Medicaid programs and enroll all Americans in a universal health insurance system called the Medical Security System (MSS). Every October, the MSS would provide each American with an individualized voucher to be used to purchase health insurance for the following calendar year. The size of the voucher would depend on the recipients’ expected health expenditures over the calendar year. Thus, a 75-year-old with colon cancer would receive a very large voucher, say $150,000, while a healthy 30-year-old might receive a $3,500 voucher.

Their goals fall within the tradition of what Alan Blinder calls Hard Heads, Soft Hearts. It is interesting to compare their positions to what I call Bleeding-heart Libertarianism. I think that the main difference is that I am less paternalistic in terms of directing people’s retirement investments, and less wonkish in my approach to health insurance.

In fact, I do not think that Hard Heads, Soft Hearts is a platform that either major party is prepared to endorse. Instead, I think that Kotlikoff and Ferguson wind up being part of what I call The Long Tail in politics.

For Discussion. How is it practical for the government to provide insurance against losses on index-fund investments? How do we bail one another out if there is a stock market crash?