MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Republican Mitch Daniels has been governor of Indiana for nearly seven years. He's a fiscal conservative, and the way he tackled Indiana's budget deficit earned him praise as well as criticism. In a new book, he offers his solutions to the nation's debt problems, which he calls a threat to the America we have known. His new book is titled "Keeping the Republic: Saving America by Trusting Americans." And Gov. Mitch Daniels joins me in the studio.

MS. DIANE REHMThe last time he was on the telephone with me, I identified him as the governor of Illinois. I'm so glad to introduce him correctly as the governor of Indiana. Good morning to you, sir.

GOV. MITCH DANIELSWhat a treat to be here. Thanks, Diane.

REHMI'm glad to have you here. Tell me what the central message is of this book that you want to get across to Americans?

DANIELSThat something even larger than -- if that can be imagined, something even larger than a risk to the American economic engine or even larger than a risk to the American dream, the optimism that's always animated Americans, that even in tough times, tomorrow will be better, my children will live better than I do. That's plenty to be alarmed about today. But I thought -- if I could add any value, I'd like to point out to people that on top of all that, it's our system of self-governance that's on trial.

DANIELSThat we have to be, and I believe we will be, the people who'll prove that in a government by consent of the governed, we will not spend ourselves into bankruptcy, we will not let our affluence make us so complacent that we lose the character traits of commitment to liberty and taking responsibility for one's own life and coming together as a body politic to make long-term decisions that gave rise to liberty in the first place. I think that's what's going on now.

DANIELSWhat I tell about trusting Americans -- I don't think either side of our national debate does sufficiently, and we ought to bet on the capacity of Americans, one, to run their own lives, and two, to look at the facts and listen to the size and the dimension of solutions that we need to -- the actions we need to take and then rally together to do it and keep this American project going.

REHMYou talk about Americans running their own lives. Then what role should government play?

DANIELSIt's an indispensible role, of course. Certainly, we need boundaries and rules. Certainly, we need to provide for the common security, the national and domestic security of our people. I talk in the book -- there's a chapter called The Great Inversion and simply put, it raises the question, who's in charge here? And I was raised to believe that government is something really important that people of good will ought to give at least some of their lives to, if they can, in order to support the private realm.

DANIELSThat the private realm -- and I mean here business or nonprofits or voluntary associations, just the free exercise of individual liberty was what mattered, and government was there to make sure that the realm flourished. Now there's a whole other view of society, which says basically those poor, benighted Americans out there, they really aren't up to it. They can't cut it.

DANIELSThey need us to look after them, protect them from predators, to make decisions in their interest about what their health care should look like, where their kids go to school, what kind of credit card they should be permitted to have, you know, what kind of light bulb they should buy. And obviously, I associate with the first set of -- the first view of government. But this book, I hope, makes very plain that honest people can differ about how big a realm government -- how big a sphere it should occupy.

DANIELSBut inside that sphere -- in our stewardship in Indiana, we may believe it's limited, but we believe it should be active, tackle problems affirmatively, and we believe it has a duty to be effective.

REHMGov. Mitch Daniels of Indiana. Do join us, 800-433-8850. I look forward to hearing your calls, your questions, comments. Send us your email to drshow@wamu.org. What about the policies pursued by the Bush administration when you were there as budget director? Do you believe that those policies have contributed to the current economic difficulties we're in?

DANIELSSome, but maybe not the ones that people ask about first. I mean, for instance, the failure to move aggressively against Fannie Mae and Freddie Mac, which were, at that moment, contributing to the inflation of the housing bubble, which started all this trouble. I think it was a big oversight now. The administration raised some concerns about it. Congress, by the way, Republican Congress during the time I was there, wasn't having any.

DANIELSSo I would cite that, for instance, as a much bigger contributor to the current problems than things people tend to think of first. You know, people obsess about the tax cuts. It was a small percentage, 15 percent or less of the swing from surplus to deficit that we saw in the last 10 years. You know, people may have forgotten, but with the whole cost of the two wars, the construction of Homeland Security, a whole new category of spending that hadn't been there before, and everything else, in -- I mean, the biggest deficit of those years was one third the size of the ones we are running today.

DANIELSAnd by 2007, after those costs were all baked in, the deficit was tiny. It was barely over 1 percent of our gross domestic product. So this is not to pretend that, you know, there weren't lots of things that could've been done better, but I do think sometimes people identify the wrong mistakes as being bigger than they were.

REHMWhat about the prescription drug benefit that was added to Medicare without funding it?

DANIELSWell, I think that's a very fair point. You know, the -- it has cost a lot less than people said, but it is fair to say we can't afford the Medicare we have. The current system is gonna blow up and take the American dream with it if we don't fix it, at least starting out in the future. So that, again, honest people can differ about that. I will say the structure of it which enabled seniors to pick from a wide menu the choice that looked right for them did, I think, show the power of competition when it cost a lot less than anyone imagined.

DANIELSIt's the first health care program ever that didn't cost eight or 10 times more than forecast. So I think you can say, well, it wasn't a very good time to do it. There should have been more provision to accommodate it. But you could also say, look, when we go to trying to build a new Medicare system for tomorrow's seniors, maybe there's a lesson in there.

REHMIn one section of the book titled or subtitled We Can't Afford Everything, you say, "but to drift into the viewpoint that opposes any tax at any time at any level is illogical and unjustifiable." Isn't that what we're hearing from the Republican leadership?

DANIELSFrom some, and I take a different point of view. If you just examine -- and, Diane, I'm so grateful for the chance to talk to you and folks who may be loyal to this program, because this book, there are a lot things in this book that I'm saying to people I generally am allied with, but I'm trying to say to everybody that we are in this fix together. It is not philosophical. It is not ideological.

DANIELSThese debt levels mathematically cannot be sustained and is gonna hurt us all, so there's a call in the book to try to come together and concentrate on solving this problem. If we don't, it'll hurt the young and the poor the most, as is so often the case, but it'll hurt everybody and it'll, as I say, it'll take the optimism out of America maybe for good.

DANIELSSo if you believe that, if you accept the premise, this is a survival level threat to the America we've known, then I think it leads you to certain conclusions like maybe we should lay down our swords on other issues that we're -- that sharply divide us, at least for a while. And secondly, that, as I say many places, if you're as passionate about this as I am, you have an obligation to lay out what you think would be the right way forward.

DANIELSI talk about new safety net programs that can be afforded tomorrow. I talk about making growth of the private economy our number one objective, whatever that takes. But I also say if we can't do it in what I believe is the very best way, let's talk about the second best way or the third best way, or whatever ideas you may have, because we either -- this either gets done or we're done.

REHMWell, it's interesting that you put it that way, especially when President Obama has said he wants to raise taxes on the wealthiest Americans and you've got several Republicans who are saying, no rise in taxes on anyone. How do you justify that?

DANIELSYeah, I have problems with both sides. I mean, the president -- I have two problems with the president. What he's pitching here won't work. You could do what he wants and you've solved -- if you don’t hurt the economy in the process, which is a big assumption, let's assume you don't -- you've now solved 4 percent of the problem mathematically, if you raise these taxes on the people he is so fixated on. So that's not a serious proposal absent much more. Now, on the...

REHMAll right. Hold that thought. We've got to take a short break, and when we come back, you can finish your other few points, and then we'll talk about the fairness involved. Stay with us.

REHMAnd we're back with Gov. Mitch Daniels, seven-year governor of Indiana. We're talking about a new book he's written. It's titled "Keeping the Republic: Saving America by Trusting Americans." I had to interrupt you for that break, governor, so please continue with your notion of the reality of President Obama's plan to raise taxes on the wealthiest.

DANIELSYes, thanks, because I need to -- I certainly wanna talk about what's wrong with, as I see it, the position of some of folks on my side of the tracks. Well, I just said that I thought President Obama's suggestion was not very -- was not practical, certainly wasn't gonna get us very far. And, secondly, I thought it was very divisive at a time we ought to be trying to speak, as I did a few minutes ago, trying to talk about our common cause here.

DANIELSNow, meanwhile, I do have a different view than a lot of folks with whom I generally agree. I mean, when you look at the number of zeroes attached to this debt of ours and the immensity of the problem, I don't think even some of the most visible of our political figures have really quite come to grips with it. We're gonna need a lot more revenue.

DANIELSEven after we have reshaped the safety net programs, even after we have said, at least temporarily, stopped some of the nice-to-do items, separated the must-do from the nice-to-do items in the federal budget -- and there are many of those -- we're gonna need a lot more revenue. Now the question is, what's the practical way to get it? Raising tax rates in the system we have now is not gonna squeeze enough out of that lemonade and...

REHMCould it not be regarded as a first step?

DANIELSWell, it would be a very small one. And if it hurt growth, Diane, it would be a -- it would two steps backward for one step forward. Listen, I could not agree more that everyone must participate, to some extent, in the national reconstruction we need, and it can start with those who are better off. But I do think that president -- his allies are looking in the wrong place. When you talk about just raising the rates on these folks, it won't produce the money they think and won't produce the money we need.

DANIELSThe better place to look is -- first of all, benefits they don't need. We are sending checks to very wealthy people, and we cannot afford it anymore. There was never an excuse for it, by the way, except, as I detailed in the book, it was a political calculation from the beginning. You know, send Social Security checks, Medicare to the wealthiest Americans because you don't trust them to support their less wealthy neighbors if they're not getting something.

DANIELSWell, I think that sells Americans short, and, you know, we'll have to part with that. I also think that, you know, these tax expenditures, the kind of tax change we really need -- and people across the spectrum are coming to this point of view -- the Bowles-Simpson commission recommended it, by the way, as one version of it. It would be not higher rates, but lower rates, but paid for by closing -- either closing out completely or limiting the use of these various tax exemptions and deductions, which wealthy people take the most advantage of.

DANIELSAnd, you know, if we could get -- once again, it's happened repeatedly to a much stronger growth in the American private economy. What has happened every time is, first of all, you get more revenue to pay for the things we need, to get our debts somewhere under control, and, incidentally, wealthy people wind up paying much more and a higher share of the total. And so that's the direction I think would be more productive than where the president took it.

DANIELSAnd I would just say to folks on my side of the street, look, it's a proper caution to be careful about the kind of tax changes that will hurt growth. That's to shoot yourself in the foot. But that can't be said of every tax change, and so we're gonna have to talk about it. And as I said earlier on, I think this -- the right way forward does not involve tax increases, but as opposed to inaction and the incredible pain and -- that will come from that.

DANIELSYou wanna know where we're headed? Look at Greece, then Spain. Look at Europe right now, just a few percent further down the debt trail than we are. To avoid that, if it comes to a second or third best solution, I, for one, would be willing to discuss it.

REHMAll right. I want to ask you about Social Security. I know that Texas Gov. Rick Perry has called Social Security a Ponzi scheme, and that you, Gov. Daniels, have concurred.

DANIELSWell, it's in the book. And, you know, what's so interesting about that -- and I'll tell you in a minute why I thought Gov. Perry could have spoken better, but what was so interesting was everybody piled on him for that, and then journalists, several journalists immediately started Googling around. It turns out the very same analogy has been used for 40 or 50 years, including by some of the most liberal folks in America. Paul Samuelson, whose economics textbook we all studied, was using the same example -- same language in 1967.

REHMAnd do you still agree?

DANIELSWell, let me see. Yeah. My point is, I guess, that what Perry said, as far as it went, is not that it's not true. It's that it's trite. When I read all this, I said, boy, I should have found a more original way to express it in the book.

REHMWell...

DANIELSI mean, a plan, any plan in which the -- someone believes they're investing for their own account, but really the money is going out the back door on a pay as you go basis today, you know, it's not an unfair statement. Now, there are some differences. A Ponzi scheme is voluntary, and Social Security, you don't have a choice. You're in there. But more to the point, I don't think one should point out the unaffordable structure of Social Security without proceeding on to do two more things.

DANIELSOne, I already did here, pointing out we're not talking about today's retirees or even those for the next few years. Two, tell us what you do about it. And I -- so I do think the governor ought to proceed on to those other two steps.

REHMOK.

DANIELSYou know, not leave it where he did.

REHMOne clear distinction between Social Security and a Ponzi scheme is found in the dictionary. A Ponzi scheme, a fraudulent investment scheme in which funds paid in by later investors are used to pay artificially high returns to the original investors, thus attracting more funds. Social Security is not illegal and not -- cannot be thought of as fraudulent.

DANIELSWell, it's been a very important program, and it needs to stay. It needs to stay in a fashion we can afford as -- and I suggest several steps we can take to make sure. But, listen, Diane. OK, fraudulent is a frayed term that probably shouldn't be used. But in the literature, just as Ponzi was used as a description from left to right for decades before Rick Perry came along, in the literature, I mentioned in the book, there's a term for this called the noble lie.

DANIELSAnd Americans were, in the millions, allowed to believe, or even led to believe, that they were paying for themselves. I'm just getting out what I put in. It was never true, and it's -- and it was affordable when there were 60, then 40, then 20, then 10 workers for every recipient. But now there are three headed for two. And so, you know, I don't think it's ever noble to lie to the American people.

DANIELSBut when I talk about trusting Americans -- this is a really good example -- the whole premise -- Milton Friedman once challenged Wilbur Cohen, the then -- I guess he was President Kennedy's or Johnson's secretary of Welfare, -- Health, Education, Welfare, we called it then -- and said, why are we doing this? Why, for instance, are we sending money to the wealthiest? And he said, you're absolutely right, but a program for poor people will finally be a poor program.

DANIELSIt was a way of saying that Americans aren't generous enough, aren't compassionate enough to want to contribute so that no one is destitute in their latter years. I don't think that's true at all, and I believe we're gonna prove that because we can't keep on as we are. We're gonna have to change.

REHMBut wouldn't there be some absolutely simple, ridiculously simple ways of fixing Social Security without abandoning it altogether? For example, raising the retirement age to 67, doing the increases based on another index. I mean, there are so many ways to change this without trashing it.

DANIELSExactly what I say in the book, and I agree with you completely. I mean, I said just a minute ago, this is an enormously viable program. We're trying to save Social Security. You know, the...

REHMBut why is Gov. Perry trashing Social Security?

DANIELSWell, I don't know if that's a fair description, but I'm gonna let him speak for himself. I'll just...

REHMBut you agreed with him.

DANIELSNo, no, no.

REHMYou called it a Ponzi scheme as well.

DANIELSWell, I said that's a place to start. But again, people of every persuasion have used that. Maybe it's too casual an allusion.

REHMIt sure is.

DANIELSBut, you know, it's not inaccurate or Paul Samuelson wouldn't have used it. So -- but I completely agree...

REHMWell, Samuelson's not always absolutely right.

DANIELSNo, no, no.

REHMAnd to use that word signals that it is fraudulent, and it's not fraudulent.

DANIELSAll right. Well, you know, I'll be careful not to use it again. But the most important part of this discussion is the one that I try to point to and you just summed up very, very well. I think, by the way, you just named the three most useful and, I think, fairest things we could do. We should means test the program. Let's -- we don't have enough money. Let's concentrate the resources on those who really need them. Two, let's raise the retirement age at something more to like, more realistic.

DANIELSWhen Bismarck picked 65, he was no fool. The average German died at 50-something. When Roosevelt chose 65 or repeated it, the average American died at 62. Today, as you know, anybody who arrives at the age of 65 is gonna live maybe 20 years more. So, of course, we should modernize that starting in the future, and then you're right, we over indexed for inflation. Social Security didn't start that way, is, you know, it got added -- politicians kept adding along the line. It was popular.

REHMBut Social Security indexing has not happened for the last two years.

DANIELSWell, that's because there's been no inflation (unintelligible)...

REHMExactly. So no increase. So, I mean...

DANIELSBut did you notice, even though there was not an increase in the cost of living, politicians, including the president, rushed out? Let's send everybody a check anyway. This instinct to pander...

REHMAnd that was...

DANIELS...is what got Social Security in this fix.

REHMI fully agree. Do you think that the deficit super committee can possibly achieve its goal? And if it doesn't, what happens?

DANIELSWell, as a matter of substance, of course, there is far, far, far more than that in the federal government that we could do without and you wouldn't miss it. Now politically, that's what people say. Politically, I just don't know whether in this environment they can or not. Let me give you what to me is a sobering little footnote, though, to this. This super committee is -- everybody is in awe of a trillion two that they're supposed to go find. And it's a big number in, you know, the way we've been doing business, I admit.

DANIELSWhat nobody seems to have noticed is just in the last few months since that whole committee was commissioned, we have backed up twice that far. The growth, the assumption in the budget, all these terrifying numbers we're looking at, assume the American economy would grow at more than 4 percent this year. Well, it's not. It's growing at one. Every one of those three points is 750 billion more debt over 10 years.

DANIELSSo let's assume this committee does its job, delivers and we improve -- by any combination of policies, we improve by 1.2 trillion. In the meantime, we've backed up two-point-something, which only says, again, every decision the national government makes for the foreseeable future, every one should be tested against the question, will this make the private economy more likely to grow?

REHMGov. Mitch Daniels of Indiana. And you're listening to "The Diane Rehm Show." Are you saying there should be no entitlements for people who can otherwise afford them? Would you means test Medicare as well?

DANIELSYes, I would. It doesn't mean necessarily zero. I mean, we -- but it certainly means that that program which is, by the way, a far bigger menace to the American future than Social Security is, absolutely -- those who are in a better position...

REHMWhere would you have the cutoff? What would be the cutoff?

DANIELSMake me an offer, you know? I just wanna see the program survive...

REHMSomething on the table.

DANIELS...and I wanna see the American economy survive. There's a thousand ways to mix and match here, Diane. But absolutely, I think the starting point -- Medicare is a big problem. This won't be enough, but the starting point surely is to say to the wealthiest folks, you buy your own insurance. And at some point, we'll give you a little help then a little more and a little more, but we wanna concentrate the resources on those who have the least and who otherwise will be defenseless without them.

DANIELSAnd secondly, we can adjust these programs to - for health status. So those who arrive at Medicare age with health problems ought to be given more assistance...

REHMEven if they're in the wealthier class?

DANIELSNo. I would, you know, I think both these -- I think -- I'm just saying you would test for both these. If we had all the money one can imagine or really could borrow infinitely, maybe you wouldn't face this. But I think this is both fairer, frankly, and it's the only way we have a chance of avoiding it.

REHMThe government is facing a shutdown even as we speak today. What would you say to your Republican colleagues regarding the money for helping people who have been hit by one disaster after another?

DANIELSI would say, first of all, you're right. We should be reducing spending to -- at least to offset any new cost. Probably, every chance that this comes up there -- I mean, they're right. We should take out two or $3 for every one that's put in, got to get that process started sometime. But I would also say, look, keep your eye on a bigger ball. There are so many more zeroes attached to the biggest issues here.

DANIELSThis super committee is at -- a few. But the big issues are the ones you and I were just discussing, and so I think it is not productive, at some stage, to have these huge fights over relatively small things. I'd give you another example I talked about in the book...

REHMWould you agree with the government shutdown?

DANIELSNo. No. It's -- I agree with the point they're making, but if they don't have the votes, I don't think it's productive. It allows, by the way, those who would just keep on borrowing and spending without limit to, I think, sidetrack the discussion and make people who are making a rational point -- we need to spend less, not more -- sound irrational. You know, I reminisce in the book the time I was -- a decade ago when I was in federal service, I ran around, made more noise about these earmarks than anybody.

DANIELSI was the first -- I would say I was the first to rail and the first to fail. I got nowhere with Republicans, by the way. But at some stage, it was a perfectly legitimate point. But obsessing over earmarks, I think, was a distraction. If it leads the American people, thinking you could fix something by measures that small, that's not serving the public well. We got to get the public to see where the big problems are and the big solutions.

REHMAnd my guest this morning, Indiana Gov. Mitch Daniels. When we come back, we'll open the phones, your comments, your questions. I look forward to hearing from you.

REHMAnd welcome back. Indiana Gov. Mitch Daniels is with me. We're going to open the phones now, 800-433-8850. First to Raleigh, N.C. Good morning, Charlie.

CHARLIEHello. Can you hear me?

REHMSure can. Go right ahead.

CHARLIEI got a couple of things. I don't agree with Mr. Mitch up there very much, but I would -- I hear all the sacrifice coming towards the people as far as Medicare, Social Security, all these social programs as being the ills here. Nobody's mentioned anything about government pensions. Nobody's mentioned anything about, you know, our congressmen and all the benefits they get and all the rest of these government workers.

CHARLIEYou know, I'm a veteran, and even I pick up quite a bit of, you know, (word?) that way. I think we ought to look at that, to the expenditures there. You wanna save Social Security. How about folding all of those government pensions into a Social Security fund? That's my one thing. And the other thing is I think we should have a flat tax rate of around 16 percent. That's what the wealthiest Americans average out paying.

CHARLIEIf everyone paid that and you did away with all the loopholes and subsidies for big corporations, we might get rid of a lot of the lobbyists up there in Washington that are causing a lot of these problems.

REHMThanks for calling.

DANIELSWell, Charlie from Raleigh, you don’t need to read the book 'cause you got it all -- that's exactly -- I couldn’t agree with you more strongly. You know, the -- I mean, first of all, everything, literally everything has to, I think, be considered if we're gonna work our way out of this but...

REHMYou'd be in favor of a flat tax?

DANIELSWell, I said lower and flatter. I don't know if it's one rate or two or three, but it'd probably have to be more than 16. You know, the average wealthy person is paying a lot more than 16, but, you know, but he's on exactly the right track. Again, the main thing is, so that the economies might grow more quickly and create more jobs and wealth for everybody, he's absolutely right about the way government pensions have got out of hand.

DANIELSThere's the whole chapter devoted to the way this has gone upside down, Charlie. Not that many years ago, we really worried about government employees being underpaid and exploited by patronage and so forth. Boy, we fixed that in a huge way. Today the average federal employee is paid twice what the average taxpayer who pays his salary is paid, and the pensions are way beyond that. So you're on the right track there on both counts, and thanks for the call.

REHMThank you. Let's go to Indianapolis, to John. Good morning to you.

JOHNGood morning, Diane.

REHMHi.

JOHNI'm a physician here in Indiana, and I followed the career of Mitch Daniels for decades. And I must say, he is the ultimate chameleon. He is someone who is not just a social conservative, he is an economic conservative. He plays to the rich, the wealthy, and the middle class and the poor are to suffer. If you look at his work when he was in the Bush administration as budget director, if you go back to his estimates for the cost of wars, he's clearly aligned with the neocons.

JOHNAnd I don’t accept for one moment that he's a moderate. I will also add that I was employed at Lilly while he was there, and he brought one unique qualification to his highly paid executive post. He left with million of dollars. He was aligned -- and that unique qualification was that he was in deep with the congressional Republican and with the Bush administration.

REHMThanks for calling, sir.

DANIELSWell, not much to say. I would just say John's on the very, very, very short end of the people of Indiana. We -- and of course, I think he's just wrong about everything he said, but there'd be no persuading him and I won't try.

REHMAll right. Tell me your thoughts on what role labor unions have here in the U.S. today.

DANIELSThe private sector labor union and the right to join one is a fundamental freedom that have served this country well and is very essential as countries attempt to become free now. And I think it deserves to be protected. I have a different view about government unions. I'm not along with that.

REHMPublic unions.

DANIELSPublic unions. Franklin Delano Roosevelt thought they had no place. George Meany thought they had no place. Fiorello LaGuardia, other...

REHMWhy?

DANIELSBecause they, as been said, they -- there's no right to strike against the public interest. The notion was, if you're working for the taxpayers, you're in a different situation.

DANIELSSo the previous call that -- skipping back over John's speech, the previous call put a -- Charlie put his finger on one of the reasons that many of our fellow states -- Indiana is in about as strong a fiscal condition as any, but many are in desperate shape because of the way in which -- in a system that is very, unsavory is a gentle word, but, you know, the system is, mandatory dues collected from government workers, recycled quickly into politics to politicians who will vote for the next increase and the next pension increase and so forth. It's a very visible and I think it's the worst...

REHMDon’t private sector unions have that same ability to fund candidates of their choice?

DANIELSYes, of course. And they should -- it should remain. But here's the difference, Diane. If they push up cost and benefits and so forth too far, their company goes under -- goes out of business. You know, and we got, you know, casualties all over the landscape, industries that suffered from that. The government can't go out of business. They can just keep exploiting the taxpayer without end, at least until the piper can't be paid anymore.

DANIELSSo I have a very different view about unionism in government sector and an increasing number of people agree with that.

REHMLet's take a call from Cleveland, Ohio. Good morning, Bob.

BOBHi. You know, something about public sector worker unions. People in the military don't have a union. They're not covered. And if you look at Bush, what was going on at Walter Reed, what the despicable living conditions of veterans of Iraq and Afghanistan, waiting two years and above for their disability benefits, the governor said something about Americans not letting people, you know, go, you know, full on fall into poverty or whatever.

BOBBut USA Today reported in March about 70 percent of the homeless are veterans. So I think the government is completely wrong about public sector unions. And one of the thing I want -- my comment was -- question to him is we're not all in this together. Big lobbyists, the investment banks, I don’t think they think of this country as a country.

BOBAnd if you look at the way they behave during war time, causing our economy to go into a, you know, economic disaster, I think the only way we're gonna solve our problems is if we get the influence of money out of Washington.

DANIELSWell, a lot to agree with there. I mean, first thing is the only way you get the, really, the influence out of Washington is if you make Washington smaller. You make the trough big enough, you know, the hogs are gonna always circle. And so people should never be surprised at all the money and all the special interest pleading that goes on because we caused that when we made Washington and the federal government as huge as we did.

DANIELSBut let me go back to something important Bob brought up. I mean, I don’t think unions are the answer to the problems with government effectiveness. The most important reason, which I didn't mention in the previous question, that we discontinued mandatory union membership for Indiana state employee was really not to save money, although it did save a lot of money. It was to allow us to start changing government so it could be more effective.

DANIELSSo if you're -- and it is now. We were able to consolidate departments and move folks around and demand performance. We now pay people based on how good a job they do, not just 'cause they've been there longer. And the upshot is that department after department, we measure everything, service is better. You're in and out of our license branches, if you have to go at all, in less than minutes. You do a tax refund, it comes back in half the time it used to. Our state parks are in better shape than they were.

DANIELSThat's what – when I said earlier, that I may believe government should be careful not to do things it shouldn't, but the things it must do, it has a duty to do well. That's what I'm talking about.

REHMWe've got lots of emails like this from M. E., who says, "If the governor is so interested in Americans making their own decisions, why did he sign legislation defunding Planned Parenthood? If Americans are as capable as he says, can't they decide whether or not to go to Planned Parenthood? He seems to be saying that women need men like him to make our decisions."

DANIELSNo, of course, not. Well, a fair question. I didn't propose the so-called defunding of Planned Parenthood. It was attached to another bill, which I did support, and I saw no reason not to sign it. Before I signed it, I double-checked, there were 800 alternatives available to women in our state. There was no county in which there were not at least several alternatives. So the first thing I did was try to make absolutely sure that no one, no woman would miss an appointment, miss a prescription, miss any kind of service.

DANIELSWe also -- I ordered a communication to every Medicaid beneficiary of all the choices available to them. So in the end, it didn't happen. The court stepped in. But it wasn't my proposal. But it also was not a -- did not diminish in any way the services we were providing. If it had been, I'd have come out somewhere different.

REHMHere's a comment posted on our website from hoosier7, who says, "Mitch Daniels is a lightning rod for good reason. His dismantling of Indiana public education is one way he tackled the budget. Caps on property taxes is another. Apparently, he is unaware of all the budgetary problems in California that have come about since they capped their property taxes in 1978. Busting unions, telling teachers they're overpaid is no way to run a government.

REHMIf those teachers are overpaid simply because they make 22 percent more than the average Hoosier, how much more are you overpaid since you make roughly 300 percent more than the average Hoosier?"

DANIELSYeah. Well, a lot of ignorance in this question, Diane. First of all, Indiana spends a higher percentage of its state budget on higher -- I'm sorry, K-12 ed than any state in America, 56 percent. Second place isn't even very close. We have maintained -- we've increased spending on K-12 every year until the recession hit. We backed up about 2 percent of school budgets one time and then we resumed increases.

DANIELSIn forty states of this country, something much more severe had happened, and I can't believe the caller would cite California, the catastrophe from overspending out there. There's been a massive cut, 10 times anything Indiana did, and they're not done yet because they didn't discipline themselves about overall spending. So, you know, we believe in more dollars where they're available. Far and away, K-12 is the highest priority in our budget.

DANIELSBut it always must be said, if spending more money on education was gonna lead to improvement, we'd have seen it a long time ago. You know, talking about teachers -- I never said teachers were overpaid. I said bad teachers, you know, might need to make way for better teachers. Our position is that the best teachers should be paid a lot more, and we have taken steps to see that they will.

REHMGov. Mitch Daniels of Indiana. And you're listening to "The Diane Rehm Show." Let's go now to Jacksonville, Fla. Good morning, Jay. You're on the air.

JAYGood morning. I wanted to ask the governor, where does protection of the people and protection of private businesses, you know, where is the line between those two? The private industry has a long history of exploiting people for profits, but also making it harder for everyday citizens to get into those -- into their own businesses and be competitive. So how do you balance these two? Thank you.

DANIELSYeah. Well, an industry that -- or a company that tries to exploit people very long probably won't be around very long. But the second part of your question, I think, is extraordinarily important. You know, I say it in -- somewhere in this book that the time to worry about big business, people talk about -- time to worry about big business is when it gets in cahoots with big government, and we see a lot of that. A previous caller talked about all these -- all the special interest spending and so forth.

DANIELSYou know, look at the scandal over this solar company in California, classic example of a business that can't stand on its own feet, can't sell a product at a price the product -- that anybody wants to pay, and then uses government to try to wire better arrangements for itself, and there are many, many others, of course, in different sectors. So it is absolutely correct that the government has done too much to prop up or protect the businesses of today against their competitors.

DANIELSAnd in our state of Indiana, we worked hard not only to avoid that mistake but to knock down barriers, licensing and regulatory and so forth, that the ins have historically -- since the days of the guilds way back in earlier centuries, that the ins have always looked for ways to use government to keep the outs out.

REHMAnd here's a final email from, let's see, Kelly, who says, "As a Hoosier political independent who voted for Obama, I really wanted you to run for president, would have voted for you. But I wanna say thank you for sending a powerful example of putting family first. You chose your family over power, prestige and influence, a rare choice in today's world. Are you absolutely determined not to run for president?"

DANIELSOh, Kelly, I think so, and, you know, would take a change of heart on my family's part in there. Five women, they're a pretty intimidating group when they get their mind made up. But thanks, you know, so much. Let me tell you, it was a stunning thing in 2008. You would know it from, oh, John's speech a minute ago. But one-third of the Obama voters voted for us in Indiana. It was the -- we received more votes than any candidacy in the state's history, and a huge reason was a gigantic swing, unprecedented swing.

DANIELSAnd I have said a couple of things to our people every day of our service. One is, we work for everyone, whether they vote for us, against us or don't vote. Two is, we are not here to see that people who, of great means make any more. We are here to see that people who don't have much today or who are young and starting out today have a chance to do well, and we'll just keep trying to serve in that fashion.

REHMTwo quick questions: Are you happy with the Republican presidential nomination field so far?

DANIELSSo far is a good qualifier. You know, what the book says to my allies is, look, believe in Americans enough to -- tell them the truth, tell them specifically. Let's not -- don't try just to win an election. Let's try to win with a mandate for the kind of changes that'll make us (word?).

REHMAnd would you run for vice president?

DANIELSDiane, there's no answer to this question. If it...

REHMThere's no answer?

DANIELSIf such a strange thing came up, I'd have talk it over to my family again. I don't know what they'd say.

REHMWell, I'll be waiting to hear. Thank you so much for being here, Indiana Gov. Mitch Daniels. His new book, "Keeping the Republic: Saving America by Trusting Americans." Thanks again, sir. And thanks for listening, all. I'm Diane Rehm.