MAN: I want everybody to be as courteous and as civil to everybody else as possible.

CROWD: We won't go, we won't go! Angry Mob! Angry Mob!

BILL MOYERS: I was looking at the website NewMajority.com the other day and was stopped by the question: What if we win the health care fight? What happens then?

The writer, David Frum, went on to warn his fellow conservatives to be careful what they wish for. David Frum is with me now. He's the Canadian-born journalist who became a speechwriter to President George W. Bush, the first insider to write about that administration. This is his book: THE RIGHT MAN: THE SURPRISE PRESIDENCY OF GEORGE W. BUSH.

Now a resident fellow at the American Enterprise Institute, David Frum edits NewMajority.com, which is "dedicated to the modernization and renewal of the Republican Party and the conservative movement."

His other books include HOW WE GOT HERE: THE 70'S, THE DECADE THAT BROUGHT YOU MODERN LIFE, FOR BETTER OR WORSE, and his most recent, COMEBACK: CONSERVATISM THAT CAN WIN AGAIN. Welcome to the JOURNAL.

DAVID FRUM: Thank you, Bill.

BILL MOYERS: What did you mean conservatives should be careful what they wish for?

DAVID FRUM: Well, let me invite you, just for a minute, to imagine yourself a conservative Republican and looking back on the history of the past decade. And as you look back at it, you know, what was one of the greatest points of vulnerability of the Republican record as they went into the 2008 election cycle? It was the stagnation of wages that occurred between 2000 and 2008.

Basically, the typical American worker was making no more money in the year 2007, before the crisis, than in the year 2000. Why not? It's not that employers weren't paying more for labor. They're paying a lot more for labor, about 25 percent more.

All of that increase in the wage fund was consumed by the cost of benefits. So Republicans went to the country with a very dismal economic record in large part because of the explosion of health care costs. Let me give you another thing to think about from a Republican point of view.

We believe in tax cuts. Conservatives want to lower taxes. Yet the Bush tax cuts are slated to phase out in 2010 and 2011, whatever the Democrats do. It's just automatic. Why was the tax cut written that way? It was the rules of Congress to make sure there wasn't an explosion of the deficit, require the tax cut to be phased out because of the remorseless rise in the cost of programs like Medicare and Medicaid. If those programs don't stop increasing in costs, there will never be another tax cut. And we are going to be faced with government taking an ever-larger share of the nation's economy.

BILL MOYERS: So if the Republicans win this health care fight, by that I think you mean if they just simply defeat whatever the Democrats propose, right?

DAVID FRUM: Republicans-- there are many Republicans who fantasize about a repeat of 1994, when the Clintons' plan was defeated and Republicans went on to win back both houses of Congress, forgetting that 1994 was the end of a very long period, more than 40 years in the case of the House, of Democratic rule, that that was a very weak majority anyway. This is a young and strong Democratic majority. And they also remember 1994.

They're going to pass something. So the question for Republicans is what do you want that to be? You have an interest here, too. You would like to see the rise in health care costs slow. And you would like to see more room in the federal budget for tax cuts in the future. There are some mistakes in the way that President Obama has presented his case that have made him vulnerable.

You know, he's made it very clear why his health care reform will be good for the federal budget. He's not made it so clear why it would be good for the typical person. That's a point of vulnerability. But if the Republicans win, this is not going to be a great victory for individual liberty. It's going to be a victory for the status quo. The people who are angriest in those town halls are people who have an excellent deal on Medicare who are determined to protect it.

You can't blame them. People are very attached to what they have. But understand the message the political system will take if Obama is defeated is not let's have a lot more free market individualism. The message the political system will take is never tamper with Medicare again unless it is to make it more generous. From a conservative point of view, from a Republican point of view, is that a good message?

BILL MOYERS: You mentioned the Bush tax cuts. You were in the White House at the time those were implemented. And they are due to lapse next year. Isn't that lapse a good thing because we need more revenue to pay for the health care system that even you want to reform?

DAVID FRUM: I would like to see those tax cuts continued. Especially the tax cuts on capital gains and on dividends. Those are, I think, really important to the future growth of the American economy. And it is precisely in order to protect, the rising costs of health care have to be restrained. If health care costs continue to grow as they have been growing, there will never be another tax cut ever. And the level of taxation to the economy is bound to rise and rise and rise.

The thing that is so hilariously grimly ironic about this debate, whatever you think of the Obama plan-- and I don't-- well, there isn't an Obama plan.

BILL MOYERS: The five plans on the Hill right now.

DAVID FRUM: The House plan, which I don't much like. Which is the most finished plan we have. When the President talks about it, he talks about that plan using arguments that I think ought to resonate with conservatives and Republicans. He talks about the federal budget. He talks about the cost to employers and to small business. And those are real concerns, even if you reject his solution, which I hope will happen. There are other parts of the Congress, like the Senate Finance Committee, that can produce responses that reply to the valid concerns the President is raising, concerns, by the way, tormented Republican presidents before him.

BILL MOYERS: So what's the plan you would like to see the Republicans put on the table?

DAVID FRUM: Well, let's start by focusing on what do you think is the problem? You can't solve a problem unless you agree on what you're trying to achieve. The Republicans are not the party of equality. They're the party of liberty and they're the party of efficiency.

BILL MOYERS: And liberty leads to inequality.

DAVID FRUM: Liberty leads to inequality just as attempts to reduce equality lead to adoption of liberty. And it is that tradeoff that is why you have two parties so that the country can come to its balance. Especially in this health care debate, we are talking a lot about efficiencies.

Why is the American health system so crazy? Why do Americans spend so much more than anybody else for outcomes that aren't a lot better? Well, we talk about the health market. We don't have a health market. We have 50 state markets.

And although there are many, many insurers, in many states there are only one or two who are active. So what we need to do, first of all, is create a national market. I would like to see the responsibility for regulating health care removed from the states entirely and put in the hands of the federal government.

We don't regulate banking at state level anymore because it doesn't make sense. That should be true with insurance as well. The federal government should set rules. Here are the requirements for what a health plan should look like.

BILL MOYERS: Now you've just lost some of your conservative allies--

DAVID FRUM: But the state--

BILL MOYERS: --because you're calling for more regulation.

DAVID FRUM: No. Different locus. The states regulate it right now. And they regulate it in incredibly detailed ways. They say in some states that infertility must be covered if anything is and other states not. In some cases, if a woman has a mastectomy, the plan must cover reconstructive surgery. In other states, not.

In some cases, there's community rating. Everybody must be charged the same price. In other states, there are different systems. So from an insurer's point of view, they have to write a completely different set of offerings for Maryland from Oregon, from New York, from New Mexico. And the result is that you have these segmented little markets. It's a case for free trade to say let's begin by opening up a national market.

BILL MOYERS: If you eliminate regulation at the level of 50 states, aren't you giving the insurance industry more clout at the national level?

DAVID FRUM: It's a downside risk that you would have much more regulation at the national level. But just think about it. If we had 50 different mileage standards in this country, if we had 50 different sets of rules to describe what could and couldn't go into toothpaste, we would just collapse the national market. The reason almost every product is cheaper and better and more convenient in the United States than it is in other places is because of the size of the national market. No surprise that when the national market is cut up for one product, that is the product that is the most troublesome.

A second immediate thing, if you're self-employed, the way more and more people are-- and you want to go buy a plan, you'll have to play with after-tax dollars. Employers buy with before-tax dollars. If you're a small business, you get a much worse deal than big businesses. We need to regulate, level this field. One of the ideas that originates with the Heritage Foundation that was adopted by Republican Governor Mitt Romney are these health insurance exchanges that allow individuals and small business to buy on more equal terms. Again, that can be nationalized and made-- that's, by the way, in the Obama plan.

BILL MOYERS: Right. Health exchange.

DAVID FRUM: Health exchange. We need to begin to sever the link between employment and insurance. It is just-- it's a holdover irrationality that you get your insurance through the place where you work, that discourages people from leaving. People who get ill, when they're at a job are then indentured because they can't-- so long as they can work at the old company, they are covered under the old plan. If they move, they can't get a new one. And there-- and that is an artifact of the tax code. And we need to correct the elements for the tax code that do that.

Breaking the link between employment and coverage. We have a terrible problem right now with the cost of Medicaid are divided between the federal government and the states. This is a formula, always, for irresponsibility because the people who are not only-- are states spending 50 cent dollars or in some cases less, but worse, when it comes time to cut budgets, a state, especially a state that gets a lot of money from the federal government, says, "If we take dollar out of Medicaid, we buy a dollar's worth of political pain. And yet we only get 40 cents of budgetary benefits." So that makes no sense. And so Medicaid ratchets endlessly upwards with no one really in control of it. We need, I think, to have to locate Medicaid either with the states or with the federal government, not continue to divide them.

BILL MOYERS: What about a public option that would provide a government competition to the health insurers? It would not end private insurance, but it would provide competition, which, of course, conservatives believe in because they believe competition reduces prices.

DAVID FRUM: This is going to be a line in the sand and one of those--

BILL MOYERS: Deal breaker?

DAVID FRUM: No, on which -- a lot of politics is about political muscle. What do you bring to the party? Party A has this view. Party B has that view. And they put their shoulders against each other in rugby style, see who can push the other over the line. For Republicans, it's absolutely unacceptable. For a lot of Democrats, it's secretly unacceptable.

BILL MOYERS: What do you mean?

DAVID FRUM: Well, I think there are a lot of things that Democrats from conservative states pretend to be in favor of to keep in good order with the national party while counting on the Republicans to make it impossible to happen. When they have Democratic majorities, they then quietly defect because they don't believe in it either.

BILL MOYERS: So you're saying a public option is not politically feasible?

DAVID FRUM: No, I'm saying it's not acceptable to conservatives.

BILL MOYERS: What about you?

BILL MOYERS: You've broken with conservatism in this respect.

DAVID FRUM: I am not an unorthodox conservative. I think I'm a calm conservative. Right now I think a lot of -- their blood is up. They want to win this fight.

BILL MOYERS: Is that why we're seeing these protests, these loud, raucous protests?

DAVID FRUM: Well, let's distinguish between the people who are in those halls, who I think are many-- who, as I say, are people who have a good government plan in Medicare and are anxious because they know that President Obama wants to take a lot of money out of Medicare. That's how he's going to finance his plan.

BILL MOYERS: He says not.

DAVID FRUM: No, he acknowledges he's going to take money out. He just says it's going to make no difference. Because they're going to find so many efficiencies. So there are people who are a little skeptical about it. And they're kind of worried. Those are the voices. Now, that's different from what you're hearing on the radio. That's different from what you're going to be seeing in television advertising. Those people have more ideological motives. But what I am concerned about is in the desire to defeat President Obama, the Republicans are going to fossilize a status quo that is more unacceptable to them.

BILL MOYERS: You mean an unworkable health care system.

DAVID FRUM: Right. Because from the point-- Think about this, if you're a Democrat and you're confronted with ever-escalating health care costs and especially ever-escalating health care costs in the public sector, oh, well. You raise taxes to pay for it. It's not the worst thing in the world.

And if health care grows and if government grows with it, you know, you're not as upset by government as Republicans are. If you want to hold the line on the growth of government over the next two decades, this system has to be reformed.

BILL MOYERS: That's what Kathleen Hall Jamieson says. She said that in order to fix the long-term deficits, which are a concern to conservatives, we need to fix health care. Is that what you're saying?

DAVID FRUM: Yeah, if you see President Obama saying, "I volunteer to go into the beehive and put my hand inside the beehive and fix it," good luck, buddy. Better you than us. Like, why aren't Republicans saying, here's some things you can do that we'll like. Here are our red lines. If you do the public option, no. Surtaxes, no. Higher taxes on capital gains, no.

But if you have an idea as to how to slow the growth in Medicare, if you want to do things like this health exchanges, making it easier to afford to make it easier to buy across state lines, well, good luck to you. That sounds pretty good. And if you're prepared to take the political heat, again-- you know, good luck to you.

BILL MOYERS: I'm reminded that you grew up in Canada.

DAVID FRUM: I did.

BILL MOYERS: Couldn't the conservative, a calm conservative make a case for that kind of national insurance plan in this country?

DAVID FRUM: Look, where those plans have grown up, as in Britain, for example, you've seen conservatives make their peace with them, as the British conservatives have done. And once something is integrated into the status quo of your country, it gets conservative. There are I think a lot of reasons not to regard it as a preferable system.

It stifles the possibility of innovation and diversity. It means that ideas that get into the minds of people in Washington are very difficult to get out. And it creates a -- it also creates this tremendous problem where every malfunction in the system becomes the fault of the politicians.

BILL MOYERS: You describe yourself as a calm conservative. But you have certainly aroused those to your right in the Republican Party. You know, talk show hosts like Mark Levin have come after you saying you're kneecapping your own. What about that?

DAVID FRUM: Look, a lot of the conservative movement in this country is conducting itself in a way that is tremendously destructive. Both of the basic constitutional compact of the requirements of good faith and of their own good sense. I mean, when you were going on the air and calling the President of the United States a Nazi as Rush Limbaugh has repeatedly done. When Mark Levin -- you mentioned him -- he said the President of the United States is literally at war with the American people.

And then people begin, unsurprisingly, showing up at rallies with guns. Well, obviously, if the President were-- I mean, folks, if I believed the President of the United States were a Nazi, were planning a Fascist takeover, it would be contemptibly cowardly of me not to do everything in my power, including contemplating violence, to resist such a thing. Every decent person should do that.

That's why you don't say it when it's not true. And I mean, one of the ways that the constitutional system works is with some understanding that the people on the other side have slightly different priorities but they share your constitutional values. They have invested in the same system. The problems they've got are hard problems. And even if you don't like their answers, you have to have some restraint in the way you talk about them, as you would hope they would have about you.

And I think it's just outrageous. It is dangerous. It's dangerous for the whole constitutional system. Now, I'm absolutely prepared to fight with them. And by the way, it's dangerous to conservatives because the effect of the talk of people like Levin and Rush Limbaugh is to kill our cause with voters who are under 65.

You make that man the face and you say let us contrast him to Barack Obama who is maybe too expensive but who seems calm and judicious? That's an ugly comparison.

BILL MOYERS: For this appearance alone, your website, NewMajority.com, is going to be besieged by some of those folks, right?

DAVID FRUM: We have been besieged but this is a fight worth doing. And I have to say I'm thinking of changing our slogan. I'm adapting something from the old Panasonic folks, our new motto's going to be "just slightly ahead of our time." I know the conservatives of this country are not with me on these issues today. But I know equally well they will be with me on these issues in the future. They are just going to learn it, unfortunately, a harder way.

BILL MOYERS: The book is COMEBACK: CONSERVATISM THAT CAN WIN AGAIN. David Frum, thanks for being with me on the JOURNAL.

DAVID FRUM: Thank you.

VIRGINIA FOXX: Republicans have a better solution that won't put the government in charge of people's health care that will make sure we bring down the cost of health care for all Americans. And that ensures affordable access for all Americans, and is pro life because it will not put seniors in a position of being put to death by their government.