At first glance, Mitch Daniels seems rather bland. His hair is straight and tidy. His suits are understated but tasteful. He speaks slowly and in quiet tones. He gently declines to answer questions about the failings of other politicians. And he seems genuinely mortified when he accidentally refers to his interviewer as Meghan.

But Daniels' record as governor of Indiana could best be described as radical. During his governorship, which ran from 2005 to 2013, he decertified all government employee unions on his first day in office, managed to defeat teachers unions in a pitched battle for school choice, imposed tough spending austerity and raised taxes to balance the books, and inspired the Democrats in Indiana's legislature to walk out at the beginning of his second term over a right-to-work bill. In his previous gig as the head of George H.W. Bush's Office of Management and Budget, his nickname was "the Blade."

In his regular Washington Post column, Daniels seems to delight in triggering his readers. He has advocated relocating all the major federal agencies away from Washington, D.C., defended the morality of genetically modified foods, and most recently called for the abolition of the "tasteless, classless spectacle" of the State of the Union.

He also rides a motorcycle and was indicted for marijuana possession as an undergrad at Princeton.

In 2010, he told The Weekly Standard that the next president "would have to call a truce on the so-called social issues" in the face of a mounting fiscal crisis. Between the kerfuffle caused by those remarks and his desire for privacy about an unorthodox relationship history—he and his wife married each other twice, with a break in between—he ended up stepping back from politics.

Since 2013, Daniels has been running Purdue University. If you talk to one of the people on his team, they refer to him as "President Daniels." On the phone, it's all too easy to imagine he's calling from an alternate dimension where he actually ran for president of the United States—as many of his associates and the national media believed he would in 2012—and won. And after a wide-ranging conversation in January, it's hard not to think that might have been a better, freer, calmer timeline than our own.

In January, Daniels spoke with Reason's Katherine Mangu-Ward about free speech, the power of unions, and whether it's already too late to avert a full-fledged American economic collapse.

Reason: These days, our national politics can sometimes feel like it's oriented around student debt and educational availability. You're trying some unusual solutions to these problems as president of Purdue University, including not raising tuition over the last seven years.

Daniels: The tuition freeze began as a one-year time-out, a gesture to indicate sensitivity to what was plainly—even in 2012 or '13—a growing burden. Often when people ask for an explanation, I'll tell them what we didn't do. They want to know what kind of voodoo we practiced and I say: Here, let me allay all your suspicions. We didn't cheapen the faculty. We had one of the highest ratios in the country of tenure-track faculty. We didn't downshift to so-called contingent or temporary or part-time teaching. We didn't get any more money from the state. In fact, slightly less. We didn't dip into the reserves—they've been growing every year. We didn't resort to a sleight of hand through other fees in lieu of tuition. There haven't been any of those either. So the way I usually frame it is that, if a place like ours can do those things and run in the black on an operating annual basis while investing, while maintaining quality, why would you raise tuition? It ought to be the last resort, not the first instinct.

Sometimes we solve the equation for zero. Zero meaning zero increase in tuition. If you start with that premise—that's our objective, that's our goal—you can frequently make systems and budgets and practices adapt to that. It serves the very same purpose that a balanced budget requirement can in government or a flat topline sales number or revenue number can in business. When you have to, you do. And sometimes it's easier than you thought it'd be.

Income share agreements (ISAs) have been somewhat controversial but also now seem to be potentially a Silicon Valley darling. These are arrangements where students sign a contract and some or all of their education is paid for. Then when they get a job, they hand over an agreed-upon percentage of their income for a fixed period of years. Purdue has been experimenting with them. How did you come across the idea?

It has been out there since Milton Friedman a half a century ago. I'd read it somewhere and knew about it. I got cornered into going down and testifying in Congress; I usually try to avoid those things. The subject wasn't ISAs or even higher education finance—it was about innovation in education. I offered up a few thoughts about ways the federal government should get out of the way of innovation, some regulations and so forth. And almost as a throwaway example, I mentioned ISAs. If there were less ambiguity around some of the tax laws, I thought, this idea might finally take wing. I was astonished by the amount of press interest in it. I got engulfed as soon as the hearing was over, over this throwaway line.

I immediately began hearing from what turns out to be an incipient industry out there of people who like this, who want to see this idea get airborne. And I discovered that there were people hoping to operate businesses to administer these things and funds to invest in ISA contracts. So away we went.

"It was one thing when speakers who were too conservative were being harassed, but when professors who see themselves as good liberals are getting called in front of tribunals for something they said in class, that's not so much fun anymore."

I continue to be amused that you can do things you believe are really important or potentially very exciting and nobody pays any attention to them. Then once in a while—really, we to this day haven't done that much, just several hundred of these, and it's not achieved any real scale yet—and yet there's an immense fascination with it. So that's good.

Do you think that's a product of desperation? That is, do you think people have glommed on to this idea so eagerly because so many of the other proposals to solve the problem of college affordability have turned out to be impossible or dead ends?

Well, [Americans] just passed a trillion and a half in education debt—twice as much as credit card debt. Clearly what's out there is not working. The attraction to me and I think to so many people is that this is equity, not debt. The essence of that is the risk shifts from the student and his or her family to the investor. If things don't work out, it's the investor's problem, not the person who otherwise would've borrowed this money and been on the hook. As people see that, they find it a much safer way to finance or partially finance this very expensive process. I sometimes say it's earning your way through school after you graduate.

There's a real generational divide, right? You have people from a generation older than mine saying, "I worked my way through school. Why can't the kids these days do it?" And the kids these days are saying, "I don't think you understand the numbers we're talking about here."

That's right. Working in the cafeteria helps, and we want kids to do that too. But you're right, it can't cover it all anymore. Financially, you can't beat the heavily subsidized government loans, but you can definitely beat the loans that so many young people have to take on top of that. And there's a further thing out there, which is what happens if we can get this thing to scale. We need lots more schools doing it. We need the number of—never say borrowers, by the way—the number of contracts to get bigger. But a fascinating thing to me is that at some stage, the market will begin to set the rate.

What percentage and for how long should an electrical engineer be expected to pay vs. a sociology major? All we had to go on was history. We looked at what those categories typically were earning two years, five years, 10 years out of school, and we were able to build a matrix. But if this ever got to real size, the rates would be a signaling device. The students would look and see that the market believes that this degree or that degree is this much more valuable than some other. [But it] requires more funds getting going and more markets, more repayment experience.

How are things going at Purdue in the campus free speech and due process wars?

When I first got here, there's a watchdog group called [the Foundation for Individual Rights in Education, or] FIRE. I noticed that they had us down with a yellow mark instead of green. So the first thing we did was change a couple of policies. They were fairly small things. Up to that time Purdue had said that demonstrations had to be in one part of the campus, a designated place. There were some policies about what could be on a bulletin board. So we changed those policies and got the green rather quickly. But I wanted us to have a clear policy on the part of the university, which means the trustees would vote formally for it.

As soon as I saw what the commission did at [the University of] Chicago, I called the president there. I could commission a faculty group and it would take years and the statement wouldn't be any better or maybe not as good as that one. So I said, "Would you mind if another school just Xeroxed it?" And he said, no, they'd be pleased. So we did that. Our board of trustees voted it through and we became either the second or the third school to adopt what I tried to get everybody to call "the Chicago principles." I think we're at 50-some schools now. The idea was that not only would it be more straightforward to just take something off the shelf that was good, but also that you would have more impact and power if a lot of institutions said exactly the same thing.

At least as measured by FIRE and watching the press, there was a sharp drop in incidences of abuse over the last year or two. I do believe that shame has had some impact. I definitely believe that as soon as this began to bite faculty in their classrooms it took a different turn. It was one thing when speakers who were too conservative were being harassed, but when professors who see themselves as good liberals are getting called in front of tribunals for something they said in class, that's not so much fun anymore. So that's good news, although we don't know the extent to which people just stopped inviting speakers.

As governor of Indiana, you implemented a universal K–12 school voucher program. Are there lessons for other states that want to do the same thing?

The starting point for me has always been that [the debate over school choice] needs to be defined by a term which has been, I think, improperly appropriated by others: This is a social justice issue. Social justice, first of all, cannot be allowed to [only] mean taking money from A and handing it to B. That can occasionally be just. But what is just is one of the fundamental questions always. And everybody should be able to approach it and lay claim to it if they have a good argument. So whatever social justice is, enabling poor people to have the same choice about one of the most fundamental of life's decisions—the education of their child—qualifies, and so I always talked about it that way.

I think there's very good evidence that competition improves education both in the voucher schools and in the surrounding public schools. And we've seen it here. But I think you start the argument with simple fairness and equity for those less fortunate, and that gets you a certain distance. Now, there is no special interest in our society as strong, as stubborn, as well-funded, and as permanent as the public education establishment. And there is no argument one can make—certainly not one based on welfare of children or better results—that is persuasive to folks who believe that the system itself and the adults in it are the primary priority. So to answer your question: You have to get to a political equation where you can pass these things over their efforts, which are always very sophisticated, well-funded, and untiring.

How did you do that?

Ultimately we had a big electoral success in 2010, following a few others, that brought legislative majorities large enough that we were able to do things we couldn't do before. This was part of a package of reforms which are still bitterly and falsely criticized to this day by the teachers union and others but have brought marked improvements in reading scores, math scores, all the things that one would hope, in our state.

"Whatever social justice is, enabling poor people to have the same choice about one of the most fundamental of life's decisions—the education of their child—qualifies."

The scholarships or vouchers get more attention than anything else, but that was just one of [the changes]. A big part of that reform package was that we narrowed collective bargaining to wages and benefits, meaning that it frees principals to run their schools, superintendents to run their districts, and all these things are no longer dictated to them by a contract that they signed or somebody signed. Performance pay for teachers, the radical notion that better teachers ought to be rewarded more so than those who were not producing. But none of those things probably would have been possible if we had not secured a strong enough political situation. There are no studies anybody's going to produce, no speech, no matter how eloquent, I could give [appealing] to the social conscience, that will suffice in most political environments against the strongest, toughest, most-seasoned, and best-funded interest group we know.

In that same period, you also got through some reforms to labor regulation and health care entitlements. The teachers unions were the strongest opponents?

Yes, they were. We became the first Northern state since the Taft-Hartley Act to pass right-to-work legislation. That would not have been possible, I don't think, 15 or 20 years ago. The industrial and other unions were much larger and better-funded and stronger then. We passed civil service reform. On my first day on the job, after a lot of thought, I almost backed away from doing this. I struck down the executive order that authorized collective bargaining inside Indiana state government. And I was very afraid that it would cause an explosion and derail so many other things, a huge agenda of things that we'd come to office to do. That did not happen.

Given how much you got done in this period of relatively united government in Indiana, talk a little bit about the missed opportunities at the federal level of the last two years, in terms of fiscal responsibility and elsewhere.

I try studiously to stay away from things that look and sound partisan. My preoccupation for a very long time has been what I believe will be economically, internationally, and probably societally a cataclysmic problem when our debts can no longer be financed on federal debt. That's a failing of both parties.

When I talk about taxation in this state and elsewhere, I draw the line to where I think it really leads. This is about freedom. I used to play this little game when I'd visit a high school classroom. I'd say, "Hey, anybody here got a $5 bill?" Some kid would produce one and I'd say, "Oh thanks" and stick it in my pocket and keep walking and talking. The kids would laugh and I'd pretend to not notice they were laughing. Then I'd say, "Please notice that up until a minute ago, Katherine was more free than she is now. When she had that $5, she could decide what to do with it. Now I've got it and I'll decide, and she has to hope I decide on something that is important to her."

I had hope for [Barack Obama's presidency] because, Nixon-to-China style, a Democratic administration has a far better chance of reforming the entitlement programs before they devour us all and our freedoms with them. But that administration—even when presented with a good first start, the Simpson-Bowles report—refused at the last minute to move on with it. I thought that was really unfortunate.

We've passed the easy point. It's now a question of when, although you should never say it's too late, and federally I suppose there's still ways we can muddle through. But up until three or four years ago I thought, looking at the arithmetic, that it was possible that if we just got started, we wouldn't have to diminish the benefits promised to people who are in the system or about to get there. I think that opportunity went slipping past, and so now when something has to happen, someone may wind up with less support than was promised.

So what does the worst-case scenario look like?

One thing that could happen is the world decides to move away from the dollar as the reserve currency. You'd have nasty consequences pretty quickly.

In 2010, you told Andy Ferguson at the late Weekly Standard that in order to deal with the burgeoning fiscal crisis, the nation would have to call a truce on social issues. You took some flak for that at the time, and I think we can safely say the opposite of that has happened. It's now all culture war, all the time. What were you hoping for when you said that?

Some people misunderstood or chose to view truce as one-sided. The idea was that both sides might stand down and try to join hands on something that threatens us all. I had hoped that would be a theme, or a party or somebody might pick it up. They didn't, and I can't say in all honesty it would have had much chance. Every time somebody tries to tell the truth about our—I hesitate because I don't like the word entitlements, but that's what we call them—they get their head chopped off. But no, we didn't have a truce. We had a rout, ultimately.

What are you excited about in politics right now? Is there anything happening in terms of big ideas, new proposals, newly elected officials that gives you hope for the future?

Well, I'm tempted to be flip and say, "Can I get back to you?" But I am optimistic about the ingenuity of people in general, and people in the United States in particular, and on this campus. I see all kinds of ways in which we're going to solve our problems. Our material problems, our environmental problems. The things that bother people or worry people so much—I said to our last graduating class here that I have every confidence that we'll handle those. The biggest assignment for them might be to fashion again a common vocabulary and to bring this tribalized nation back together. And I can't tell you how that's going to happen. But I still believe it will.

This interview has been condensed and edited for style and clarity.