Government Is Not the Problem: Thirty Years of Bad Economic Policy

By Madrick, Jeff | Commonweal, October 10, 2008 | Go to article overview
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Government Is Not the Problem: Thirty Years of Bad Economic Policy

Madrick, Jeff, Commonweal

Conventional wisdom in America today holds that high levels of taxes and government spending diminish America's prosperity. The claim strikes a deep intuitive chord, not only among those on the Right, but also among many on today's Left. Indeed, the antitax credo has become so obvious to so many over the past thirty years, and rolls off the tongues of policymakers from both parties with such fluency, that one would think evidence needn't even be gathered to support it. "Closed case: tax cuts mean growth," wrote former Tennessee Republican Sen. Fred Thompson, as if there could be no alternative argument.

Republican followers of Ronald Reagan remain the most ardent supporters of the anti-big-government idea. But many Democrats only partially disagree. To the conventional Democrat today, tax increases and increased government spending should be minimized or, better still, avoided. That is partly simple electoral calculation--holding any other position is considered politically self-destructive--but it has also become a matter of belief, as Democrats have revised their traditional views and made deficit reduction their primary government objective.

This ideological revision was accomplished over a decade ago. President Bill Clinton successfully raised taxes on better-off Americans in 1993, but with the express purpose of reducing the federal deficit, not developing new social programs. The Democratic Leadership Council (DLC), which Clinton helped found in the mid-1980s, continued to urge Democrats to tread lightly regarding tax increases and the new social programs that require them. The triumph of Republicans in the 1994 congressional elections reinforced the perception that American public opinion had turned against government, and in his State of the Union address of January 1996, Clinton proudly announced that "the era of big government is over."

Strategically, the Republicans had won. Thus, even though Clinton had hundreds of billions of dollars of budget surpluses to bestow in the late 1990s, he left federal spending on transportation, education, and poverty programs below the levels reached (as a proportion of GDP) under his Republican predecessors, Bush and Reagan. And despite the reduction in growth of military spending made possible by the end of the cold war, Clinton generally resorted to tax credits for funding his social goals, whether providing help for the working poor or programs to expand health insurance, retirement savings, and an affordable college education. Such an approach fit neatly into the new conventional wisdom that bigger government was a danger to prosperity, reflecting the ascendant ideology of greater reliance on free markets. "Market incentives" became the new buzz phrase among middle-of-the-road Democratic economists. The approach also had the great virtue of not requiring a tax increase to support a social program. But in fact it was costly to government; tax revenues were lost.

Meanwhile, with Clinton's encouragement, Wall Street hadn't had such a friendly response from Democrats in anyone's memory. The dominant new faith in markets motivated broad federal deregulation. Under George W. Bush, the laxity of federal oversight has taken an obvious toll--most notably in the credit crisis of 2008, but also in areas such as food and drug safety, airline traffic and safety, and tragically in the aftermath of Hurricane Katrina. Yet few Democrats acknowledge how much they themselves contributed to a weakened regulatory attitude in the United States. Jimmy Carter was a sincere believer in deregulation, and along with airline and trucking deregulation (which were arguably sensible), he gave financial deregulation a decided push. And under Clinton, much of the New Deal regulatory apparatus designed to restrain financial market excesses was formally and proudly eliminated.

And so centrist Democrats joined with Republicans to produce an ideological turning point, one that moved the nation to adopt an antigovernment faith.

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