Big Government, big problem
by S.T. Karnick
The rapid political changes of the past couple of years—from landslide rejection of Republicans to landslide rejection of Democrats—seem to have caught most mainstream analysts off guard. First, according to the conventional wisdom, the American people showed wonderful good sense, kicking out the hated George W. Bush. Then, just two years later, all was lost, as voters decisively turned away from the Democrats.
The key to understanding all of this is to look beyond partisan politics. In punishing the Republicans and then the Democrats, the public was reacting to the same thing in both cases: the rapid growth of government throughout the past decade, and a decreasing accountability of that government to the citizenry. The big-government spending spree of both the Bush and Obama administrations and the similar metastasis on the state and local levels transformed what was previously a political conversation into a fundamental, basically cultural dispute over the very role of government. The question became whether government should be about mandating the distribution of resources among the members of society or, on the other hand, creating a framework in which people are free to go about their business without coercion by others.
This argument played out amid an increasing political and cultural bifurcation of the nation into a bourgeois-liberal heartland and a high-population-density progressive enclave confined largely to New England and the West. This was made clear in the November 2010 elections, as a map of congressional results shows, and it seems likely that the nation’s persistent economic problems will make this division even more acute in the coming months as fiscal pressures continue to undermine public confidence in government at all levels.
That was not the way the story was supposed to go. The Democrats, with the presidency and large majorities in both houses of Congress, were going to end the war in Iraq, pull the nation out of the recession, cut unemployment, reduce the federal budget deficit, raise housing prices and save people from foreclosure, radically reduce the number of people lacking health insurance, fix the nation’s schools, pass a carbon dioxide emissions cap-and-trade bill that would avert catastrophic global warming, and heal the political culture through a devotion to reasoned debate.
If that list sounds risibly extensive today, it was not presented as such at the time. On the contrary, the problems seemed solvable, as indeed they were. What went wrong was the assumption behind the proposed solutions. Reflecting the belief that government is best fit to decide the distribution of resources among the various members of society, the people were seen as the problem, and government was portrayed as the solution. Under the new regime, the inefficiency of a myriad of selfish, essentially ignorant decisions by individuals and businesses would be replaced by wise choices determined by highly qualified, credible experts and mandated by government.
For example, home ownership would be extended to nearly everyone by the government telling banks whom to give mortgages to, what rates to charge, and when foreclosures would or would not be allowed. And when that resulted in huge losses for the financial institutions, the government would bail them out with tax money confiscated only from the wealthy, and if that wasn’t enough, it would print more money. Similarly, the high cost of health care insurance would be remedied by the government setting rational prices for medical services. Providers would be told what to charge for each service or procedure, insurance companies would be told what services they had to offer and at what prices, and individuals would be required to buy insurance so that there would be sufficient money to pay for everything. Any shortfall would be made up by—you guessed it even before they said it—tax increases on the rich.
Thus the new administration and Congress implemented an extension and expansion of their predecessors’ paternalistic big-spending policies. Federal spending has risen from $1.9 trillion in 2001 to a projected $3.8 trillion in 2011. In their first 20 months in power, the Obama administration and Democratic Congress increased the national debt by $3 trillion—compared with a rise of $4.9 trillion in the eight years of the Bush administration, according to the U.S. Treasury Department. The projected debt for 2012, Obama’s fourth year in office, is $16.5 trillion—a $5.9 million increase in four years, an astonishing 57 percent hike in the national debt. State and local government spending has risen similarly, from $1.9 trillion in 2001 to $3.02 trillion in 2009 and a projected 3.42 billion in 2011. The result of all this spending: a nascent recovery was halted, the official unemployment rate is close to 10 percent, and Americans have openly begun to worry about being overtaken economically by China and India.
Again, it’s important to note that this increase in the size of government transcended partisan divisions. Republicans squandered a fortune and were punished for it in the 2008 elections, and then Democrats sped up the growth of government and were similarly chastised two years later. The real division was not so much between the two political parties as between a large and expanding class of people receiving benefits from government and a shrinking class of people paying for it all. Last year 64.3 million Americans were dependent on government (meaning taxpayers) for housing, food, and health care, according to the Heritage Foundation’s 2010 Index of Dependence on Government. And this was being paid for by a shrinking pool of people. In 2008, 43.6 percent of the U.S. population not claimed as dependents by other taxpayers paid no federal income tax, up from 14.8 percent in 1984.
Scott Hodge, president of the nonpartisan Tax Foundation, was quoted in Budget & Tax News as saying his organization’s studies “show the top 40 percent of income earners in America are sending $1 trillion to the bottom 60 percent of earners in the form of welfare programs, tax rebates, and the progressive tax code.” These huge transfers of money from one citizen to another have done little good, if any, evidenced by the litany of problems that led to the ouster of the GOP in 2008 and the jettisoning of Democrats in 2010. In reality, the problems were being created by government, and the solution was not more government but instead to reverse the policies that had created them in the first place.
I’ll give just a couple of examples. The high cost of health insurance is in large part a result of the rise of third-party payment, which prevents users of health care services from being affected by the costs of each particular service. That encourages prices to rise, and it’s a result of the federal government’s decision to allow tax-free health insurance but not tax-free treatment of all other methods of paying for health care. In addition, state governments mandate that all health insurance policies include coverage for a variety of expensive services and conditions advocated by special interests, hiking the costs to pay for them. And federal law allows states to prevent insurance policies from being sold across state lines, thus preventing competition. The result of all of this government intervention is rapid price inflation, making insurance unaffordable for millions of people.
The housing bubble was likewise caused by government. The federal government pushed banks to extend mortgages to people who were bad risks. The Fed pumped money into the economy, thereby raising housing values and making residential real estate a good investment, which pushed prices up further. State and local governments implemented restrictive land-use policies, driving housing prices still higher. All of that made housing far more expensive than it was really worth, and unaffordable for many. That led to mass foreclosures, bailouts, and more money printing by the Fed. The problems continue because of such intervention by all levels of government.
The problems were real, but they were absolutely not the result of unfettered markets. There was no such thing in the first decade of the millennium. On the contrary, the nation’s problems were actually being created by government. Big government thrives by promising enough people enough favors paid for by other people so that it can achieve voting majorities. Some people want, and get, a good deal more from government than they pay for, but multitudes more are required to support them through confiscated taxes. The latter are willing to put up with it as long as the amount of their coerced overinvestment in government is not too far above the benefits they perceive they’re getting. They see it as their public duty, and they are perfectly willing to fulfill it.
However, when government takes a ruinous proportion of people’s income and puts it to waste—exemplified by the bailouts, the health care takeover, protracted involvement in Middle Eastern politics, the threat of cap-and-trade, and so on—they see themselves as being exploited. Peter is no longer willing to be robbed to pay Paul. The public moves to vote the government out and replace it with people who they think are more likely to manage things such that the overall cost of government is less grossly out of line with the total perceived benefits.
The Wall Street Journal summarized the situation aptly after the election: "And while Mr. Obama has campaigned on the robust role government can play in people’s lives, a majority of Tuesday’s voters said government was doing too many things."
Yes, indeed, and the “too many things” the government was doing have been creating problems, not solving them. What the public has been clamoring for in the past two elections is a government that protects them from evils but doesn’t attempt to run everybody’s lives, one that isn’t so eager to take money from a diminishing number of productive people and “spread it around” to others. It’s that simple. And until such a government is in place, further political, social, and fiscal turmoil seems inevitable.
S. T. Karnick is director of research for The Heartland Institute and editor of The American Culture.
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