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Big Government

madrick

Monday night I read Richard Parker’s review in the current New York Review of Books of Jeff Madrick’s new book The Case for Big Government. This would have been ideal preparation for President Obama’s address on Tuesday, had I watched it. But instead I had other things on my mind when I got home from school after two long afternoon meetings, and so I sat here getting caught up on email while Gail listened on the radio as she made a delicious chicken cashew stir fry dinner. Only in reading about Obama’s speech since, and then reading the first few pages of the book Friday night and last night (though I didn’t listen to the speech Tuesday night, I did order the book, even as the speech was on, and it arrived Friday afternoon), have I realized that the book and speech are a perfect match.

Regarding the speech, I still haven’t gone back to watch it on youtube, but I’ve read a fair bit about it. For instance, here’s an excerpt from George Packer’s comments on it in his blog:

Look at the front page of today’s Times. The headlines are historic and suggest one of those tectonic political shifts that occur only once every two or three generations: “OBAMA, BREAKING ‘FROM A TROUBLED PAST,’ SEEKS A BUDGET TO RESHAPE U.S. PRIORITIES,” “Tax Rise for Wealthy—Push on Health and Energy,” “A Bold Plan Sweeps Away Reagan Ideas.”

Reagan changed America above all by changing the terms of political discourse. Between his message to Congress on Tuesday and the ten-year budget proposal he released yesterday, Obama has shown that he wants to do the same. There are no more defensive apologies for having to bring government to bear on problems that the private sector can’t solve. He is making, or rather restoring, government as the instrument of a vast social and economic change, summed up in the word “equality.” The Times is right to compare this moment to 1932 and 1980.

As for Madrick’s book, Princeton University Press has been kind enough to post Chapter 1 at the book’s website. Given that there are only three chapers, this turns out to be about a third of the book. It includes in particular all that I’ve read so far, including the representative passage that I have placed below the fold. Madrick argues that the conventional wisdom that government spending is inefficient and high taxes are a drag on productivity is simply false, not supported by the empirical data. Moreover, although I have yet to read this part, so I simply quote from Richard Parker’s review, “Madrick first provides a short history—a primer, really—of government’s often-forgotten but central role in the nation’s long economic rise from the 1770s to the 1970s.” I’m looking forward to this. Perhaps I’ll have more to say later. For now, here’s the promised excerpt from the book:

But today’s conventional wisdom reflects a narrow view of government. Government, as Garry Wills notes, is thought to be a “necessary evil,” a last resort. In terms of the economy, the argument against government goes something like this. First, higher taxes will undermine the incentives of those who work and invest. Second, social programs are administered so poorly that they are a waste of resources, and moreover create dependencies among those who receive help. Finally, social spending crowds out the vibrant private sector, especially if it must be financed in the bond markets, and thereby undermines productivity. Regarding the nation’s social and political values, the central complaint of advocates of less government— an age-old one among political conservatives— is that any intrusion of government reduces individual choice and freedom itself. Hence, for example, Friedman’s book title, em>Capitalism and Freedom.

The empirical problem with the economic claims is that the economies of nations with high taxes and big governments have grown rapidly, are highly productive, and provide their citizens with a standard of living every bit the equivalent of America’s and some argue superior to it. The problem with the
political claims is that so-called big government has enlarged freedom by protecting civil rights, minimizing discrimination, giving people decent health care and the educational and economic tools to fulfill their lives, which ultimately contribute to further prosperity, and have withstood the return of
totalitarianism everywhere in the West. Democracy has simply thrived in “the welfare states” of Europe.

In fact, there really is no example of small government among rich nations. The size of government grew across all the world’s rich nations, particularly in the twentieth century, and the rate of economic growth only increased. While Milton Friedman complained about the growth of government in the 1950s and the 1960s, the American economy never grew faster in its history, and the incomes of all Americans, discounted for inflation, doubled over less than twenty-five years—that is, grew by 100 percent. After the Reagan revolution of reduced taxes and deregulation, rapid growth in the standard of living was never recaptured except for a few years in the late 1990s. Since the 1970s, the income of a typical male has actually fallen, discounted for inflation, and typical family income grew by only 25 percent over more than thirty-five years, largely because spouses went to work. People met the rest of their needs by borrowing heavily.

It is simply not the size of government spending or the level of taxes, but the composition and quality of the spending that affects how fast economies grow and standards of living improve. We are not discussing short-term economic policies here, but rather the long-term support of growth. Cuts in
taxes will often temporarily help stimulate growth, but the latter is largely a liberal argument, derived from the philosophy first developed in the 1930s by the British economist John Maynard Keynes. The same (and even more potent) stimulatory effects can be temporarily attained by more government spending as well. The conservative argument for tax cuts is based on the dubious claim that such tax cuts result in more than merely modest incentives to work harder and invest more.

It is not that big government is to be encouraged in and of itself. What we know is that nations with bigger governments have not as a rule grown more slowly than those with relatively smaller governments; to the contrary, they have sometimes grown faster. That can only be the case because their spending
programs on balance enhance rather than detract from growth, fill the many gaps that markets cannot, and that regulations on balance make markets work better and minimize abuse and corruption. This rather easily demonstrable fact is but a heresy in modern America.

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Categories: Books, Economics, History, Politics
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