Thursday, March 5, 2009

The Case for Big Government

A lot of digital ink has already been spilled on the recently passed $800 billion federal stimulus package and the proposed $3.5 trillion federal budget. The single best article I've read on the importance of Obama's plans and the tremendous impact his policies could have on America's future is by Richard Parker, Senior Fellow at the Shorenstein Center for Economics at Harvard, in the current issue of the New York Review of Books. It is absolutely worth your time.

The article is a review and summary of a new book called "The Case for Big Government" by economist and former New York Times columnist Jeff Maddrick. Parker argues that the conventional wisdom that government spending is inefficient and high taxes are a drag on productivity is simply false and not supported by empirical data. From the American Revolution to the Great Depression, the federal government shaped economic growth by fostering small-scale farming, promoting free education, and financing the nation's vast transportation network. State and local governments actively promoted large-scale investments in infrastructure and subsidized America's primary education system, which made the young U.S. the most literate nation in the world.

Moreover, between the Civil War and World War I, government at every level steadily expanded regulatory powers to make the United States the world's largest economy. Government intervened actively in business organization, consumer rights, working conditions, technology, utilities, public health, agriculture, urban design, and private and public finance. The effect of all this government intervention was to enhance the country's overall rate of growth even as it helped equalize income and wealth distribution. Government legislation created an educated workforce, built crucial infrastructure, guaranteed enforceable contracts, sponsored scientific and technological research and development, and made America an economic giant.

Parker also considers the intellectual claims of figures such as Milton Friedman, whose work was central to creating the "small government is better government" consensus, and finds it deeply flawed. He argues that we need to rediscover Americans' capacities for transformational change and the way "big government" can help achieve that end. He asks:

How did the wealthiest nation in history come to believe it is not wealthy?

America has no free and high-quality day care or pre-K institutions to nourish and comfort two-worker families.... College has become far more expensive and attendance is now bifurcated by class.... Transportation infrastructure has been notoriously neglected, is decaying, and has not been adequately modernized to meet energy-efficient standards or global competition. America has not responded to a new world of high energy costs and global warming in general. America has a health care system that is simply out of control, providing on balance inadequate quality at very high prices.... The financial system, progressively deregulated since the 1970's, broke free of government oversight entirely in the 1990's and early 2000's and speculation reminiscent of the 1800's was the result with potentially equal levels of damage.... These facts amount to about as conclusive a proof as history ever provides that the ideology applied in this generation has failed.

Madrick's book, and Parker's article, call for new spending programs and new ways to raise revenue to reverse the consequences of this failed ideology over the past three decades. These recommendations provide both vital explanatory background for the stimulus package and a useful benchmark by which to assess the Obama administration's current and coming proposals.

As for Madrick’s book, Princeton University Press has been kind enough to post Chapter 1, or about a third of the book, at their website.

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