Can Americans Trust Government Again?

Jeff Madrick

Contrary to what we hear from Republicans, America did not lose its way in the past few years. It lost its way a generation ago when it abandoned its faith in government.

Conventional wisdom has it that come November the 2012 presidential election will be determined by the state of the economy. Actually, the real battle will be over a much older fundamental ideological issue in American politics: what role government should play in shaping our future. This special issue of The Nation is dedicated to bringing the debate about government front and center as the presidential race heats up.

Anti-government ideologues are on a tear, passionately advocating austerity and smaller government as the cure for the worst economic downturn since the Great Depression. Apparently following the dictum that you should never let a crisis go to waste, they are spinning the recession to promote their pet causes, such as destroying “Obamacare” and weakening public sector unions. As a result, the stakes this November are higher than in any election since Ronald Reagan unseated Jimmy Carter in 1980.

Although the modern anti-government movement goes back to the tax revolts of the 1970s, the latest wave started with the capture of the GOP by evangelicals, the Tea Party and Grover Norquist’s anti-taxers. In 2010 they helped elect a group of far-right-wing members of Congress dedicated to breaking government’s back. Mitt Romney and Rick Santorum now propose budgets that would cut taxes sharply for the rich, decimate our most basic social programs and leave no room for significant investment in the future.

There are several strands in the anti-government movement. Among the GOP presidential candidates, Ron Paul (who persists despite having no chance of being nominated) is the classic libertarian who wants lower taxes and fewer military interventions, and who distrusts big business. At the other end of the spectrum, Romney boasts of America’s military might and declares that freeing Wall Street and corporate America from government shackles would reinvigorate the economy. Santorum carves out a faux-populist niche, pandering to the working class on social issues like abortion, gay marriage and contraception, which he presumes they care most about. But the candidates’ variegated views converge in a single imperative: to sharply cut the size of government by reducing or eliminating social programs for the middle class and the poor while lowering taxes for the rich.

Anti-government crusaders play on exaggerated fears about the deficit to justify their plans for deep cuts in America’s two basic entitlement programs, Social Security and Medicare. They’re against using government to address the nation’s growing inadequacies in infrastructure, energy technologies and education. They regard record-high income inequality and long-term economic stagnation as acceptable byproducts of the free market. They say the broken jobs machine will fix itself if business and the well-off can get tax breaks. They would repeal the new, though inadequate, Dodd-Frank financial regulations intended to stop Wall Street recklessness. And they would jeopardize longstanding social guarantees, from affirmative action to women’s healthcare, through Congress and the courts.

Persuading Americans to believe in government again may be an uphill battle, however. Conservatives have successfully demonized it as “they the bureaucrats” rather than “we the people.” As a result, nearly half of those who receive Social Security deny that they benefit from any federal programs. States where citizens get the most federal dollars are the most conservative.

Republicans routinely cite record deficits as proof of government failure. In a supposed show of principle, they were willing to shut down the government last spring rather than extend debt limits. Many insist that government must deprive women of a right to choose and must allow prayer in school, even if many parents and schoolchildren do not practice a religion.

But the Democrats are not sufficiently different. Yes, President Obama and his Congressional colleagues have been stymied by Republican intransigence. But Americans can be forgiven if they do not believe that the Democrats have offered programs that would reduce their economic insecurity. According to pollster Stan Greenberg, until recently most Americans could not tell you what Obama’s economic program is. In the end, many citizens find his major domestic achievement, the Affordable Care Act, too confusing to appreciate; many worry that it will raise their Medicare payments.

Perhaps most damaging, a number of Democrats are deeply skeptical about big government, an attitude that traces back to the “third way” philosophy of the Clinton era. A contemporary version of the third way would use market incentives to encourage socially beneficial actions. An example of this, the Home Affordable Modification Program (HAMP), offers financial incentives to attract mortgage lenders into doing what government might better do.

Obama’s leadership style reflects such ambivalence about government. Rather than following in the footsteps of Franklin Delano Roosevelt, he seems to aspire to be a Clinton Democrat, skeptical of big government, or even a moderate Republican from the Nelson Rockefeller or George Romney era.

Yet, in his State of the Union address in January, Obama did engage with Americans on the value of government. Rather than addressing the deficit, usually among his top priorities, he championed federal spending to create jobs while rejecting Reagan’s simplistic individualism. “No one built this country on their own,” he said. “This nation is great because we built it together. This nation is great because we worked as a team”—“team” being the government. Obama’s 2013 budget also elevates jobs over deficits and makes government the spearhead of economic growth and income equality.

One can wish, however, that the president had attacked the failures of the anti-government ideology more aggressively. After a generation of conservative dominance, Americans today are more insecure than they were in Reagan’s time. They are now wrongly told that Social Security and Medicare are going bankrupt and can be saved only by severe cutbacks in benefits. Even Obama was willing to raise Medicare eligibility to age 67.

The Bush years of 2001–07 saw the slowest rate of job creation of any post–World War II expansion, followed by the Great Recession of 2008. Now, three years after the recession technically ended, the unemployment rate remains well above 8 percent, and youth unemployment is nearly 20 percent. The median wage of men who work full time is no higher today than it was in 1969. If all men are included, the median male wage is 16 percent lower than it was in 1969, according to the Hamilton Project at the centrist Brookings Institution. This is because fewer men can find full-time work than a generation ago. A typical family’s income is lower than it was in 1999, yet people today pay more for their healthcare and move into more expensive neighborhoods to find decent schools for their kids. Women’s wages have risen, but not at a historically rapid pace. With wages low, Americans have saved less and borrowed more, especially in the 2000s, than in any decade in post–World War II history.

As Occupy Wall Street has so effectively reminded us, inequality has soared. The top 1 percent increased its share of total income from about 9 percent in 1979 to 18 percent in 2011. The United States ranks sixteenth among the richest nations in the world in the proportion of those between 25 and 34 who have a college degree. The inequality of educational achievement between poor and well-off Americans has widened sharply.

Transportation infrastructure has become so degraded that the Society of Civil Engineers repeatedly gives it a grade of D. The US investment in green technologies is trivial. America’s trade deficit has soared to record levels as a proportion of GDP, and the nation increasingly depends on borrowing from China and other emerging markets to be able to pay for imports.

Major media outlets have contributed to the anti-government shift by tacitly endorsing the government-falls-short ideology (see Greg Marx on page 20). They broadly supported financial deregulation in the 1990s, for example, and lauded Alan Greenspan through the end of his reign. They were late to notice the dangers of the runaway subprime market and repeatedly told us how brilliant the Wall Street bonus babies were.

* * *

The great ideological shift started well before Reagan’s presidency. When Richard Nixon took office in 1969, a majority of Americans still admired the New Deal and generally, if less enthusiastically, supported Lyndon Johnson’s Great Society. But in the 1970s the national temper was changing. Trust in Washington began slipping after the escalation of the Vietnam War. Johnson’s landmark civil rights legislation as well as his war on poverty, although approved by most Americans, angered conservatives. Watergate marked another sharp downturn in confidence.

During his second term, Nixon exploited the racism of Southern Democrats to attack Great Society programs; but he also supported legislation to establish strong regulatory bodies, including the Consumer Product Safety Commission, the Occupational Safety and Health Administration, and the Environmental Protection Agency, all of which would fall victim to cutbacks by the Reagan administration a decade later. He indexed Social Security benefits to inflation and supported healthcare reform.

In the early 1970s, Ronald Reagan suffered a major setback in his second term as the governor of California when he failed to get passed an amendment to the state Constitution that would have cut California’s income taxes permanently. Some pundits thought Reagan’s political career was over.

The main catalyst for change was probably the economic downturn of the 1970s. Inflation and interest rates started rising in 1973, spurred by OPEC’s hike in oil prices, poor crops worldwide and Nixon’s accelerated government spending to win re-election. A steep recession soon followed. Anti-government policy-makers repeatedly blamed federal spending for the inflation, and a neoliberal laissez-faire monetary policy, sparked by Milton Friedman’s theories, gained support even among traditional Democratic economists.

Dogged by punishing stagflation, Americans became confused, frustrated and angry. Just five years after Reagan lost his battle to cut income taxes in California, Proposition 13, which drastically slashed property taxes, was approved by an overwhelming majority of voters. In Washington a sweeping bill to cut federal income taxes by 30 percent, sponsored by Congressman Jack Kemp and Senator William Roth, drew strong Congressional support.

America had turned. Two years later Reagan, proclaiming government the problem not the solution, captured the presidency. It is not the people who are living too well, he told Carter in a televised debate; it is “government that is living too well.”

Restoring Americans’ trust in government won’t be easy. We can start by debunking the destructive myths propounded by anti-government policy-makers and economists. As economist Alan Blinder has pointed out, contrary to alarmist propaganda, the nation does not have to balance the budget in ten years or risk going bankrupt; the real damage will come fifteen years down the road, when rapidly soaring healthcare costs inflate Medicare and Medicaid outlays beyond the nation’s ability to pay. Bringing these costs under control should be a top priority on the left.

Once the economy is back on track, higher taxes can finance these and other social programs. Economist Peter Lindert has done comprehensive research in his book Growing Public to show conclusively that bigger government and higher taxes do not impede economic growth (see page 21). More aggressive fiscal stimulus now, including aid to the states that are cutting spending, could stimulate more growth. Economists including Cristina Romer and David Romer have recently produced new research showing that Keynesian stimulus does work to lift economies out of the mire and support rapid recovery. The bailout of Detroit automakers provides a lesson that the government can pick winners and should focus more of its subsidies on manufacturing. And does anyone any longer doubt that this country needs an aggressive infrastructure investment program?

But restoring faith in government will require still more of the nation than these measures. Government has failed too often; it can and must do its tasks more efficiently. New programs have to work. Civic engagement, which has significantly deteriorated, can be revived (see Sabeel Rahman, page 24). And to remove the stigma cast on government by its opponents, policy wonks and activists can also learn how to talk more effectively about the value of it (see Dianne Stewart, page 23).

People need to be fully informed of the failure of free market policies in one arena after another. Conservatives have been expert at deflecting attention from their failures. The press has to be prodded into fairly stating the pro-government side of the argument and into revealing the billionaires and corporate interests that are financing much of the conservative wave. The people should be told that under the anti-government umbrella, privately financed healthcare is tragically inefficient in America; that the unregulated financial markets drove the nation into deep and lasting recession; that for every billion dollars of GDP, the United States now creates fewer jobs than in the past; that monopoly power has grown in communications, drugs, healthcare and finance.

Americans turned against government in frustration and fear in the 1970s. But those same Americans from every corner can rediscover the value of government, throw off the blinders of the past generation and lead their policy-makers to a wiser path. This is the urgent mission of our times.

This piece was originally published by The Nation.

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