The Era of Big Government Is Still Over

The Atlantic

...and President Obama's State of the Union proved it.

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President Barack Obama made the middle class the focus of his State of the Union address on Tuesday. He was lauded by some as fighting for jobs and opportunity, and even for launching a "war on inequality" equivalent to President Lyndon B. Johnson's 1960s War on Poverty. He was assailed by others for showing his true colors as a man of big government and wealth redistribution.

Yet the initiatives Obama proposed are striking not for their sweep but for their limited scope. That reflects both pragmatism and realism: Not only is the age of big government really over, so is the age of government as the transformative force in American society. And that is all for the best.

Wait a minute, you might reasonably object: What about healthcare? What about the proposals for minimum wage increases, for expanded preschool, for innovation centers, for $50 billion in spending on roads and infrastructure? Surely those are big government and aim, effectively or not, for transformation?

Healthcare and the changes under the Affordable Care Act are significant, and for now they have expanded the scope and cost of government However, those costs appear to be growing more slowly than expected, at least according to the Congressional Budget Office. While healthcare costs are increasingly untenable, the issue is one of healthcare costs for society as a whole. Recent legislation means government bears more of them, but someone will bear them no matter what.

So while the healthcare is billed as an expansion of government, it is more a continuing issue of cost and delivery of something that has to be paid for by someone and at some cost.

On almost every other front, government is receding -- not just from the financial crisis high tide of 2008-2009 but from decades before. Each of Obama's proposals hones and potentially reduces current spending, whether on education or on infrastructure. That $50 billion for roads appears large. In mid-2012, though, Congress authorized $120 billion in highway expenses through 2014, and much of what Obama proposes could be encompassed by focusing current spending.

Even if there is new spending there, it is a pittance compared to the interstate highway bills of the 1950s or the space program of the 1960s, let alone the many programs that encompassed the War on Poverty and led to a vast expansion of federal programs in healthcare, housing and education.

Take the minimum wage, the issue that received perhaps the most attention among the president's proposals, save gun control. But increasing the minimum wage isn't a government program. It's a bill that potentially mandates higher costs for some employers. Whether you love it or hate it, it is not an expansion of government ‑ and certainly not of government spending.

All these proposals, in fact, are small-bore for the post-New Deal era. They are small-bore compared to the massive 2009 stimulus bill of almost $800 billion. They are small-bore because there is no political will for them to be larger-bore, and because it is unclear just how much government can use the bazooka of big spending to effect significant changes in society.

Take jobs. Aside from hiring the unemployed in a New Deal-style program, the government can do only so much to create jobs and alter the trajectory of unemployment. While hiring those unemployed might not cost much more than the tens of billions spent annually on unemployment benefits, there would still need to be jobs once those programs ran their course.

Yes, government can create incentives for businesses. But those incentives are almost always state and local tax incentives to lure companies to build factories. That is good for temporary boosts to construction. As we know, with robotics and just-in-time inventories, factories do not generate the number of jobs they once did.

What does appear to create jobs are people and their needs and wants. There is some evidence that self-employment has been on an upsurge, but the Bureau of Labor Statistics reports that self-employment as it measures the category has been largely static over the past decades.

Still, somewhere between 10 percent and 15 percent of the labor force is self-employed -- whether by intent (starting a small business) or involuntarily (couldn't find any other work). The world of social media may be tiny in the greater scheme of things, but social media appears to be ever more central in the way companies find employees (the LinkedIn phenomenon) and how consumers find products.

In fact, the suite of tools encompassed by information technologies on the Web may be adding more to income and affluence than we think or than official statistics show. According to Eric Brynjolfsson of the Massachusetts Institute of Technology, "free goods" of the Internet, like Google , could be adding as much as $300 billion to our gross domestic product each year. That has nothing to do with government and is clearly boosting quality of life.

One day, we will look back on this era as a period of transition. The problem is that we don't know what we are shifting to, or whether it is something we will perceive as better or worse.

Government will be one aspect of that transition. But it would be a mistake to see it as the axis of that transition. The current Washington debates -- about whether there will be a "sequester" or not, a drastic cut in spending or only a small one ‑ demonstrate that government is shrinking and the horizons of its ambitions narrowing. Given the limitations of what government can and cannot do, that is hardly something to mourn or decry.

Protecting the commons is something government must do and is. Single-handedly managing the transition to the next economy is something it cannot do -- and should not.

"The Edgy Optimist" column is initially published at Reuters.com, an Atlantic partner site





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