Monday, September 14, 2009

Expanded Government: Temporary or Permanent?

One crucial concern about all the steps taken by the federal government to ameliorate the financial crisis is that many of these steps will be permanent rather than temporary. At the moment, the government's role in the economy is unprecedented, other than in war time:


One year after the collapse of Lehman Brothers set off a series of federal interventions, the government is the nation’s biggest lender, insurer, automaker and guarantor against risk for investors large and small.

Between financial rescue missions and the economic stimulus program, government spending accounts for a bigger share of the nation’s economy — 26 percent — than at any time since World War II. The government is financing 9 out of 10 new mortgages in the United States. If you buy a car from General Motors, you are buying from a company that is 60 percent owned by the government.

If you take out a car loan or run up your credit card, the chances are good that the government is financing both your debt and that of your bank.

And if you buy life insurance from the American International Group, you will be buying from a company that is almost 80 percent federally owned.

Despite this enormous expansion, the administration's claim is that it wants to exit these expanded roles as quickly as possible:

Mr. Obama plans to argue, his aides say, that these government intrusions will be temporary.
The federal government's role may well shrink from its current size; indeed, that process is already taking place to a significant degree. Yet advocates of small government should still be worried, for several reasons:

1. The decisions to scale back the new interventions will not be determined just by the administration and its economic advisers; Congress will play a huge role. Many members of Congress would love to see a signficantly larger role for government, so Congress will find ways to continue much of what it has already started.

2. Even if current interventions get scaled back or eliminated, they have set a precedent for similar interventions in the next crisis. Worse, some of the interventions - those that have bailed out private risk-taking - virtually guarantee that the next crisis is coming.

3. Although the administration may reduce or end many recent interventions, it is enthusiastic in its support for several new interventions, such as a hugely expanded roles in health care and energy.

More generally, the rhetoric from the administration and many Democrats in Congress suggests that in their hearts, they are hostile to markets and believe government is the solution, not the problem. As long as Democrats control Congress, therefore, the trend will be for more government, not less.

12 comments:

Anonymous said...

Professor Miron, blogging etiquette recommends that you include a hyperlink to any source material that you quote. Where does the italicized material above come from?

Steve M. said...

http://www.freerepublic.com/focus/f-news/2338981/posts

real hard to find

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