The Return of Big Government

A bulked-up uncle Sam is coming back to deal with housing, healthcare, Social Security, and more.

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"Big Government" doesn't do much for you? How about a "new New Deal"? The language of FDR certainly appeals to Rep. Rahm Emanuel, the outspoken Illinois Democrat, as does the idea that globalization has created a need for a new social compact between government and workers. Among his proposals, he wants expanded tax credits to make higher education less costly and the creation of a $30 billion-a-year government-run entity—modeled after the National Institutes of Health—that would conduct research in alternative energy technologies and, in turn, create high-paying jobs. "You can't just say to people: Here is a $1,000 tax cut; now go take on all those Chinese by yourself," Emanuel says. "That is why I think you need a new New Deal.... Not big government—big solutions."

And into that mix you can toss big spending for infrastructure, a common element of various plans being concocted by Washington think tanks. New America's Schwenninger points to a backlog of public investment needs, including airports, bridges, broadband access, and energy delivery. "You will need $150 billion a year over the next five years to provide business what it needs to do business in this country," he says. "I don't think the normal argument about deficits apply.... I think it will pay for itself through increased jobs, income, and returns to the economy."

Now the obstacle to all this is supposed to be McCain, who is pushing a free-market agenda of cutting corporate taxes, eliminating earmarks, and continuing open trade. While he does favor a cap-and-trade system, he never joined primary rivals Mitt Romney and Rudy Giuliani in calling for an expensive "Apollo program" to achieve energy independence. Nothing there for Reagan to disagree with. But Reagan-style "get government off our back" rhetoric is nowhere to be found at McCain campaign headquarters. "There is a role for government, and the primary thing is to identify that role and to make sure government does that well," says Douglas Holtz-Eakin, McCain's director of economic policy and former director of the Congressional Budget Office. "The striking thing that has come out of this campaign is the degree to which people have lost trust in government to pursue national priorities. They want it to work. They really do."

Take the issue of trade and how globalization is affecting workers. On that, Holtz-Eakin sounds a lot like Emanuel. "I don't think Americans are afraid to compete," he says. "They just don't want to feel like the government has left them out there to do it on their own." In addition to an update of America's entire worker retraining system, McCain has mused about creating a wage insurance program in which, for instance, a 55-year-old worker who once earned $50,000 and found a new job paying just $30,000 might receive $10,000 a year for a couple of years to partly make up the difference.

A swing in the pendulum. But even if Big Government is back, will it stick around for a while? Or is the current bloom merely a temporary burst of activity, much like an interglacial warm period during an ice age that eventually gives way once again to the big freeze? That's the best guess of Rep. Paul Ryan, a conservative Wisconsin Republican. "I think we are definitely seeing a swing in the pendulum," Ryan says. "But I think it will swing back our way pretty fast just because logic and reason will ultimately prevail."

Well, one could go broke inside the beltway waiting for logic and reason to prevail. But Ryan, who thinks gen X-ers and "millennial" voters crave the choice and service that Big Government can never provide, might be eventually proved right. There are some formidable constraints on the size and scope of government that Roosevelt and LBJ didn't have to face. For one thing, the potential sweep of any new New Deal or Really Great Society is limited by the ongoing costs of the original New Deal and Great Society. When the bills creating Social Security in 1935 and Medicare in 1965 were signed, taxpayers weren't facing a looming deluge of debt from existing entitlement liabilities. "You know the first rule of digging holes, don't you?" asks David Walker, the former U.S. comptroller general and now head of the Peter G. Peterson Foundation. "When you're in deep, you stop digging."