Having to watch the annual State of the Union address goes with the territory of being president of a “think tank,” but I can think of no other part of my job description that I enjoy less. The spectacle of a room filled with politicians cheering on one of their own is difficult to stomach even in the best of times. And these are not the best of times.
This year, the indigestion began early when the President dismissed as a “sterile debate” the question of whether government is “the enemy” or “the answer.” “My fellow Americans,” said the President (a phrase politicians invariably use to foreshadow calls for higher taxes, less freedom, often both), “we have found a third way. We have the smallest government in 35 years, but a more progressive one. We have a smaller government, but a stronger nation.”
Smaller Government?
The degree of misrepresentation contained in those three sentences nearly boggles the mind. The President’s clever wording obscures the fact that a smaller federal workforce does not mean smaller government. Income redistribution, new regulations, and mandates on private businesses all are burdens imposed by government that may not require any net increase in federal employment.
Depending on how it is measured, governments in the U.S. now take between 33 percent and 36 percent of the value of goods and services produced in the nation each year, some $2.7 trillion in 1996. Complying with regulations imposes an additional burden of between $600 billion and $1 trillion a year. Combined, the “cost of government” is more than half of the nation’s entire gross domestic product (GDP), or about $13,000 a year for every man, woman, and child in the U.S. In 1960, taxes took about 27 percent of GDP and the regulatory burden was less than a third as much.
The President failed to note that “we have the smallest government in 35 years” only because of reductions in military forces following the end of the cold war. The number of federal regulators, according to the Center for the Study of American Business, is some 15 percent higher than it was in 1990. State and local government payrolls have also ballooned, fueled in part by federal matching grants and unfunded mandates.
You may be thinking, “Ah, but at least the budget is balanced.” Baloney. According to the Concord Coalition, Clinton’s proposed “balanced budget” borrows $101 billion from the Social Security Trust Fund in order to produce a $9.5 billion “surplus.” A headline in the Chicago Tribune captured the truth of this budget: “Spending proposals cover families cradle-to-grave.”
A Third Way?
Please correct me if I am wrong, but haven’t we been here before? The claim that “we have found a third way” was all the rage between the 1930s and the 1970s, when left-wing intellectuals called for vast expansions of the welfare state, all the while denying that these deviations from laissez faire would lead to socialism or communism. History has not been kind to those false prophets as the social programs they helped bring about failed to achieve their desired goals.
It was specifically in response to claims of a “third way” between socialism and the free enterprise system that Friedrich Hayek wrote The Road to Serfdom in 1944, famously dedicated to “the socialists of all parties.” Hayek, who would later be awarded a Nobel Prize in economics, argued compellingly that a state cannot compromise economic liberties without starting down the road to fascism and communism.
According to Hayek, “if the law is to enable authorities to direct economic life, it must give them powers to make and enforce decisions in circumstances which cannot be foreseen and on principles which cannot be stated in generic form. The consequence is that, as planning extends, the delegation of legislative powers to diverse boards and authorities becomes increasingly common.” In the end, “the broadest powers are conferred on new authorities which, without being bound by fixed rules, have almost unlimited discretion in regulating this or that activity of the people.”
Time proved Hayek to be right. Government in the U.S. and around the world grew in size and power to heights unimagined by our founding fathers. What began as limited exercises of state charity became entitlement programs trapping millions in dependency. Schooling was once a predominantly private matter, but now nearly 90 percent of school-age children in the U.S. attend government schools. Government restricts our freedom to contract for health insurance and medical services. A thicket of regulations discourages entrepreneurship and innovation. Government’s powers of search and seizure have reached dangerous heights.
Who Won the Debate?
The 1980s and 1990s have witnessed a sea change in the way government growth is viewed. The collapse of the Soviet Union and the fall of the Berlin Wall revealed the ruinous costs and human suffering caused by socialism in action. Social scientists documented the failure of the Great Society programs and others that rely on government bureaucracies and tax dollars. Calls for bigger government to solve new social problems are now more often met with skepticism than enthusiasm.
While Ronald Reagan’s eight years as President can hardly be characterized as a period of “rolling back” big government, the record nevertheless shows that his cuts in marginal tax rates and successful deregulation efforts laid the foundation for the economic recovery we still enjoy today. In the national referenda we call presidential elections, Ronald Reagan won the debate over the proper size and role of government twice, in 1980 and 1984, running explicitly ideological campaigns against advocates of larger and more “compassionate” government. George Bush won it again in 1988. Clinton won it in 1992 and again in 1996 only because he ran as a “New Democrat,” assuring voters he rejected the failed doctrines of big government.
Even today, so strong is the consensus that limited government is superior to big government that President Clinton is compelled to attach the “smaller government” label to his $1.73 trillion budget.
Although he defines his “third way” as combining smaller government with progressive government, Mr. Clinton’s policy recommendations do not lead to smaller government. In fact, back in the days of the “sterile debate” over the size and role of government, the President’s “third way” would have been called “creeping socialism.” Judging by the rest of his speech, that label still applies.
Crawling Back to Socialism
The President used his State of the Union address to call for increasing regulation of managed care plans, lowering the age of Medicare eligibility to 55, raising cigarette taxes to finance health care for children, regulating and subsidizing child care, national testing of students, a federal role in hiring teachers and subsidizing school construction, federal inducements to stop “social promotion,” a higher minimum wage, a heightened war on drugs, more government-mandated time off from work to handle family responsibilities, more funding for police, more foreign aid, free time on television for campaign ads, stronger enforcement of affirmative action laws . . . well, you get the picture.
The President’s agenda diverges from the traditional liberal wish list of expensive new entitlement programs only by relying sometimes on tax credits and regulations to achieve what once would have been attempted with outright subsidies and government-run bureaucracies. That is a small and overdue bow in the direction of experience and economic reality, but it is hardly enough.
The Clinton plan is little more than a road map to an even greater presence of government in our economic and private lives. The President failed to enunciate a single principle that would limit government’s discretion in regulating our every action and even our thoughts. He promises to lead us, not to a world with smaller and more progressive government, but to a world where government attains even more mammoth proportions than it already has, with all the injustices and inefficiencies that entails.
The President, it is clear, has not found a “third way,” but merely a new label for a very old and discredited way, the way of big government and shrinking individual liberty.
