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[Welcome author, Jeff Madrick, and host, Richard Parker, Lecturer in Public Policy and Senior Fellow of the Shorenstein Center, Harvard Kennedy School - bev]

Jeff Madrick’sThe Case for Big Government arrives when one might imagine that Wall Street has made the case quite persuasively on its own. By mid-February, the Federal Reserve’s once-gargantuan $29 billion rescue of Bear Stearns had been dwarfed not just by the government’s hotly debated $700 billion "bailout bill" last fall, or even President Obama’s nearly $800 billion stimulus package, but far more stunningly by the $7.6 trillion the Fed and Treasury had by the beginning of 2009 already pledged to contain the ever-widening collapse of the economy, and the additional sum of up to $2 trillion that the new administration said it would raise from public and private sources to rescue banks.

While there is much talk of how government might rescue Wall Street, or invest in long term infrastructure, there is little serious debate over whether government might play a different major role: acting as a long-term guarantor of America’s (and indirectly the world’s) economic stability, as provider of widespread opportunity, and as partner with the private sector in restoring long-term stable growth. Madrick argues that the faddish mantra of ‘market based solutions’ and virulent hostility to ‘big government’ has damaged the well being of most Americans. He wants to make the case for big government to journalists, academics, policy intellectuals, and politicians who have embraced the earlier "public marketeering" consensus—as well as members of a younger generation who may be unfamiliar with past achievements of government and the potential of the public sector.

Madrick first provides a short history of government’s often-forgotten but central role in the nation’s long economic rise from the 1770s to the 1970s. While government’s share of GDP was quite small from the American Revolution to the Great Depression, its policy influence was large. Madrick shows that government’s role in this period was to enhance the country’s overall rate of growth even as it helped equalize income and wealth distribution. The Great Depression began a substantial shift from a predominantly regulatory state to a revenue state. In consequence, the government’s 7 to 8 percent share of GDP at the start of the century tripled over the next fifty years, and has remained relatively stable ever since, despite the best efforts of conservatives.

He then discusses the problems in the claims of Milton Friedman and others who have argued against big government. There is no real statistical evidence that higher taxes and wealth transfers hurt productivity. The US government has the lowest share of GDP of any OECD country, and the highest levels of income and wealth inequality, poverty, crime, hours worked, and infant mortality. Since the 1970s, the US has grown more slowly than ever before in history, and real wages have stagnated. The fact that so many women work has ironically increased inequality among families.

Madrick not only wants to see policy reform, but a fundamental shift in attitudes. He argues that we need new spending programs and new ways to raise revenue to reverse the consequences of failed ideology over the past three decades. For example, Madrick argues cautiously for an annual $400 billion increase in public spending overall. This would roughly increase government’s GDP share by a modest 3 percent, close to the original stimulus package Obama submitted to Congress (since the $800 billion the President proposed is designed to be spent over the next two to three years, not one). He also advocates single payer health care, a green jobs promotion strategy, the reregulation of finance, a more progressive tax system, increased funding of education at all levels, and large funding for transportation reform. Some – but not all – of this resembles Obama’s policy agenda.

The book’s largest flaw is that it is not as careful and clear-eyed politically as it is economically. It devotes little attention to the rise of religious fundamentalism that coincided with America’s industrial decline, and how the departure from the Democratic Party by millions of white Southern evangelicals and Northern, mostly Catholic, industrial workers—twin pillars of the New Deal—contributed to the world we face today. In many ways this shift may have been more consequential to the spread of "small government" ideology than the intellectual realignment of academics, journalists, policy advisers, and politicians. It also ignores the effects of American foreign and military policies on economic growth. Between 1945 and 1975—the period Madrick cites so approvingly in contrast to the decades that followed—half of all federal spending was for the military, and significant parts of the rest (including for education, roads, science, and technology) were justified as military preparedness. One cannot know when and how the situation in Iraq will end, or whether the war in Afghanistan will grow far larger and more costly—but analysts such as Madrick might consider the effects of the Vietnam War in helping to destroy the New Deal consensus.

Still, Madrick is correct to argue that most Americans—congressional Republicans and broadcasters such as Rush Limbaugh notwithstanding—seem ready to move past the thirty years of conservative domination that resulted from increasing distrust of government. The dismal failure of deregulated financial markets has now—just as in the 1930s—forced upon the US the most fundamental and costly sorts of public interventions in markets. The extent to which Madrick’s insightful and persuasive arguments will be taken up in US policy now rests to a large degree on whether President Obama and the Democrats can restore America’s basic financial health. For the time being that means concentrating on government’s ability first to save Wall Street and restore credit, and then to begin rebuilding the devastation Wall Street’s failure has left behind. The challenge of creating a new era for government as long-term guarantor of our security and well-being lies ahead.

[As a reminder, please take off-topic discussions to the previous thread. -bev]