by Donald Devine
Issue 219– January 16, 2013
The contrast between the first and second inaugurals of President Barack Obama could not be more dramatic. Gone are the hope, promise and optimism. The expectation of a program “for the ages” has dissipated. There is even muted gushing on TV. There are no more media comparisons between the incumbent and Abraham Lincoln.
To the contrary; in an end of year Washington Post editorial, these big Obama supporters asked “Why is the nation’s leader not embracing and then explaining the balanced reforms the nation needs?” Influential progressive journalist David Ignatius has remarked that “It would be hard to imagine a more dispiriting prelude to a new presidential term than this week’s sorry ‘fiscal cliff’ deal to defer (and perhaps multiply) the nation’s financial problems.” While not despairing for some changes, he concluded “It’s depressing that after four years of gridlock, a president who won what was supposed to be a decisive election is back once again to the politics of gridlock”
What changed? The ambitious president had achieved much of his transformational agenda. He passed an unprecedentedly large $830 billion stimulus program, pumped an additional $2 trillion into the economy through Fed bond purchasing, allocated billions of dollars to multiple mortgage protection plans, instituted major Dodd-Frank financial reforms, bailed out two automobile firms, instituted a $1.7 trillion healthcare program, and ran $5 trillion in deficits. His predecessor president had passed his own $700 billion bank asset support program, a $125 billion insurance firm bailout, a $600 per person tax rebate and a multiple trillion dollar prescription drug program. Together the two had spent a greater percentage of national wealth on domestic prosperity than in any previous period of American history.
What was the result of all this activity to fix the economy? After all this stimulus, unemployment went from five percent or less in the years before the Great Recession to almost double to 9.9 percent and then leveling near eight percent ever since. While 7.4 million jobs were lost during the recession, less than half, only 3.5 million have been added back, the slowest recovery since the Great Depression. Many potential workers stopped looking for employment so that the labor force participation rate has fallen to a 30 year low of 63.6 percent and has remained flat. Since the end of the recession, household income has decreased by 4.8 percent.
What more could be done about the related area of welfare and social policy? In the U.S. there already are 70 bureaus in six different agencies to help feed hungry children. There are 105 programs in nine agencies to encourage math, reading and science. There are 75 work training programs. But a comprehensive General Accountability Office study reported “little is known about the effectiveness of most programs.” In healthcare, the Congressional Budget Office studied all 34 programs to reduce hospital admissions over the past ten years and concluded all “had little or no effect.” As Brookings top expert Paul Light has conceded, this vast array of national programs drowns in layers of conflicting bureaucracy. Regulation micromanages literally every human activity in a manner Lilliputians would envy and the uncertainty it creates may be more damaging than its actual policies.
As the Washington Post’s Robert Samuelson remarked, even the Obama deficit reduction commission – which at least recognized the seriousness of the matter – did not give a compelling reason why spending reduction was essential to the solution of the problem. The reality that could not be spoken was that Medicare and to a less extent Social Security are nearing bankruptcy and it is simply irresponsible to allow the elderly to retire for 25 years or more and have the following generations pay for it with substantial reductions in their future standard of living. Even the panel’s modest proposals were greeted by then House Speaker Nancy Pelosi as “simply unacceptable” and AFL-CIO President Richard Trumka as “just [telling] working Americans to drop dead.”
The government actuary has presented unassailable data proving the entitlement explosion will begin hitting hard somewhere around 2016. Even if President Obama were willing and courageous enough to present entitlement reductions, and the Democratic Senate were successful in adopting them – all of which is highly unlikely – the coming crisis has been ignored for so long and the latent inflation so deeply embedded it is unlikely they could act in time. The only force holding off the day of reckoning is that the rest of the world is doing so much worse. Even that bright light is dimmed by the possibility some foreign crisis could be so acute that worried foreigners would stop buying U.S. notes and the bubble would burst.
As the Wall Street Journal’s Holman Jenkins insists, even if an immediate crisis is avoided the long term consequences of not taking drastic action now are almost as severe. Middle class taxes must increase by half again even to cover current Washington spending. State and local taxes would have to increase by $1,385 per household just to cover pensions for their workers, to be paid either by higher state taxes or bankruptcy. Entitlements will be cut even if just by inflation and increased physician waiting lists, which the rich will escape and the poor will stand in line as under Medicaid. Current savings will be reduced either by inflation or by raising taxes on dividends and capital gains. Growth will inevitably slow even more. And the people would go up in arms.
Political scientist Vincent Ostrom has argued the crisis of the modern welfare state requires a fundamental recasting of how administration is understood. The progressive view is that administration means management and that necessitates a national center of power to effectuate it. Ostrom’s alternative was federalist “cooperation, competition, conflict and conflict resolution” rather than “command and control by an overarching hierarchy of officials.” Polycentric governments, especially local governments, can produce public goods by “hiring employees to accomplish the task, by contracting with other producers or by some combination of these methods. These options can give rise to quasi-market arrangements within a public economy” that can be more efficient than command and control.
The great and hopeful irony is that the welfare state crisis itself contains the seeds to reform its most fundamental error of centralized rigidity and immobility. There are very few functions other than national defense, security, and protection of a national market that cannot be performed by states or locally. And the states cannot print money as can the national government. Being closer to both the problems and the individuals affected, locals can act in cooperation more efficiently and humanely. With fewer responsibilities, the national government can focus effort on its remaining problems such as entitlements and its proper functions.
Of course, Ignatius is correct. Given the current deadlock nothing very positive can happen in Washington over the next four years. But that is even a better reason to look to the states. If anything can be accomplished, it will have to be done locally.
Donald Devine, the editor of ConservativeBattleline On Line, was the director of the U.S. Office of Personnel Management from 1981-1985 under Ronald Reagan and is Senior Scholar at The Fund for American Studies.