On September 8, 2005, Wall Street Journal columnist
David Wessel announced that “the era of small government is over.
Sept. 11 challenged it. Katrina killed it.” Wessel’s declaration
comes nearly a decade after President Clinton declared that “the
era of big government is over.”
But Clinton and Wessel are both wrong, for different reasons.
The relative size of the federal government has been remarkably
stable for over 50 years. In 1952, the third year of the Korean
War, federal spending was 20.3 percent of GDP; in 2005 to date, the
third year of the Iraq War, federal spending is 20.4 percent of
GDP. The federal spending share of GDP in these two years was only
slightly higher than the average of 19.85 percent over the whole
period from 1952 to date, primarily because of the temporarily high
military spending. The primary change in the budget has been a
massive increase of federal transfer payments at the expense of
military spending within a roughly constant federal spending share
of GDP.
Clinton proved to be wrong because he could not imagine that his
Republican successor would increase spending at the highest rate
since Lyndon Johnson, and for much the same reasons — the
combination of an extended war and a rapid increase in domestic
spending.
Wessel will prove to be wrong because he does not understand why
federal spending increased so rapidly under George W. Bush or the
conditions that will constrain the growth of future spending. The
war on terrorism has been a rationale for increased spending, but
not its primary cause. President Bush has endorsed a substantial
increase in spending for agriculture, defense, education, energy,
homeland security, Medicare, and transportation — only a trivial
amount of which is a direct response to Sept. 11 — all the while
refusing to veto a single spending bill. The primary cause of the
rapid increase in federal spending to date is that the Bush
administration and too many Republicans in Congress have embraced
big government conservatism in both foreign and domestic policy at
the expense of their traditional party commitment to fiscal
responsibility.
If the era of small government is over, it ended in 2001, not in
2005.
The spending already proposed for relief of the Katrina victims
and the restoration of the Gulf Coast is extraordinary, probably on
the order of $100,000 per displaced household. But the net increase
is not likely to be as large as Katrina-related spending for
several reasons:
* Spending for Katrina relief will jeopardize other Bush
priorities, such as “staying the course” in Iraq, the indefinite
extension of the tax cuts, and Social Security reform.
* Bush will have much less influence on congressional
Republicans during his second term, especially if Democrats gain
seats in the 2006 election.
* The economic and political conditions that have led to
remarkable stability in the federal spending share of GDP for over
50 years are likely to restore a spending share somewhat closer to
the average after the temporary spending increases for the war in
Iraq and Katrina relief.
The primary condition that will threaten a substantial increase
in the federal spending share of GDP is the combination of unfunded
promises for Social Security and Medicare and a substantial
increase of the ratio of retirees per worker — a problem that will
become clearer as baby boomers begin to retire in 2008. The primary
cost of the war in Iraq and Katrina relief may turn out to be the
inability to gain bipartisan attention to these much larger
long-term problems. Whether the era of small government is over
depends primarily on how these long-term problems are sorted out,
not on the temporary spending for the war in Iraq and Katrina
relief.
