Yali's Question Once Again
Two Rather Different Messages

Small Government Republicanism Is Gone

Small-government Republicanism has been dead since the inauguration of Ronald Reagan. But now it has been staked, and its head has been cut off and stuffed with garlic. David Wessel muses on the consequences:

WSJ.com - Capital: The era of small government is over. Sept. 11 challenged it. Katrina killed it.

Of course... small government has been more principle than practice lately. President Bush has presided over... the largest expansion of Medicare since Lyndon Johnson signed it into law and a 20% increase in all federal spending... even before the cost of responding to Hurricane Katrina. Now the rhetoric is fading to match the reality....

"The era of big government wasn't over," says Allen Schick, a professor of public policy at the University of Maryland. "Look what happened with spending. It was hibernating under Clinton and revived under Bush." The year Mr. Bush took office, federal spending amounted to 18.5% of gross domestic product, the value of all goods and services produced that year. This year, before adding the cost of Katrina, it was projected at 19.8% of GDP, and paying pensions and health care for baby boomers will push it higher still. Katrina already is adding fuel to the spending fire....

All this is more than politicians doing what comes naturally. The politicians are reflecting the public attitude toward government -- complain about it, criticize it and count on it. When Mr. Clinton, in that 1996 speech, said, "We cannot go back to the time when our citizens were left to fend for themselves," it seemed one of those rhetorical flourishes he often used to position himself between two exaggerated extremes. After New Orleans, it sounds more like a prophetic admonition.

In this climate, Mr. Bush's principled effort to create "an ownership society," in which individuals take more responsibility -- for health care, retirement, housing, education -- and rely less on their government, has been stopped in its tracks. His quest to repair Social Security and create private retirement accounts, already stalled on Capitol Hill, may be dying. Preaching self-reliance right now, whatever the merits of the case, won't work.

Mr. Bush's ability to make a convincing, reasoned argument that times of great need like these require budget choices is undermined by his unyielding affection for the tax cuts that were conceived before Sept. 11. The Senate quickly shelved a plan to try to repeal the estate tax permanently this week, but Republicans still hope to extend the life of tax cuts on dividends and capital gains that are set to expire at the end of 2008.

The horror of New Orleans, the photos of Americans on rooftops waving "Help Us" signs, the squalor of the Louisiana Superdome and the convention center, the failure to heed well-publicized warnings about the inadequacy of the levees -- all are provoking loud attacks on local, state and federal governments. But those aren't cries for less government. Government spending over the next five years will be bigger, perhaps significantly bigger, because of Katrina and its aftereffects.

That poses a formidable challenge to the president and Congress. Today's combination of small-government tax rates and big-government spending plans is pleasant and popular. It isn't sustainable.

One of the interesting things about Jackson Hole was the number of private conversations about what to do to build institutions to restore fiscal sanity--and whether the Federal Reserve needed to take on a role as guardian of fiscal stability as well, sharply admonishing the executive and legislative branches and telling them that fiscal instability would eventually make inflation impossible to avoid. Bob Rubin's opinion was "Yes": the Federal Reserve does need to take on this watchdog role--and strongly.