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November 28th, 2020

Insight

Government is everywhere now --- where does it go next?

Dan Balz

By Dan Balz The Washington Post

Published July 7, 2020

Government is everywhere now --- where does it go next?
Americans are experiencing the biggest expansion of government authority in generations as elected leaders take unprecedented action to fight the deadly coronavirus pandemic.

The role of government has changed overnight, in ways no one imagined as this election year began. Despite a broad consensus behind this emergency surge in government spending and power, a huge debate over what government does and should do lies ahead.

That battle will be waged on terms that could be far different from those that existed before the pandemic - terms that have held sway since President Ronald Reagan arrived in Washington four decades ago determined to put advocates of a vigorous government on the defensive for the first time since the New Deal.

The pandemic has exposed crippling weaknesses in the federal government and troubling vulnerabilities in society that will be more difficult to ignore when the crisis begins to ease. For the first time, many Americans are looking to government for their very economic survival. In time, that could make them look at government differently.

The effects of hollowed-out federal agencies, persistent underinvestment in public health, enormous gaps in coverage and disparities in care have been on daily display as the coronavirus spread rapidly this winter and spring. So, too, have the effects of an economy whose benefits are distributed unequally, leaving the richest Americans secure while millions upon millions of middle- and lower-class families struggle even in the best of times.

And these are not the best of times. To hold down the number of deaths from covid-19, government has put the economy in a coma - a recession by federal fiat. State and local governments have closed schools and shut down bars, restaurants and some other businesses, leaving millions of laid-off workers to rely on an enormous infusion of federal benefits for their financial support.

Government has intervened in the market in other ways as well, delivering billions in bailouts to airlines and other distressed industries while haltingly commanding General Motors and 3M, through the Defense Production Act, to manufacture ventilators and protective masks.

Government also has changed personal behavior, recommending and in some cases ordering people to stay home, practice social distancing and wear masks outdoors, in some places under threat of fines or penalties. Coming next is likely to be contact tracing, an effort to track people exposed to the virus that could invade the privacy of all Americans.

So far, Washington has authorized more than $2.35 trillion to prop up suffering workers and industries and supply an overwhelmed health care system, with another round of spending likely coming soon. Meanwhile, the Federal Reserve has resurrected and expanded its playbook from the 2008 financial crisis, pumping an estimated $4 trillion into the economy.

The U.S. has thrown more than $6 trillion at the coronavirus crisis.

More spending could be required in the future to patch the holes the pandemic has revealed. The nation also is likely to need higher taxes - and not just on the wealthiest - to help repay the gigantic debt Washington is incurring to rescue the economy and workers.

"I think it could be paradigm shifting," said Janet Yellen, the former Federal Reserve chair, arguing that this crisis could generate greater public support for more spending on health care and safety net programs, which she favors.

William Galston of the Brookings Institution said he sees this moment as the end of the cycle that began with the 2008 financial crisis and the tea party revolt in the fall of 2009, which triggered populist forces that eventually helped elect President Donald Trump. "So the movement that began in opposition to a bailout is ending in an administration that finds itself forced to sponsor - and in many respects urge on - the largest expansion of government financial activity in our history," he said.

Galston's reference to the tea party is a reminder that anti-government sentiment remains strong among a segment of the population. But government's response to the financial crisis was to bail out big banks while providing little help for others, policies that infuriated many Americans. Those measures were far different from what Washington is doing now, which so far has garnered widespread public support.

Champions of limited government are determined to push Washington back to its pre-pandemic boundaries. "Government, to me, should be in a supporting role, not a leading role; a watchdog, not a cow to be milked," said Sen. John Barrasso, R-Wyo. "The goal is to help people get back on their feet but not to make this the new normal."

Events of this magnitude, however, often produce significant and lasting changes in the nation's politics. That is especially likely if economic activity remains weak for a lengthy period of time.

Already, some conservatives acknowledge the need for both additional spending, which they hope can be narrowly targeted, and higher taxes, one tiny indicator of how things may be shifting. At the same time, recent protests against stay-at-home orders in Michigan and elsewhere - urged on by Trump - suggest the threat of a wider backlash against infringements on personal freedom.

The coming battle over the size and scope of government has not been fully joined, and its shape remains uncertain. The first engagement will come during this fall's presidential election. Trump's leadership during the pandemic, which has been widely criticized, will be front and center in November. But the backdrop now will include fundamental questions about the role Americans want their government to play as the country struggles to repair the damage to lives and livelihoods in the spring of 2020.

Historian Jill Lepore, author of the 2018 book "These Truths: A History of the United States," said she is often asked of extraordinary events or actions whether whatever is happening is without precedent. "Usually the answer is, yes, this is precedented," she said, meaning something like it has happened before. That is not the case now. "There is no precedent for this," she said.

Breathtaking may be the only word to describe the size and speed of government's financial response to the pandemic. In the space of a few weeks, Congress passed three bills: an $8 billion emergency measure to finance vaccine research and local preparedness; the Families First Coronavirus Response Act costing nearly $200 billion; and the Coronavirus Aid, Relief and Economic Security Act, which will cost more than $2 trillion.

Together, the measures equal slightly more than 10 percent of gross domestic product, economists say. By comparison, the response to the 2008 financial crisis amounted to about 3 percent of GDP, considered enormous at the time. Add in actions by the Federal Reserve and the government's response to the pandemic equals about a quarter of the nation's entire annual economic input.

"It's like a war, in that it's this huge, huge thing," said Jason Furman, who chaired the Council on Economic Advisers under President Barack Obama and is now a professor at Harvard University. "But it's like a recession, in that we're not raising taxes at the same time to pay for it."

Douglas Holtz-Eakin, the former director of the Congressional Budget Office and chief economic policy adviser to John McCain's 2008 presidential campaign, said the federal response is both ordinary and extraordinary.

Writing checks for unemployment insurance, for instance, is a traditional response during an economic downturn. But the loans to businesses, he said, especially small businesses - assuming they are distributed efficiently, which is in question - are far more innovative.

The effect on the nation's balance sheet is sobering. The new legislation will increase federal budget deficits, and in turn the national debt, "to never-before-seen levels both in dollars and as a share of gross domestic product," according to the Committee for a Responsible Federal Budget.

The committee projects a deficit this fiscal year of $3.8 trillion and next year of $2.1 trillion. Accumulated debt "will exceed the size of the economy by the end of fiscal year 2020 and eclipse the prior record set after World War II by 2023." Those projections do not include another big infusion of spending currently under discussion in Congress.

The debate over the size and scope of government has been at the center of American politics for decades, even as spending and deficits have steadily increased - what John DiIulio of the University of Pennsylvania described as "a constant process of addition, not subtraction." Calls for lower taxes and spending restraint, along with populist, anti-government rhetoric, have shaped the debate. Both parties have allowed spending to rise while failing to raise taxes to pay for it.

The election of Reagan in 1980 marked the arrival of the small-government movement at the center of power in Washington. The Republican takeover of Congress in 1994, led by then-speaker Newt Gingrich, R-Ga., brought the anti-government, "leave me alone" coalition to the forefront of American politics. And the tea party movement that emerged after the 2008 financial crisis shaped political debate throughout Obama's presidency.

Yet the recent surge in spending has been approved with broad, bipartisan support. Republican and Democratic lawmakers have wrangled over the particulars, but the first three measures were approved by overwhelming majorities.

Glenn Hubbard, who chaired the CEA under President George W. Bush and teaches at Columbia University, worked with congressional Republicans to shape the legislative response. He called the actions to date "a perfectly fine use of government."

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Consensus formed behind the massive intervention for two reasons, said Joseph Stiglitz, a Nobel Prize-winning economist and professor at Columbia University.

First, without action and incentives, everyone is vulnerable to the virus. "If I am contagious and I go to the store, everybody suffers," he said. "(Paid) sick leave is not just a compassionate action, it's an action to try to prevent people from going to work when they're contagious."

Second, he said, this pandemic has many innocent victims. "So the role of the government in social protection was accepted by almost everybody."

There is no consensus, however, about what happens once a recovery begins. Greg Mankiw, like Hubbard, served as chairman of the Council of Economic Advisers under George W. Bush and is now a professor at Harvard. If this turns out to be a V-shaped recession - a steep decline followed by a rapid recovery - then the government response will prove transitory, he said, and its role will not change dramatically.

If, however, the recession forces significant numbers of firms to go out of business, and if Americans are reluctant to resume normal patterns of economic activity without a vaccine, then, Mankiw said, government's larger role likely will last longer and be far less transitory.

More fiscal stimulus - government spending - would be the only viable alternative because the Fed is tapped out, Yellen said. "The Fed is doing everything it can," she said. "We will have gotten to the point where fiscal policy has to play a role, or else we'll be burdened by chronically high unemployment."

"That social safety net debate will return," Holtz-Eakin said.

The current faceoff between Republican and Democratic congressional leaders over the next round of assistance points to a larger argument looming on the horizon, a debate that may be shaped by dueling narratives of how the crisis was handled, according to Russell Roberts, a research fellow at Stanford University's Hoover Institution and host of the podcast "EconTalk."

One narrative could posit that the government's response was too timid, a failure by Trump and others hostile to government to take earlier and more aggressive action. "There will be a real push by a some segments of the cognoscenti ... to say that we need a better and bigger government," Roberts said.

But if the number of deaths falls significantly below early projections of 100,000 to 240,000 and the economic damage proves relatively short-lived, then a counternarrative could take hold, one in which Trump will claim a victory that his supporters will embrace. "That makes it harder for the other narrative to get a foothold," Roberts added.

When he recently stepped down as far-left leader of the British Labour Party after losing the December election to Prime Minister Boris Johnson, Jeremy Corbyn said the pandemic had shown that his long-standing prescription for bigger government was correct.

"I was denounced as somebody that wanted to spend more money than we could possibly afford to right the social wrongs of this country," he told the BBC. "I didn't think it would take only three months for me to be proved absolutely right by the amount of money the government is prepared to put in."

In this country, as the government has poured huge sums into economic relief, Sen. Bernie Sanders, I-Vt., and Sen. Elizabeth Warren, D-Mass., the two most liberal candidates in the 2020 Democratic nomination contest, have called for even more, including lasting changes in safety net programs.

"Our political system has debated the role of government since the founding, but the time for cheap political shots at government is over," Warren wrote in a recent New York Times op-ed.

Calls for more spending are not limited to Sanders and Warren or to the left wing of the Democratic Party.

"What this emergency has done is ... expose the deep divides in the country, many of the inequities in the country and many of the shortcomings in our systems," said Sen. Chris Van Hollen, D-Md. "The next question will be whether we will muster the political will to use government to address some of these fundamental challenges."

Tom Vilsack, the former governor of Iowa and agriculture secretary in the Obama administration, said the crisis has highlighted the economic insecurity that troubles many American workers and the chronic health problems that made African Americans disproportionately vulnerable to covid-19.

"We're paying the price for knocking government, for not investing in government, and not understanding that part of the American experience is out of a sense of community and connection. And we've given that up," Vilsack said. "We have to have a reckoning, and as a country we have to begin investing in our core."

Lanhee Chen, a professor at Stanford University and domestic policy adviser to Utah Republican Sen. Mitt Romney's 2012 presidential campaign, called Sanders' use of the crisis to argue for huge increases in social welfare spending irresponsible. "I think that is an intellectually cheap way to justify a set of beliefs and belief structures that would not have led us down a particularly better road," he said.

Chen noted, however, that public expectations may change as a result of the interventions now underway, and that perceptions about what constitutes the right balance between government and market forces could shift.

For example, he said, should government force U.S. manufacturers to rethink supply chains that depend heavily on China? Or should the companies be left to make those decisions for themselves?

"I think there is a recalibration going on (among advocates of freer markets) about how to think about the interaction between individual actors and the government and its regulatory authority," he said.

Advocates of bigger government have begun to identify other areas of need, including more money for public health and health care coverage; paid sick leave and expanded family leave; and assistance for disadvantaged students who lack access to the tools needed for distance learning. Many of these are familiar, long advocated by those on the left.

Lepore said that isn't unusual. Crises often result in an expansion of government, and the programs enacted often involve long-standing ideas. During the Depression, she said, President Franklin Roosevelt embraced programs that many in the progressive movement had been advocating since the late 19th century.

"It's not like on March 4, 1933, FDR woke up and said, 'I have an idea,'" she said, citing the date of his inauguration. "As governor of New York, he had done a version of most of these things."

Writing in the American Prospect recently, Heather Boushey, president and chief executive of the Center for Equitable Growth, said, "The need for substantially increased public spending and investment will not diminish once the public-health crisis fades. What will diminish is the broad political consensus that made possible the recently approved $2.2 trillion burst of federal spending."

Added Furman: "I think we have a temporary truce in the small government versus big government battle. And when the truce ends, the battle will be more fierce than it was before."

The fading consensus is already visible. Sen. Patrick Toomey, R-Pa., who is a former president of the conservative Club for Growth, said he and other Republicans worked to set expiration dates for some of the spending programs aiding those affected by the downturn.

"I certainly hope that (the pandemic) does not reshape or dramatically expand the role of government in the long term," he said. "I think this is a necessary step for an absolutely unique set of circumstances. But I think this is a very, very rare moment ... I'm hoping that we return as close as possible to normal."

Mankiw said many conservatives have embraced the use of government power to address the pandemic, but added, "The Bernie Sanders wing goes beyond that. To polarize the general population between the rich and everybody else. It's pitting certain segments of the population against other segments. I don't see that argument being strengthened by the current set of events."

But conservatives recognize the ground may be shifting in ways advantageous to those on the other side of the debate. More spending seems inevitable, particularly for public health and potentially for programs such as paid sick leave or family leave.

One area where views have shifted is the issue of debt and deficits. Policymakers on both the left and right now recognize that the federal government can manage bigger deficits and far more debt than was presumed to be healthy during the all-consuming battles over debt during the Obama administration.

Toomey is among those whose views have changed. The reason, he said, is the experience of seeing inflation remain in check and interest rates fall to historic lows, even as the debt has grown substantially. "That experience, along with this new increase in debt causes us to rethink how much debt we can manage," he said. "Obviously there is some limit. ... But the limit is higher than many of us imagined."

Conservatives who hope to bring down the debt see another potential obstacle: Trump. The president supports spending on infrastructure, has opposed cuts to entitlement programs and, as president, has shown no real concern about the rising national debt, which stands at $18.5 trillion. As Barrasso, a deficit hawk, put it: "The president and I have a different view of debt." Many students of government and the economy see the pandemic response as lacking any kind of ideological frame or underpinnings.

"I think most of the old views are like temporarily frozen or dead," said Tyler Cowen, a professor at George Mason University. "We're seeing a surge in what I call authoritarian centrism. So Congress is passing a lot of bills, spending incredible amounts of money. The Fed doing everything it can. Most representatives, most people are supporting this. These are centrist actions in that sense."

Come November and a presidential election between Trump and former vice president Joe Biden, this unity of purpose will have given way to more familiar divisions of a polarized nation. But with the experience of the pandemic still fresh in people's minds and the threat of new infections still prevalent, the debate over government's role will take place in a newly charged and perhaps less predictable political environment.

"Major pandemic episodes throughout history have one thing in common: They all changed the economic patterns of the world, rejiggered the politics and stimulated rapid change in sociologic patterns," said Michael Leavitt, the former Utah governor who served as health secretary under president George W. Bush, via email.

"The pandemic of 2020," Leavitt added, "will be no different."

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