Sweden on the Potomac
The Case for Big Government
by Jeff Madrick
Princeton. 224 pp. $22.95

For the last 30 years, “big government” has been a term of abuse in this country. But with Barack Obama headed for the White House, and solid Democratic majorities in both houses of Congress, that may change. Even before November’s election, the federal government had begun to engorge itself in frenzied response to Wall Street’s autumn meltdown. Within a matter of weeks, the purportedly conservative Bush administration nationalized Fannie Mae and Freddie Mac, plowed hundreds of billions of public dollars into private financial institutions, and began drawing up plans for a twelve-digit stimulus package. Big government, it seems, is poised for a comeback.

To Jeff Madrick, an unapologetic proponent of tax-and-spend policies and a former consultant to Senator Ted Kennedy, all this comes as a golden opportunity. “Without an active government,” he writes in his boldly titled new book, “a nation cannot respond adequately to its times”—and especially to perilous times like these. Beset by increased international competition, wage and income stagnation, rising costs of living, and an aging population, Americans must shed their “ideological antagonism” toward state power and recapture the ambitious spirit of FDR.

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Madrick’s first order of business in The Case For Big Government is to debunk the idea that “high levels of taxes and government spending diminish America’s prosperity.” He addresses this fallacy (as he sees it) by way of a scattershot of historical examples. Thus, he notes, most Western economies boomed in the post-World War II decades, a period during which investment in new social programs grew heavily. More recently, growth rates have been as high in Sweden, where social transfers account for 30 percent of GDP, as in the United States, where the corresponding figure has been 13 percent. According to the economist Peter Lindert, one of a handful of scholars cited heavily by Madrick, these results should not surprise us:

The net national costs of social transfers and of the taxes that finance them are essentially zero. They do not bring . . . the costs that much of the Anglo-American [economic] literature has examined.

Not only is government activism affordable, but, Madrick argues, it is perfectly consistent with U.S. traditions. “The romantic view of the limited role of government in American’s history in the 1800’s is simply wrong,” he asserts. Even Thomas Jefferson, who waxed eloquent on the virtues of small government, earmarked federal funds for schools and roads.

On it goes through American history: John Quincy Adams invested in canals. After the Civil War, government at various levels financed the development of railroads and state colleges. When droves of Americans began migrating from farms to urban factories in the late 19th century, government paid for sewage, sanitation, clean-water systems, vaccinations, and other necessary public-health measures. Following the onset of the Great Depression came the New Deal, Social Security, the SEC, FDIC, and all the rest. In each of these cases, Madrick writes, governmental expansion was necessary so as “to assure that the rights of the so-called common man were protected in an economy that profoundly reoriented the relations of power among individuals.”

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And so, according to Madrick, the time has come for the federal government to step up once again. His description of American society in 2008 is a long parade of horribles: excessive debt, low wages, crumbling infrastructure, rising wealth inequality, overwork, inadequate medical care, bad schools. To remedy this, he offers a grand $400-billion-a-year-blueprint by which Washington would bankroll a full-time universal pre-K program for three- and four-year-olds, college-tuition subsidies, green infrastructure, social-security reform, and an expanded unemployment-insurance system to cover temporary and part-time workers.

That is not all. In addition, Madrick advocates a higher minimum wage, universal health care, ambitious new affirmative-action programs for women and racial minorities, a new regulatory structure for financial institutions, and numerous other initiatives with no precise price tag.

Where would Washington get the $400 billion? Mostly from the rich. “Wealth taxes are levied in European nations such as Sweden, Switzerland, and Germany,” Madrick observes approvingly. “If the wealth of the richest 20 percent of Americans were taxed at the rate of 0.5 percent a year, it would raise roughly $160 billion per year.” Another $120 billion, he projects, would come from an across-the-board income-tax hike, and still more could be raised through corporate tax hikes and carbon taxes.

All in all, Madrick concedes, his plan does represent a massive undertaking—“as ambitious as the New Deal.” But for a nation starved by its government “to the point of tragedy,” there is no alternative: “modest policy change will not be adequate.”

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The Case for Big Government may well become popular among those who already agree with its statist premise. Its timing, certainly, is felicitous. But the substance is something else again.

Madrick purports to rebut the economic views of his adversaries from a rigorous perspective, one driven by hard data. Yet the evidence he cites is not only relatively sparse but has been cherry-picked to advance his thesis. At many points he either ignores obvious counterarguments or blithely embraces the most dubious propositions—for instance, that boosting the minimum wage, propping up unions, and embracing protectionism will help ordinary Americans—as if they were factual statements requiring no justification.

In his list of policy prescriptions, Madrick introduces total irrelevancies—“gays in America should have the right to marry”—that have nothing to do with big government but serve simply as bullet points on a left-wing wish list. In some cases, his proposals are downright spooky: in determining wages, he writes, “public discussions between business, government, labor, and communities should be aggressively encouraged, and even required by law.” One occasionally wonders in just what world Madrick thinks he is living.

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This is not to say that Madrick comes to the fray totally unarmed. He makes a decent case that no iron-clad statistical linkage exists between small government and prosperity. As he correctly notes, governments in other parts of the world—Scandinavia, most obviously—have achieved U.S.-level living standards while maintaining higher taxes and finer-weave social-safety nets.

None of these countries, however, has produced anything like America’s extraordinary technological innovations or vibrant entrepreneurial culture—a point Madrick conveniently chooses to overlook. There is a reason that so many of the world’s finest minds beat a path to American universities and high-tech corporations. Turning the U.S. into just another overregulated European-style welfare state—complete with its own wealth tax, no less—would make that reason disappear.

Madrick’s take on U.S. history is similarly problematic. It is indisputably true that, over the last two centuries, American governments have grown bigger and more powerful as the nation’s economy, infrastructure, communications systems, demography, and health needs have grown more complex. But that hardly means, as Madrick would have us believe, that big government is a cause—as opposed to a corollary, or even a symptom—of all this progress and wealth-building.

According to Madrick’s linear approach, the nation’s glorious, one-way march from atomized farming communities to a centralized welfare state was preordained by human necessity. But his imagined link between economic development and the rise of big government can easily be broken—as was done by Andrew Jackson, and then again to some extent by Ronald Reagan. In some instances, the march of technology makes certain expansions of government inevitable (think FAA and FCC). But the argument for the discretionary, redistributionist goodies on Madrick’s $400-billion wish list rests not on economic but on purely political grounds.

As for the moral case against big government—namely, the idea that people should enjoy the fruits of their enterprise, as free as possible from government levies and interference—Madrick once again ducks, declining even to address it. In a book aimed at the most capitalist nation on earth, that is, to say the least, a shortcoming.

Ultimately, Madrick is trying to convince Americans that they need to rip up their social contract in favor of Europe’s. Even if he could prove this were possible without impoverishing the country in the process, he would still have missed the point. Social contracts are rooted not only in a people’s expectation of material well-being but in their collective values. Simply put, America is not Sweden, and its individualistic national character will not be changed by mere manifestoes.

Whether it will be changed by financial panic remains to be seen.