Opinion

The Edgy Optimist

Obama sees the limits of government

By Zachary Karabell
February 15, 2013

President Barack Obama made the middle class the focus of his State of the Union address on Tuesday. He was lauded by some as fighting for jobs and opportunity, and even for launching a “war on inequality” equivalent to President Lyndon B. Johnson’s 1960s War on Poverty. He was assailed by others for showing his true colors as a man of big government and wealth redistribution.

Yet the initiatives Obama proposed are striking not for their sweep but for their limited scope. That reflects both pragmatism and realism: Not only is the age of big government really over, so is the age of government as the transformative force in American society. And that is all for the best.

Wait a minute, you might reasonably object: What about healthcare? What about the proposals for minimum -wage increases, for expanded preschool, for innovation centers, for $50 billion in spending on roads and infrastructure? Surely those are big government and aim, effectively or not, for transformation?

Healthcare and the changes under the Affordable Care Act are significant, and for now they have expanded the scope and cost of government However, those costs appear to be growing more slowly than expected, at least according to the Congressional Budget Office. While healthcare costs are increasingly untenable, the issue is one of healthcare costs for society as a whole. Recent legislation means government bears more of them, but someone will bear them no matter what.

So while healthcare is billed as an expansion of government, it is more a continuing issue of cost and delivery of something that has to be paid for by someone and at some cost.

On almost every other front, government is receding ‑ not just from the financial crisis high tide of 2008-2009 but from decades before. Each of Obama’s proposals hones and potentially reduces current spending, whether on education or on infrastructure. That $50 billion for roads appears large. In mid-2012, though, Congress authorized $120 billion in highway expenses through 2014, and much of what Obama proposes could be encompassed by focusing current spending.

Even if there is new spending there, it is a pittance compared to the interstate highway bills of the 1950s or the space program of the 1960s, let alone the many programs that encompassed the War on Poverty and led to a vast expansion of federal programs in healthcare, housing and education.

Take the minimum wage, the issue that received perhaps the most attention among the president’s proposals, save gun control. But increasing the minimum wage isn’t a government program. It’s a bill that potentially mandates higher costs for some employers. Whether you love it or hate it, it is not an expansion of government ‑ and certainly not of government spending.

All these proposals, in fact, are small-bore for the post-New Deal era. They are small-bore compared to the massive 2009 stimulus bill of almost $800 billion. They are small-bore because there is no political ill for them to be larger-bore, and because it is unclear just how much government can use the bazooka of big spending to effect significant changes in society.

Take jobs. Aside from hiring the unemployed in a New Deal-style program, the government can do only so much to create jobs and alter the trajectory of unemployment. While hiring those unemployed might not cost much more than the tens of billions spent annually on unemployment benefits, there would still need to be jobs once those programs ran their course.

Yes, government can create incentives for businesses. But those incentives are almost always state and local tax incentives to lure companies to build factories. That is good for temporary boosts to construction. As we know, with robotics and just-in-time inventories, factories do not generate the number of jobs they once did.

What does appear to create jobs are people and their needs and wants. There is some evidence that self-employment has been on an upsurge, but the Bureau of Labor Statistics reports that self-employment as it measures the category has been largely static over the past decades .

Still, somewhere between 10 percent and 15 percent of the labor force is self-employed ‑ whether by intent (starting a small business) or involuntarily (couldn’t find any other work). The world of social media may be tiny in the greater scheme of things, but social media appears to be ever more central in the way companies find employees (the LinkedIn phenomenon) and how consumers find products.

In fact, the suite of tools encompassed by information technologies on the Web may be adding more to income and affluence than we think or than official statistics show. According to Eric Brynjolfsson of the Massachusetts Institute of Technology, “free goods” of the Internet, like Google[r1] , could be adding as much as $300 billion to our gross domestic product each year. That has nothing to do with government and is clearly boosting quality of life.

One day, we will look back on this era as a period of transition. The problem is that we don’t know what we are shifting to, or whether it is something we will perceive as better or worse.

Government will be one aspect of that transition. But it would be a mistake to see it as the axis of that transition. The current Washington debates ‑ about whether there will be a “sequester” or not, a drastic cut in spending or only a small one ‑ demonstrate that government is shrinking and the horizons of its ambitions narrowing. Given the limitations of what government can and cannot do, that is hardly something to mourn or decry.

Protecting the commons is something government must do and is. Singlehandedly managing the transition to the next economy is something is cannot do ‑ and should not.

PHOTO: President Barack Obama (C), flanked by Vice President Joe Biden (L) and House Speaker John Boehner (R-Ohio), delivers his State of the Union speech on Capitol Hill in Washington, February 12, 2013. REUTERS/Charles Dharapak/Pool

Comments
19 comments so far | RSS Comments RSS

The analysis seems to presuppose that government size is a function of only two things: (1) the number of people employed by government and (2) the amount of money spent by government.

While these are necessary metrics to determine the size of government, they are not sufficient. Government is much more than people and money. It is a web of laws, regulations, and rules that restrict liberty (albeit, often for a good purpose).

Any government action that restricts individual liberty necessariy “grows” government. Government is then biggger because it is more invasive. It plays a bigger role in the individual’s life. Raising the minimum wage grows government. Enacting more restrictive gun-control law grows government. Issuing an enforceable mandate to do something (say, purchase insurance) grows government.

And moving things from the private sector to the government sector is just a form of this restriction. The healthcare law grew government.

President Obama is growing government.
(To be fair, he has also pushed for shrinking government in some ways not addressed in this article.)

Posted by dtill | Report as abusive
 

Seriously?

Dude, is it hard to see your computer screen through your rose-colored glasses?

Posted by urukhai2 | Report as abusive
 

Zach. You must have missed the Democratic National Convention. It was a religious service all about the greatness of government. If Obama COULD have more government he WOULD have more government in every case.

Posted by ingen13 | Report as abusive
 

Some journalists rationalize their existence by promoting a concept that is diametrically opposed by the facts.

Anyone who promotes the idea that Obama is not a big government guy should, at the least, acknowledge there are six trillion reasons that say otherwise.

Posted by COindependent | Report as abusive
 

Rest assured, the ‘it’ of what we are shifting to is something that is worse for current workers and will be better for future generations.

Posted by Mac29 | Report as abusive
 

How can Reuters print this vacuous drivel?

Posted by asalam | Report as abusive
 

Obama is simply the “lawnjockey” for whoever is really running the White House.

How can you possibly believe ANYTHING this man says or does?

Posted by PseudoTurtle | Report as abusive
 

{Obama sees the limits of government}

What a sad comment this is.

Obama sees the limits of government within the present context – which is this: He was elected PotUS, but the American people did not throw the T-Party out of Congress. And which party has stymied all Stimulus Spending, holding out for even lower taxes on America’s plutocracy?

So, the American electorate has got what it wanted. A PotUS with one hand tied behind his back. Expect no miracles, because there aren’t any forthcoming.

The country is in dangerous need of reformation. Of what? Just about everything, but foremost the sad fact that it has the developed world’s worst Income Disparity – ranking close to China.

The World Top Incomes database shows us the sad history over the past six decades of who gets what in terms of Total Revenue generated by the American economy. The share of Total Income of the Top 10% of American households increased from 31.5% to 46.3% over the past five decades:
1960 – 33.8%
1970 – 31.5%
1980 – 32.9%
1990 – 38.8%
2000 – 43.1%
2010 – 46.3%

That’s nearly half the total income generated by the American economy! We 90Percenters must scramble to share the rest.

Anyone with the most basic intelligence would understand from the numbers that there is something wrong in the way the Tax Code works.

And why? Which American PotUS, upon entering office in the 1980s, set about to bring down precipitously the Compensation and Capital-gains taxes of the people who paid to get him elected? Reckless Ronnie Reagan – aka “Saint Ronnie”.

See the historical evolution of taxation since before the 1920s here: http://en.wikipedia.org/wiki/File:Taxes_ debt.png

Note that from the mid-1930s to the late 1970s, total taxation was above 70%. Where is it today? For the answer to that question, consider this info-graphic here: http://en.wikipedia.org/wiki/File:Share_ of_Total_Income_and_Taxes_Paid_by_Income _Group_in_2011.jpg

Those two info-graphics are telling evidence of the sad state of our affairs – a nation in which the rich truly get richer and the poor truly poorer. All because of taxation.

Now imagine this: You are a TopManager at some company. You see full well how gaming-the-system can bring you enormous revenue. Not only that, but the Tax Code will let you keep 75 to 85% of that income. Would you be able to resist that temptation.

Others have shown clearly that they could not. Which is why there was the SubPrime Mess, that prompted the Credit Mechanism Seizure of the fall of 2008 that prompted the Great Recession of 2009 – in which we have yet to see the light at the end of the tunnel.

Yes, this country needs reforming. It must reform its Market Mechanism to prevent further consolidation which breeds price-fixing bred from too little competition. It needs much broader and deeper market oversight, especially Financial Markets.

I could go on, but the long list would only bore/despair you.

BigGovernment has come to end? If you believe that idiocy, immigrate to Canada …

Posted by deLafayette | Report as abusive
 

deLafayette -

you couldn’t possibly know less about economics. tell me, have you taken even one econ class in your life? of course you haven’t.

the history of nations is replete with failed attempts to limit the productive and “distribute” success. Whether the USSR or 1960s Great Britain, these idiotic attempts by idiotic politicians have served only to limit growth, neuter business activity, create a permanent welfare underclass, actually lessen government tax revenues instead of increasing them, and a host of other unintended consequences.

your little statistical exercise is the stuff of a fool. because those numbers went up, YOU decide that some past point was the “correct” distribution? what if while the rich were getting richer, everyone else also saw benefit? that would be possible if tax rates were lowered, loopholes closed, idiotic government “programs” shuttered. you’d keep more money in your pocket, instead of sending it to your faux messiah in DC (who, by the way, could care less about you, me, or anyone else. that’s what narcissism is).

here’s a stat for you, genius. In 2009, the top 1% of wage earners paid 40% of the federal income tax. the top 10% paid 60% of it. the top 20% paid 80%. not “progressive” enough for you, loser?

Posted by subframer1 | Report as abusive
 

Correct me if I’m wrong, but because the Senate has only passed one budget, and three continuing resolutions, that 800 billion dollar stimulus is budgeted and spent annually.
Obamacare cannot be called anything, but an extension of big government, and it will be proven unworkable due to direct tax increases and fees associated with it provisions, increased insurance rates, incomplete exchange structures, and the total inability of the federal government to take on the task of implementing this program. When the federal government attempts to make this vast program work at all, it will fail. The costs and delivery of this program
is already unworkable as people will see to their dismay. Add expanded medicaid to this plan and it will be hopeless.
I agree that we are in transition, but it is the last gasp of the liberal agenda which has outgrown its slight usefulness, because big government has outgrown its resources. Whether we come crashing down tomorrow or at the end of this administration is unknown, but Americans should get ready for a greatly reduced standard of living in the next decade. Too much has been manipulated- the media the Fed, the markets, and the government. This manipulation can only delay and intensify the ordinary reassertion of capitalistic forces, once these influences are removed. And who will pay? The next two generations who voted for this administration, who what they deserved, who will learn discipline and frugality as a result, which in the end may make their lives better.

Posted by coelacanth10 | Report as abusive
 

LOL, so the new line from the Obama Sycophany Media Propaganda Machine is that Obama is actually for small government. That’s hilarious to anyone with a brain and 1st grade math skills.

Fortunately for Obama and his Propaganda Ministers in the press, the general public is actually stupid enough to believe this nonsense

Posted by CoMark | Report as abusive
 

Obama sees no limits on government Zachary. We have massive federal departments controlling Health Care, Farming, Transportation, Commerce, Education, and Energy.

Please name some element of American society outside of religion that Obama doesn’t see the federal government have the leading role in?

It seems that liberals like Mr. Karabell realize how far beyond the mainstream of American thought their vision is so they feel compelled to throw up smokescreens to obfuscate and distract.

Obama and liberals see absolutely no limits on the federal government whatsoever.

Posted by thesafesrufer | Report as abusive
 

“So while healthcare is billed as an expansion of government, it is more a continuing issue of cost and delivery of something that has to be paid for by someone and at some cost.”

This sentence by the author reveals his complete lack of understanding of the workings and advantages of a market economy. For decades, the healthcare market has been distorted by the third-party payer model of employer-provided health insurance and Medicare. The consumers of healthcare are insulated from recognizing the price of what they consume. The ACCA is designed to make that distortion universal (and introduces other distortions, like eliminating the actuarial basis of healthcare insurance).

Does the author think the government’s much greater involvement in regulating healthcare is going to cost nothing? More importantly, cost is not the only, or even the most important, measure of the size of government. The most important measure is the amount of control – the portion of the society and economy that government controls.

The most insidious expansion of government control in recent decades has been the increasing use of unfunded mandates. I’m sure that Federal spending could be enormously reduced if, rather than collecting and spending taxes to do whatever the legislature wants done, the legislature simply passed laws requiring private parties to spend money on whatever the legislature wants done. The only spending necessary would be the cost of enforcement. If the budget was thereby cut in half, would that be a great reduction in the size of government?

Posted by Anonymous | Report as abusive
 

“So while healthcare is billed as an expansion of government, it is more a continuing issue of cost and delivery of something that has to be paid for by someone and at some cost.”

This sentence by the author reveals his complete lack of understanding of the workings and advantages of a market economy. For decades, the healthcare market has been distorted by the third-party payer model of employer-provided health insurance and Medicare. The consumers of healthcare are insulated from recognizing the price of what they consume. The ACCA is designed to make that distortion universal (and introduces other distortions, like eliminating the actuarial basis of healthcare insurance).

Does the author think the government’s much greater involvement in regulating healthcare is going to cost nothing? More importantly, cost is not the only, or even the most important, measure of the size of government. The most important measure is the amount of control – the portion of the society and economy that government controls.

The most insidious expansion of government control in recent decades has been the increasing use of unfunded mandates. I’m sure that Federal spending could be enormously reduced if, rather than collecting and spending taxes to do whatever the legislature wants done, the legislature simply passed laws requiring private parties to spend money on whatever the legislature wants done. The only spending necessary would be the cost of enforcement. If the budget was thereby cut in half, would that be a great reduction in the size of government?

Posted by RonRonDoRon | Report as abusive
 

“Take the minimum wage, the issue that received perhaps the most attention among the president’s proposals, save gun control. But increasing the minimum wage isn’t a government program. It’s a bill that potentially mandates higher costs for some employers. Whether you love it or hate it, it is not an expansion of government ‑ and certainly not of government spending.”

It’s essentially a tax. The extra $2 dollars creates no value to the consumer or the employer. It ignores basic economic supply and demand theory. About all we know for sure is that a $9 an hour minimum wage would reduce the supply of available jobs.

Posted by PatStrother | Report as abusive
 

This author has deluded himself into believing that President Obama is not a big-government liberal, and now he’s poorly trying to convince the masses. ‘Oh, the government isn’t expanding as fast as the far left would like? I wonder why. I guess the age of big government is over, it must have its limits.’ Or perhaps it’s because the people who don’t want to cut our nation’s debt are enslaving our children and grand-children with massive amounts of debt, and some are fighting back. The fact that the govt. is expanding at all is disgraceful. Get a clue Mr. Karabell.

Posted by jwab | Report as abusive
 

Calling an African American president a “lawn jockey” is definitely a racial slur.

http://en.wikipedia.org/wiki/Lawn_jockey

Posted by OkieRedux | Report as abusive
 

Seriously…not by the debit numbers and his last state of the union. Investments and social programs.

Posted by Crash866 | Report as abusive
 

Was this article a joke? It must have been! This is why most languages have 1 Bible while the English bible has dozens of translations. So easy to twist this language around to mean whatever you want it to.

Posted by LysanderTucker | Report as abusive
 

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