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Waelti: Times when ‘big government’ becomes necessary
John Waelti

The United States of America was formed through rebellion against the power of the King of England. The very idea of a representative democracy, government of the people, by the people, and for the people, was a radical idea at the time, indeed, an experiment.

After the successful rebellion, the confederacy of the 13 former colonies initially floundered. The founding fathers met in Philadelphia in 1767 to form the Constitution by which the fledgling nation would be governed. They designed a system of checks and balances — three co-equal branches of government, each having the means by which to check powers of the others.

While power of each branch was checked with respect to the others, the role of the federal government relative to the states, and to the economy, would be a matter of contention throughout our history.

When initially ratified, the Constitution was circumspect on the matter of slavery — justified at the time as necessary to get all states to adopt it. It took the tragic War Between the States to get the constitution amended to formerly abolish the institution of slavery. While the 13th amendment did not prevent continuing injustice, it created the institutional means for progress, however slow, to live up to the nation’s promise of justice for all.

It’s easy to forget that the Constitution did not originally guarantee American women the right to vote. While some states eventually granted that right — Wyoming was the first — women were not constitutionally guaranteed the right to vote until the 19th amendment, ratified in 1920.

Clearly, it was necessary for the federal government to step in if the ideals of this nation were to be addressed. While these steps are now obvious to most people, the role of the federal government has been controversial throughout history, and remains so to this day.

Most voters, especially younger ones, probably don’t realize that it was not until the Full Employment Act of 1946 that it became official policy for the federal government to promote full employment and stable prices, that is, to be responsible for macroeconomic management.

The Great Depression of the 1930s was an economic disaster that threatened the nation and the very existence of capitalism as our basic form of economic organization. FDR’s New Deal, that included regulation of banks, including deposit insurance to guarantee safety of deposits; the right of labor to organize; and programs including Social Security, can be credited with saving the system until Keynesian style fiscal stimulus of World War II defense spending propelled the nation to prosperity. 

Thanks to protection of the Atlantic and Pacific Oceans, and friendly neighbors to the north and south, American civilians lived better during wartime than they did during peacetime of the 1930s. Having enjoyed new found prosperity, the nation wanted to maintain it. Hence, the Full Employment Act of 1946 charging the federal government with responsibility for maintaining economic prosperity.

Nevertheless, the role of the federal government in the economy, and in many other matters was, and remains, controversial. Whether or not a voter favors more or less federal involvement depends on the issue. And specifically on the economy, how, and to what extent, the federal government should be involved continues to be controversial.

Ronald Reagan is famous for his pronouncement that “government is the problem, not the solution.” To cheers of his Republican supporters, Reagan lambasted government with, “The scariest words in the English language are ‘I’m from the government — and I’m here to help you.’” Several decades later, this kind of demagogic politically-motivated nonsense was conspicuously absent when these same Wall Street Republicans sought a federal bailout to rescue them from their own financial excesses and mismanagement.

It’s politically popular to condemn government when you think you don’t need it. 

Even President Clinton, succumbing to innate American distrust of government, famously proclaimed, “The era of big government is over.” That was not his finest moment. This is a big country and a big economy. “Big government” would be needed again and again.

It was during the Clinton era of general prosperity that many economic reforms and regulations of the 1930s were relaxed or eliminated. Memories are short, especially when things seem to be going well. The reasons for banking and financial regulations were either forgotten, or believed to be unnecessary. Led by former Fed Chief, Alan Greenspan, capitalism was trumpeted as “self-regulating.” Financial excesses would be “self-correcting.” Enjoy the party, while it lasts, that is.

In fact, excesses of financial institutions — irresponsible lending by mortgage institutions, smoke and mirror “innovations” like derivatives and credit default swaps — were not self-correcting, leading to the Great Recession of 2008-09. It took the Troubled Asset Relief Program (TARP) to bail out the banking system, and significant federal economic stimulus to get the nation on the road to economic recovery.

President Obama’s fiscal stimulus was opposed by Republicans, as was much of the Dodd-Frank legislation that promoted stricter capitalization requirements for banks. Popular opposition to these measures, along with opposition to the Affordable Care Act, spawned birth of the Tea Party that held as a fundamental tenet, a vastly diminished role for the federal government.

The remainder of Obama’s presidency saw steady growth, resulting in a strong economy inherited by Donald Trump. 

Three years later, the unexpected — the corona virus hits, not Trump’s fault, but his botched reaction is. Hence, the necessary remedy of “social distancing” to limit spread of the disease. With that, comes inevitable diminished spending, reduced demand for product and services, unemployment, and widespread financial distress and hardship.

What would have been unbelievable a few short weeks ago is that in addition to loans for government bailouts, even cash to workers is favored by conservative Republicans.

So much for standard conservative demagoguery that government action, whether for assistance to workers, to business, or for access to medical care, is “socialism.”

It’s about making capitalism work, and saving capitalism when it’s in trouble. For this, the federal government is needed once again.


— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Saturdays in the Monroe Times.