Tuesday, May 13, 2008

The New Deal reconsidered: Whats and whys

The welfare-regulatory state of all Western societies, built in waves since the late 19th century, is headed for unstoppable, wrenching change. But choices lie ahead; the outcome is not predetermined. It behooves every sentient adult citizen of wealthy advanced democracies to understand the coming crisis in at least its basics.

The welfare state was built from a variety of motives, some benevolent, some not. In some cases, it was the conscious goal; in others, the residue of more radical, failed experiments in centralized planning. The practical breakthroughs in the evolution of the West away from classical liberal politics and limited government came as a result of the First World War and the Great Depression. But even before these watershed events, mass political movements and educated prejudice alike were starting to run against free societies, democratic government, and markets - for complex reasons: some political, some based on confused economic ideas, some imperialist, racist, or even esthetic. The common denominator was replacing spontaneous social development with the "engineered" society. Marxists believed in false theories of progressive immiseration and replacing the supposed "anarchy" of markets with the supposed "rationality" of central planning. "Welfare" liberals and progressives saw a need for a much more powerful regulatory and redistributive state, along with a strong dose of paternalism to guide the masses. The imperial-minded wanted government to redirect resources toward a society more fit militarily and better prepared to sustain itself without trade with other countries. The First World War provided the paradigm of "total" war, with quotas, price fixing, and direct government command of resources. The state took an aggressive role in suppressing social conflicts, in some cases peacefully, in others coercively and violently. Institutions of culture were seen in a new light, as available for and needing "co-ordination" to become aligned with unified social goals put forth by the political class. Contrary to myth, the supposedly "conservative" 1920s saw these measures remain half-in-place: price boards, trade and immigration restrictions, discriminatory labor laws.*

By the 1930s and the onset of the Depression, the collapse of free societies was evident everywhere. Liberal-capitalist democracy seemed obsolete; collectivism, the "wave of the future." Political intellectuals of many stripes searched for authoritarian alternatives, including fascism (a fact conveniently forgotten later). But after 1945, wartime sacrifice, and the belated discovery of what collectivist societies really looked like, retreat and compromise set in. The new push for the contemporary "entitlement" state came as a result of postwar prosperity, but had much shakier justification as serving the larger public good. Politically-designated grievance and entitlement classes emerged and began to steer the politics of the welfare state. The era of powerful, charismatic leaders able to impose limits on the greed of interest groups ended. The era of lobbyists and entrenched interests began, all seeking a piece of government power for their own use.

The larger price of the welfare state became evident: governments printing or borrowing money to pay for false promises; regulatory agencies, litigants, and activists misusing systems created earlier to serve broad social purposes for their own power-building agendas. By the late 70s, the smell of voter revolt was everywhere in the West. The generation that followed saw a revival of respect for markets, a wave of deregulation, and the re-emergence of the globalizing capitalism that had flourished before 1914, before it was wrecked by the two world wars and the Depression.

But real dangers remain. Totalitarian forms of collectivism have either been defeated or have largely collapsed from their own economic failure. But, while most democratic countries have dismantled most of their classical socialist experiments, the "half-socialized" regulatory and redistributive features remain. Their costs, and their tendency to "privatize the gains and socialize the losses," keep expanding. In the US, the economy as a whole has expanded fast enough to keep the bill from getting completely out of control - at least so far. Other wealthy countries, lacking US-style economic growth and the willingness of foreigners to lend and invest, haven't been so lucky. All of them have been forced to cut the welfare state and reform their redistributive systems, such as socialized medicine and old age pensions.

The rationale then - and now. When the welfare state was created, the world was a different place. National economies were more self-sufficient, and national governments had an easier time controlling them. The birth rate in most wealthy societies was higher than today and longevities shorter, meaning that social security systems could count on an adequate number of new taxpayers and sufficient economic growth to keep going. Many of these welfare state features were poorly designed for the long run. Keeping their most negative tendencies - the emergence of greedy interest groups misusing the power of government at the expense of everyone else - in check required disciplined and powerful political parties and charismatic political figures that, for the most part, no longer exist. Our politics today is dominated not only by powerful narrow interest groups, but by the news media, to which we have conceded much of the role once played by the parties and higher education. The result is not pretty. No one forced it on us; we just let it happen.

Reforming the welfare state will mean starting the debate on the proper functions of government over again from scratch. We must start by recognizing that, whatever the failures of markets and the larger society, "government failure" is just as real.** The debate will have to proceed without the discredited baggage of central planning or phony economic arguments. Every civilized society needs a government of some sort. The question is not just, what do we want it to do, but also, what can government do? It doesn't create wealth; it can only redirect or restrict it. And the welfare state debate cannot be framed in terms of rights, which are limitations on government power, not expansions of it. Concern for the poor, the disabled, and the otherwise helpless; making sure the able-bodied avoid chronic bad decisions affecting their welfare; and regulation of complex economic and technological systems, must be framed in terms of the responsibility of the society at large. In a free society, what is legitimate and not legitimate for political regulation? How much power should government have to redirect the citizenry's lives and decisions?

POSTSCRIPT: Much of this history is retold more completely and authoritatively by Robert Skidelsky's excellent The Road From Serfdom, a basic work for understanding the last century. Jonathan Rauch's Government's End (first edition, Demosclerosis) is an indispensable complement to understanding the late welfare state paralysis of interest groups.
* For example, before 1914, only diplomats needed passports. During and after World War One, almost all countries adopted much tighter restrictions on travel and immigration for everyone.

** As the citizens of New Orleans well know. We must also speak of "media failure" as well: grotesque, "narrative"-driven misreporting of even basic facts on a grand scale.

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