CAN BIG GOVERNMENT BE ROLLED BACK? BY MICHAEL BARONE AMERICAN ENTERPRISE INSTITUTE CAN BIG GOVERNMENT BE ROLLED BACK? BY MICHAEL BARONE December 2012 AMERICAN ENTERPRISE INSTITUTE Contents Acknowledgments . .iv Introduction . .1 1. The 1920s Republicans . .3 2. 1938 to 1946: The Conservative Coalition . .9 3. Reacting to Roosevelt: The 80th Congress and Beyond . .17 4. 1966 and 1968: Policy Changes at the Margins . .23 5. Achievements and Compromise in the Reagan Era . .29 6. Major Conservative Policy Advances . .35 Conclusion . .43 Notes . .45 About the Author . .49 iii Acknowledgments I wish to thank Samuel Sprunk, who provided sterling research on this project; Karlyn Bowman, who provided sage counsel and advice; Claude Aubert, who designed the cover and layout; and Christy Sadler, who led the editing process. iv Introduction t is a rare proposition on which liberals and conser- and price controls; rationing of materials and food; Ivatives agree: American history over the last hun- and, in World War I, subsidies for farmers to ensure dred years has been a story of the growth of the size food supplies for famine-threatened allies. Such poli- and powers of government. This growth has not been cies produced demands for continued government steady. Conservatives, with some bitterness, have controls and subsidies in the postwar years, not least embraced a theory of ratchets: in every generation, lib- from military veterans who were drafted into service. erals succeed in ratcheting up the size of government But war is not the only friend of the state. Defense and conservatives fail to significantly reduce it. spending even during the Iraq and Afghanistan con- Liberal historian Arthur Schlesinger Jr. argued for flicts of the 2000s was a significantly smaller per- a similar theory of cycles: we have periods when lib- centage of GDP than in the peacetime of the late erals succeed in expanding government and then 1950s, early 1960s, and 1980s. A greater contributor periods when conservatives resist further expansion to the size of government in recent decades has been but do not roll back previous growth.1 In Schlesinger’s the growth of transfer payments in so-called entitle- view, each cycle of government growth begins with a ment programs, not subject to the congressional major electoral victory for the Democratic Party: appropriations process—Social Security, Medicare, Woodrow Wilson’s election in the three-way contest and Medicaid. Their share of the total economy now in 1912, the five consecutive victories of Franklin substantially exceeds that of military spending. Roosevelt and Harry Truman from 1932 to 1948, the In addition, government regulation imposes landslide for Lyndon Johnson in 1964, the victories of costs on the private-sector economy and has often Bill Clinton in 1992 and Barack Obama in 2008. tended to stifle competition and innovation. But reg- Superficially, the case for Schlesinger’s theory ulation has not inexorably risen in the United States; seems solid. Federal government spending as a on the contrary, it has grown and decreased over the percentage of gross domestic product (GDP) has years. And laws and regulations governing labor increased from 1.8 percent of gross national product unions and management have increased the power (GNP)2 in 1912 to 24 percent of GDP in 2012. And of government, or at least of politicians who favor the regulatory reach of the federal government has adversarial unionism; that movement, too, has increased exponentially over the last century as well, waxed and waned. in areas ranging from finance to pharmaceuticals. But The elections Schlesinger cited can be taken as a closer look shows that the growth of federal spend- endorsements by voters of government expansion, ing has not been smooth. “War is the health of the though not unambiguously; note that Franklin Roo- state,” as the New Republic’s Randolph Bourne wrote sevelt in 1932 called for reducing federal budget during World War I, and federal government spend- deficits, and Bill Clinton in 1992 called for ending ing as a share of GNP spiked during the two world “welfare as we know it.” But other elections can be wars, to 17 and 22 percent in the fiscal years ending taken as repudiations of big-government policies. in 1918 and 1919 and to 41 percent in 1943 and 45 They include Warren G. Harding’s record-breaking percent in 1944 and 1945. These wars also resulted winning percentage in 1920, the triumph of in vast increases in government power, with wage anti–New Deal Democrats and Republicans in 1938, 1 CAN BIG GOVERNMENT BE ROLLED BACK? the Republican congressional majorities elected in World War I, the western world moved toward 1946, the significant Republican victories in 1966 political and economic freedom. The Great War, as and 1968, Ronald Reagan’s election in 1980, and the it was called, put the West and the United States on Republican congressional victories in 1994. a different trajectory. What follows here is an examination of the con- So neither the growth nor the shrinkage of gov- sequences of those elections. How successful or ernment is inevitable. Those who insist that progress unsuccessful were the efforts to reduce the size and consists of an ever-larger and more active govern- scope of government? What implications do these ment never specify at what point that process should episodes have for those who seek to reverse the stop. Those who argue for a minimal government recent growth in government spending as a percent- are grappling with the general trend toward conti- age of the economy, which rose from the 20–21 per- nuity of institutions in a mostly successful society. cent level in the years from the 1960s to 2007 to Despite the growth of government over the past cen- 24–25 percent today? It starts with the observation tury, over many years, polls indicate that most that neither the cycle theory nor the ratchet theory Americans have favored a smaller government that is consistent with the long run of history. To the con- does less over a larger government that does more. trary, history records many shrinkages of the power The question to examine is how effective public offi- and size of government and expansions of freedom. cials and policymakers who share that view have These things ebb and flow. In the century before been in translating it into public policy. 2 1 The 1920s Republicans he 1920 presidential election was the harshest Public Information to “arouse ardor and enthusi- Trejection of a governing party in American asm” in April 1917. It passed an onerous Espionage political history. Four years before, Democratic Pres- Act in May 1917 and Alien and Sedition Acts in ident Woodrow Wilson was reelected by a popular 1918 authorizing deportation of allegedly disloyal vote margin of 49 to 46 percent. In 1920, with Wil- aliens and jailing of citizens for “disloyal, profane, son retiring after two terms, Republican Warren G. scurrilous or abusive” speech.2 It passed a ban on Harding was elected by a popular vote margin of 60 alcohol production in the summer of 1917, and the to 34 percent. At no time since the Civil War has the 18th Amendment imposing prohibition of alcohol candidate of a governing party received such a low was ratified in January 1919.3 percentage of the popular vote. This was a clear In these tumultuous times, with fighting still raging mandate for changes in public policy. in many parts of the world and the American econ- Wilson had come into office at a time when fed- omy in turmoil, Wilson spent the first half of 1919 in eral spending as a percentage of the economy was Europe, negotiating the peace treaties, including his level at about 2 percent, lower than in the economi- pet project, a League of Nations. In October 1919, cally troubled 1890s, and Wilson and the Democra- after a nationwide trip campaigning for the treaties’ tic Congress did not raise that level of spending until ratification, he suffered a disabling stroke and was the declaration of war in April 1917. At that point, bedridden for months, with access controlled by his budget expenditures rose from $700 million in the wife and physician. A bipartisan group of senators peacetime fiscal year ending in mid-1916 to $2 bil- refused to ratify the treaties without reservations indi- lion in 1916–17, $12.7 billion in 1917–18, and cating that the League could not force the United $13.5 billion in 1918–19, a rise from 1.5 percent of States to go to war without a congressional declara- gross national product to 3.2, 16.6, and 22 percent, tion; from his sickbed, Wilson opposed any reserva- respectively.1 The Army, Navy, and Marine Corps tions, and the treaties were rejected in November were expanded from a prewar force of 179,000 men 1919 and once again in March 1920. to 2.9 million by the time of the Armistice in Novem- During this time, events seemed to be spinning ber 1918, and total military spending for the war has out of control. In November 1918, communists been estimated at $26 billion. The railroads were seized power in Russia, which was plunged into nationalized in December 1917, and huge shipyards civil war, with US troops sent in to oppose the new were built by the government. Individual and cor- regime. Marxist revolutionaries staged uprisings in porate income taxes were sharply increased, but Berlin and Budapest, as well, and the threat of vio- two-thirds of funds to pay war costs were borrowed; lent revolution also appeared in the United States. the national debt increased from $1 billion to $19 In February 1919, there was a five-day general billion between 1915 and 1920.