10/15/2013 03:05 pm ET | Updated Dec 15, 2013

The Larger Issue at Stake in the Shutdown: The Role of Government

The recent news that there has been a shift in tone in the debate between congressional Republicans and the White House over the government shutdown has been greeted as a welcome development in much of the press and on Wall Street, where, in response to rumors of an impending deal, the DOW Jones Industrial Average shot up more than 300 points.

But there is a larger issue at stake in this debacle that President Obama has to a large extent ignored: the role of government in shaping a just and economically sustainable liberal capitalist democracy.

Today's free-market fundamentalists continue to denounce any attempt by the federal government to regulate capitalism. They insist that the forces of the market could easily solve all of our nation's woes if only government would get out of the way. Their faith stems from their unshakable belief that the free market system cannot fail, and the apostate in their vision is government.

The history of the free market system in the years between the October 1929 crash of the stock market and the steady deflationary slide into the Great Depression three years later teaches us something quite different. Capitalist economies can collapse; the free market system can fail; millions of people can be thrown out into the street, wondering not just where they might find work, but where they might get their next meal.

It was at the height of this crisis of capitalism that the American people elected Franklin D. Roosevelt as the 32nd president of the United States. FDR was no ideologue, he harbored no extreme views on the right or on the left, but he understood that capitalism was in deep trouble, that the transition of the United States from a largely agrarian state to a modern industrial society had left millions of Americans vulnerable to the fickle twists of the unregulated marketplace, and that the only institution strong enough to take on the forces of wealth and privilege that largely controlled the marketplace -- those whose unbridled greed was chiefly responsible for its collapse -- was government.

It was this message and this philosophy that led the American people to support the many measures FDR put in place under the banner of the New Deal. Measures like the separation of commercial and investment banking, the establishment of the Federal Deposit Insurance Corporation, the creation of the Securities and Exchange Commission, or the passage of the all-important Social Security Act, which gave us old-age pensions and unemployment insurance. At the time, critics of the New Deal charged that FDR was leading the country down the path to a dictatorship; that he was subverting the Constitution. The American Liberty League even went so far as to claim that the passage of the Social Security Act meant "the end of democracy."

But Roosevelt scoffed at these "prophets of calamity," and unlike President Obama, was willing on behalf of the American people both to acknowledge and attack the forces arrayed against them. Consider, for example, FDR's repeated assaults on the "economic royalists" whose vast concentrations of wealth distorted the free-market system to such an extent that they made it virtually impossible for "small businessmen and merchants to make worthy use of the American system of initiative and profit." In the face of such vast inequality, "the hours men and women worked, the wages they received, the conditions of their labor... had all passed beyond the control of the people," he warned. "Private enterprise," he said, "became too private. It became privileged enterprise, not free enterprise." 

As a result, "the political equality we once had won" had become "meaningless in the face of economic inequality," leading to the inescapable conclusion that "against economic tyranny such as this, the American citizen could only appeal to the organized power of government."

Throughout his tenure as president, Barack Obama has been reluctant to present himself as the voice of the average working American, to position himself and his administration as leading a government effort to attack the immense inequality that has re-emerged in our society over the past 30 years, and to seek the people's support for this effort. Instead, he has engaged in a somewhat admirable attempt to find solutions to such problems as health care reform through compromise with his conservative opposition, often by the establishment of programs -- such as the Affordable Care Act -- designed to appeal more to those who harbor a greater faith in the free market than they do in government.

But as recent events make clear, the president's decision to seek market-friendly solutions to our most pressing problems has not won him any credit among the archconservatives who have hijacked the Republican Party. Their overriding focus is to discredit government, not work with it; to destroy the social safety net, not save it; and it would appear that they are quite willing to go to extreme lengths to achieve their ideological goals, including the possibility of driving the U.S. Government into default.

One can certainly understand the political calculations behind President Obama's oft-repeated willingness to meet his opposition halfway, but it now appears that his past readiness to compromise and acknowledge his other points of view has won him few converts and may have only strengthened the hand of those who seek to destroy his agenda.

A far better tack may be to steal a page or two from FDR, who called upon the American people to recognize "the need to find through government the instrument of our united purpose to solve for the individual the ever-rising problems of a complex civilization," and above all else, to never forget that "government is ourselves and not an alien power over us."

Originally published on Next New Deal.