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Jared Bernstein Headshot

Since Bad Government Costs the Same as Good, Let's Choose Good

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You may not have noticed some interesting Republican flips that occurred in the DC-policy world in recent weeks.

In both cases, top conservatives, most notably President Bush and candidate John McCain, appear to have changed their minds on legislation designed to help folks who have been hurt by recent economic events. Congress passed two bills, both by veto-proof margins: an extension to unemployment insurance benefits and a bill to help homeowners facing foreclosure (the housing bill is actually stuck in the Senate, but is likely to pass after the July recess).

Bush stonewalled on both bills, but the word on the street is that he'll now sign them. McCain initially opposed the foreclosure relief legislation, and was at first silent on the UI extension. Now he likes both.

That's a good thing -- they're both pretty good bills -- and I come not to disparage these pols for seeing the light. But their changes of heart are revealing in the context of Republican economic ideology in general and the McCain campaign in particular.

The rap on the conservative side of the street is that Bush wasn't a real fiscal conservative because he didn't hold the line on spending. The facts don't really support that argument: federal spending as a share of GDP averaged 20.3% from 1959 to 2001 and 19.9% from 2001 to 2008.

No matter. That reality simply amplifies my point: all this conservative talk about cutting spending is just that: idle chatter. When push comes to shove and political forces are in play -- and when aren't they? -- McCain will support most government spending as much as the next guy or gal.

Conservatives from Bruce Bartlett to Larry Kudlow to Grover Norquist can caterwaul from here to eternity about "holding the line on spending," but the phrase is meaningless. It all comes down to cases, and there will always be cases, like these two bills targeted at offsetting the current failures in housing and labor markets, that are worth supporting. And enough politicians will support them such that they become law.

Since 1959, Federal spending as a share of the economy has averaged 20.2% of GDP, with a standard deviation of 1.5%, meaning relatively little dispersion around the mean. In the Reagan years, it was 22.3%; under Clinton, 20.2%. If anything, the pressing needs of the environment, public infrastructure, and health care suggest that share is likely to go up before it comes down.

Of course, there are big differences between the D's and the R's on the role of government. But barring a percentage point of GDP either way, the differences amount less to the level of spending and more to competence and fiscal stewardship.

That is, under a McCain or any other modern conservative administration, it's not that there would be noticeably less government. It's that there would be worse government. It's not that they'd get rid of FEMA or the Food and Drug Administration. It's that they'd perform less efficiently and effectively.

If you don't believe me, look at the Medicare Drug bill championed by the Bush administration. The damn thing outlawed competitive bidding for lower prices on medications, and forced the Federal government, i.e., the taxpayer, to subsidize private coverage that is demonstrably less efficient than Medicare itself. When someone opts into one of the private "Medicare Advantage" plans created by the law, the Feds have to cough up a 12% subsidy compared to what the patient would have paid under Medicare.

And by the way, on Friday, Senate Republicans filibustered a Medicare bill that would have cutback on these wasteful payments (McCain skipped the vote). It's a perfect case in point. No matter who runs the show, there will be spending, and it will cost roughly the same to have good government or lousy government.

Of course, given their addiction to big tax cuts and war, a conservative government would also be an evermore indebted government.

To be fair, McCain's track record reveals examples of opposing popular bills he has judged to be wasteful, including the Bush tax cuts, and more recently, the energy and farm bills. But he's since flipped big time on the Bush tax cuts--extending the Bush cuts are less than half of his proposed cuts--and on the moratorium on offshore drilling. And of course he has big spending plans for the war and the defense budget.

So, when you hear conservatives in general and McCain in particular rant against government spending, think back to the microcosmic flips of this past week. They remind us of the reality that we live in a complex world, where markets can provide only partial solutions to the challenges we face. Market failures abound, and government will unquestionably be called upon to repair these failures.

For years, we've elected politicians who've railed against this reality, pretending that they can refund that fifth of the economy that we spend on government --"it's your money!"-- and still provide the services we want and need. To put it mildly, it hasn't worked. We're spending the same share as ever, yet we've squandered years when we could have been making progress against the challenges of globalization, of environmental degradation, of deteriorating infrastructure, of economic inequality, of costly inefficiencies in health care.

With this election, we have a chance to pursue another path. It's a chance we can't afford to pass up.