The End of Big Government Liberalism

For the past 65-70 years—and especially for the past 30 years since the end of the civil rights argument—American politics has been dominated by controversy over the size and scope of the welfare state. Today, that argument is largely over with liberals having largely won. The size of the US public sector is still going to look low by international standards, but this will be a bit misleading since the way the structure of the Affordable Care Act works is to use public money and public regulation to leverage a lot of formally private money. In practice, the United States will still be a small government country compared to Sweden or Denmark or France (which combines Danish-style taxes with a below-the-waterline iceberg of hidden state-directed economic activity), but not compared to the United Kingdom or Spain.

Due to the bill’s almost comically delayed implementation, for several years we’re still going to have a lot of political tussling over it. And even once it’s in place, the system will continue to be debated and tweaked for years to come. But over time, I think American politics will come to look quite different and we’ll look back on this day as a turning point.

The crux of the matter is that progressive efforts to expand the size of the welfare state are basically done. There are big items still on the progressive agenda. But they don’t really involve substantial new expenditures. Instead, you’re looking at carbon pricing, financial regulatory reform, and immigration reform as the medium-term agenda. Most broadly, questions about how to boost growth, how to deliver public services effectively, and about the appropriate balance of social investment between children and the elderly will take center stage. This will probably lead to some realigning of political coalitions. Liberal proponents of reduced trade barriers and increased immigration flows will likely feel emboldened about pushing that agenda, since the policy environment is getting substantially more redistributive and does much more to mitigate risk. Advocates of things like more and better preschooling are going to find themselves competing for funds primarily with the claims made by seniors.