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The Balance Our Government Must Find

If you look at the domestic initiatives currently on the table, they are all geared (with one major exception) toward reducing uncertainty and risk from ordinary people’s lives. This is a far cry from the older conception of government’s role, which was to enforce contracts and some other basic rules and then get out of the way.

In times of broad economic uncertainty, it’s understandable that We The People would vote for the candidate who’s most focused on dispelling our fears. In the present case, this impulse has left us with a new activist government that’s eager and ready to pursue broad ends. This government must now ensure that it has the means to pursue those ends, but in doing so it must strike an important balance between private incentives that keep the economy running and government-imposed stability.

The major policy initiatives being discussed are: universal health-care (or at least universal health insurance); sweeping re-regulation of business and finance; and the replacement of carbon-based energy sources. The first two are all about eliminating uncertainty over the material circumstances of life. Green energy policy is the exception, and it’s no surprise that it’s the only major Obama initiative that doesn’t (at least superficially) command broad popular support.

We’re passing through a major social crisis in America. For several decades now, we’ve accepted that people freely acting in their own best interests will produce prosperity, if not stability. That equation is now in question. The people seem ready (as they were in 1932) to accept broad curbs on private freedoms in order to attain stability.

In other words, having suffered large losses in their home values and in the stock market, the people are looking for assurance that such things can never happen again. While they’re at it, they want to know that they’ll be able to send their kids to college, secure the health-care they need, and retire in comfort. They need to feel like someone is in charge. Market capitalism assures us that “it’s all up to you; if you work hard enough and smartly enough, everything will be great.” These assurances now ring hollow to many.

Therefore, the next few years will see a new openness to very different social arrangements. The objective is to deliver to everyone, or nearly everyone, a basic level of material well-being, including housing, healthcare, and access to higher education. And just as FDR did with Social Security (which in his famous words could never be taken away), Obama is trying to seize this opportunity to guarantee the essentials of middle-class life for everyone.

But not every individual produces at the same level consistently throughout his or her life. To ensure basic sustenance for all, we must stand ready to provide it by redirecting resources (including goods and services) in comprehensive ways. Finally delivering on the promises of the New Deal and the Great Society means that government will necessarily have the power to dispose of far more of society’s aggregate productivity than Americans have ever tolerated before in peacetime.

What comes next you’ve heard many times before. Government by itself doesn’t produce anything, or at least it doesn’t do so efficiently. Communism doesn’t actually work. If we want to provide an economic baseline for everyone, we still need to preserve private incentives for those who are highly motivated to produce efficiently. If we really want to go down this road (and I still think there are better ways to go), then we need a new American corporatism.

I’ve proposed at various times a compromise plan for how this might work. We need to ensure that economically productive investments continue to be made, while at the same time ensuring that most of the people can enjoy expanded benefits provided by the state. Taxes on business income and capital gains must be eliminated. The payroll tax and the income tax should be merged together, and eliminated entirely for every individual earning less than, say, $250,000 a year. For everyone above that level, tax at a flat 50%, but never allow that percentage to go any higher.

Is the Obama administration prepared to take these kinds of measures to institute the economic security it thinks necessary? We’ll just have to wait and see.

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