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The writer, Morgan Stanley’s leading global investment management strategist, is the author of ‘The Ten Rules of Successful Nations’.
The usual wisdom is that US President Joe Biden end The “era of small government” created by Ronald Reagan and Margaret Thatcher in the 80s and unlimited free market capitalism. But that time is a myth.
Since 1980, government spending In the US, the UK and other developed economies, gross domestic product has risen slightly as part of gross domestic product. Deficits have gone from being rare to common in good and bad years. Public debt in developed countries has risen – in the US more than 120 percent GDP last year. The government is as big and interventionist as ever.
The government’s economic role is growing beyond deficit and debt. US welfare spendingIncluding Medicaid, Medicare and social security, it gradually rose from 10 percent to 17% of GDP in the late 1980s and 2020s. The welfare state has grown steadily.
So does the regulatory state. Previous expense US regulatory agencies he rose under all presidents after Reagan. The federal manual the size of the regulations gradually grew, before Donald Trump. The same is true of the basic trend United Kingdom.
Business rescues have become standard procedures. Once reserved for a single company, bailouts spread throughout the industry in the savings and lending crisis of the 80s and 90s. After 2008, they expanded to large banks and car companies. During the pandemic, rescues were offered to almost any company that made the request.
In developed countries, governments have extended more fiscal stimuli as part of GDP in each successive crisis. In the US, the tax stimulus hit a new record of 4% of GDP after World War II after the dotcom accident, 7 per cent after the financial crisis and 13 per cent last year.
It is also difficult to keep the fiction that central banks are not part of big government. The hips are tied. Governments cannot run deficits and debts so sharply without the help of the central bank. And central banks have grown in solidarity, both to keep borrowing costs low and as buyers in debt markets. I estimate that last year combined tax and monetary stimulus accounted for 28% of GDP in the U.S. and an average of 40 percent of developed economies.
So why is the myth of small government moving forward when these events are not supported?
The story the idea is usually told as a history of ideas, starting with deregulation, tax cuts, and other policies against states under Reagan and Thatcher. Their successor centrists, from Tony Blair and Bill Clinton to Barack Obama, are followers of these free-market orthodoxies that helped spread the “neoliberal” ideology around the world. Weaving together the many passages that shaped neoliberal thinking shaped politics, commentators create an image of a retired government.
But free market ideas did not shrink the state ship, except for a few privatizations of state-owned enterprises. The rest of it was just talking. Many Republicans have agreed with Reagan’s view that “government is the problem,” but their main solution has been to cut taxes, rarely paired with spending cuts. Since 1980, every president of the Republic has had a deficit every year, and so have all Democrats, except Clinton.
The impression that the government was backtracking, leaving the market free, is also affected by the flight of shares and bond prices. In 1980 it was valued at $ 12 million, now shares and bonds around the world are valued at nearly $ 370 million. But this increase may be the result of government delays, in the form of deregulation, rather than state aid, especially easy money from bailouts and central banks.
Eventually, free market ideologies transformed the former socialist states of China, India, and Eastern Europe, where the state now performs a much smaller economic task than it did 40 years ago. This reality out of the emerging world led to the misconception that governments were going backwards everywhere. Biden’s supporters may be ahead praise for ending it with little government, but that didn’t happen in the US.
The debate must clearly understand where Biden is leading America and where the world is coming from. His plans – numerous billions of dollars in spending packages, new regulations and more – describe exactly the most radical of any president in decades. But they don’t mark the end. They have indicated the latest escalation of the big government.
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