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Toward the Precipice
From the November 29, 2010, issue of NR.


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Come January, America will have a Democratic president and a Republican Speaker of the House of Representatives, a rare configuration in the 150-plus years that there has been a Republican party. There were Republican House majorities during Democratic administrations for two years after the 1894, 1918, and 1946 midterm elections, and for six years after the 1994 midterms.

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In 2011, only the memory of the acrimonious cohabitation after 1994 will matter. The Republican speaker who took the gavel after that election had famously disparaged a leading senator from his own party as the “tax collector for the welfare state.” Republicans swept to power in 1994 clearly dedicated to the mission Ronald Reagan had proclaimed 13 years earlier, to “curb the size and influence of the federal establishment.” Moreover, the Democratic president startled the nation, especially politicians in his own party, by declaring in the 1996 State of the Union address that “the era of big government is over.”

Knowing this much, it would have been plausible for the welfare state to do something in the 1990s it had never done since the New Deal: shrink. While that expectation may not have been far-fetched, it did turn out to be wrong. Adjusted for inflation, per capita federal outlays on the five big categories that dominate the Office of Management and Budget’s “human resources” programs — Social Security; all other income support programs; Medicare; all other health programs; and all education, job-training, and social-service programs — were 7 percent higher in 2001, the last fiscal year shaped by the Clinton administration, than they had been in 1995, the final one before the GOP Congress.

It wasn’t just the political circumstances of the 1990s that seemed to favor the reduction of the welfare state. The economic circumstances were favorable, too. The dot.com boom, before it turned into the dot.com bust, drove incomes up and unemployment down, causing spending on “automatic stabilizers” like unemployment compensation and food stamps to fall. Demography should have helped as well, since the people signing up in the 1990s for the two biggest welfare-state programs, Social Security and Medicare, were the ones born during the Depression — and baby bust — of the 1930s. As life expectancy increased, the proportion of the American population aged 65 or over grew from 8.1 percent in 1950 to 12.6 percent in 1990. Even though life expectancy continued to increase after 1990, the proportion of Americans at least 65 years old declined slightly, to 12.4 percent in 2000.

It turned out that the welfare state expanded in the 1990s less because it needed to than because it could. Relative to gross domestic product, total federal outlays actually decreased during the decade, from 21.9 percent in 1990 to 18.2 percent in 2000. Adjusted for inflation, however, per capita GDP was 22.8 percent higher in 2000 than it had been in 1990. The federal government was spending a somewhat smaller slice of a significantly larger pie.

Furthermore, the federal government was laying claim to a lesser portion of the national income mostly because of defense-spending cuts after the end of the Cold War, not because of welfare-state reductions. The Reagan rearmament program peaked in the late 1980s. In 1986 the federal government spent 6.2 percent of GDP on national defense. That proportion began to decline during “glasnost,” even while Reagan was still in office and the Berlin Wall was still intact. It fell to 5.2 percent of GDP in 1990 and 3.0 percent in 2000. Leaving GDP percentages aside, inflation-adjusted defense spending peaked in 1989, the last fiscal year of the Reagan administration, and declined by 28 percent over the following decade.

By contrast, federal outlays on the five human-resources categories named above were 10.3 percent of GDP in 1990 and 10.9 percent in 2000, and averaged 11.6 percent of GDP from 1991 through 2000. Even with the conservatives’ biggest domestic-policy triumph of that decade, the replacement of Aid to Families with Dependent Children by the non-entitlement Temporary Assistance for Needy Families program, overall welfare-state spending was larger at the end of the 1990s, both in absolute terms and relative to the size of the economy, than it had been at the beginning.


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