The Agenda

Is the Term ‘Government-Centered Society’ Too Polemical?

My friend John Avlon, a centrist columnist and activist, recently suggested that Mitt Romney’s reference to a “government-centered society” was needlessly polemical. The following is drawn from a transcript of Mitt Romney’s speech last night in Milwaukee, Wisconsin (thanks to the Washington Post for hosting it):

This campaign is going to deal with many complicated issues. But there is a basic choice that we’re going to face. The president has pledged to transform America. And he’s spent the last four years laying the foundation for a new government-centered society. I will spend the next four years rebuilding the foundation of a opportunity society led by free people and free enterprises.

The former governor continued in this vein:

In Barack Obama’s government-centered society, the government has to do more because the economy is doomed to do less, because when you attack business and you vilify success, you are going to have less business and less success.

And then, of course, the debate becomes about how much to extend unemployment insurance because you’ve guaranteed there will be millions more unemployed. In Barack Obama’s government-centered society, tax increases not only become a necessity, but also a desired tool for social justice.

In that world of shrinking means, there is a finite amount of money. And as someone once famously said, you need to have some taxes to spread the wealth around.

In Barack Obama’s government-centered society, government spending always increases because, well, why not? There’s always someone who’s entitled to something more and who’s willing to vote for anyone who will give them something more.

Now, by the way, we know where that kind of — you know, that transformation of a — of a free society into a government-centered society leads, because there are other nations that have followed that path. And it leads to chronic high unemployment, crushing debt and stagnant wages. This is beginning to sound familiar, isn’t it?

I actually think Romney chose his words carefully. He didn’t accuse Barack Obama of being a socialist, nor did he characterize him as a social democrat (which, in my view, would have been entirely reasonable). Rather, he described him as someone who sees government at the center of his vision of how to achieve positive social change. This is not an unusual or idiosyncratic view. It is held by many people, including a large share — perhaps a majority — of the U.S. electorate. 

At the local level, for example, we might address high housing prices by creating new direct subsidies for the construction of housing, for mortgages, or for rent. We might embrace rent stabilization and control policies and other regulations designed to mandate the creation of affordable housing. Or we might try to eliminate exclusionary zoning and price controls on rental housing. I think one could fairly describe the first basket of strategies as government-centered and the latter as market-centered, though of course both strategies involve policy activism by the local government in question. These government-centered strategies aren’t socialist as such, and they have a long pedigree in this country. But they are government-centered.

Similarly, there are government-centered approaches to addressing medical cost growth, e.g., administrative price-setting, reliance on NICE-like bureaucracies to determine which clinical practices will be encouraged and which will not, etc., and there are market-centered approaches, which tend to focus on fostering greater cost consciousness among the consumers of medical care. Both government- and market-centered approaches require policy activism, and of course any plausible course of action will represent a blend of both. 

Some of us believe that government-centered approaches to increasing access to education, medical care, and housing have tended to exacerbate problems relating to cost, quality, and access, and that more market-oriented approaches might represent an improvement.

But Romney is actually advancing a more ambitious idea, which bears more than a passing resemblance to the thesis of Alberto Alesina and George-Marios Angeletos’s essay on “Fairness and Redistribution.” The abstract is below:

Different beliefs about how fair social competition is and what determines income inequality, influence the redistributive policy chosen democratically in a society. But the composition of income in the first place depends on equilibrium tax policies. If a society believes that individual effort determines income, and that all have a right to enjoy the fruits of their effort, it will chose low redistribution and low taxes. In equilibrium effort will be high, the role of luck limited, market outcomes will be quite fair, and social beliefs will be self-fulfilled. If instead a society believes that luck, birth, connections and/or corruption determine wealth, it will tax a lot, thus distorting allocations and making these beliefs self-sustained as well. We show how this interaction between social beliefs and welfare policies may lead to multiple equilibria or multiple steady states. We argue that this model can contribute to explain US vis a vis continental European perceptions about income inequality and choices of redistributive policies. [Emphasis added]

Essentially, Alesina and Angeletos are contrasting a government-centered society and a market-centered society. They’re suggesting that a society can shift from one to the other as taxes increase, as the state takes a larger role in aiding politically favored firms, etc. Some will argue that the stylized portrait offered by Alesina and Angeletos is oversimplified. But it does seem like a good way to think about the political evolution of market democracies. Is there some point at which a shift to a government-centered society because irreversible? How long does it take for the new worldview to become entrenched?

Something like the Alesina-Angeletos thesis might explain the generational divide in U.S. politics. Older people tend to favor low redistribution and low taxes, yet many of them are the beneficiaries of large transfers, both direct (in the form of Medicare and Social Security) and indirect (in the form of housing wealth that flowed from tax expenditures, exclusionary zoning, etc.), that have effectively disadvantaged younger voters, who will be forced to pay higher lifetime net tax rates than their parents and grandparents. It thus seems important to make younger people understand this complex interaction between social beliefs and welfare policies. Instead of embracing more redistribution to counter the (arguably) unfair redistribution of the past, perhaps they should favor reforming redistribution policies so that they are more genuinely equitable and less tilted against the young, rolling back licensing restrictions and other measures that undermine open labor market competition, etc. But first someone has to make the case that layering more redistribution on top of the old system without reforming it might make matters worse — that is, it might get us mired in an ugly equilibrium. 


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