Does Government Matter?

Washington's fight over the debt ceiling has obscured a larger reality: Government has lost its ability to influence the economy

As Americans celebrate the 235th anniversary of their independence, the country is embroiled in a typically noisy debate. This time, the argument centers around whether Congress should raise the ceiling on national debt in the interest of preventing a potential government default. The issue has proved to be partisan catnip. The GOP opposes any new taxes to pay down the U.S. debt, which is close to 95 percent of the country’s gross domestic product, on the basis that government has created this problem and that more government cannot be the answer. The U.S. debt burden, House Speaker John Boehner says, “can be traced to a misguided belief by politicians that the American economy is something that can be … influenced positively by government intervention and borrowing.”

Republicans want deep cuts in government spending to be part of any deal to raise the debt ceiling. Democrats counter that such measures would imperil the recovery. And they insist that robust government remains a key element of future growth. “We can’t cut our way to prosperity,” President Barack Obama recently said.

Government as the problem, government as a solution: The impasse over the debt is new, but the debate is old. From the Progressive Era of the late 19th century through the laissez-faire of the 1920s, from the New Deal and the Great Society to Ronald Reagan’s declaration that “government is the problem,” perhaps the only thing the left and the right have agreed on is that government matters. Liberals believe that if government does its job well, prosperity will follow. Conservatives argue that good government is less government, but they are no less obsessed with the role that Washington plays. Our entire political and economic debate takes place in the context of a shared assumption that government determines the nation’s collective economic success or failure, either because of the harm it does or because of the good.

But what if this assumption is wrong? What if government is neither a solution nor a problem? What if, when it comes to dealing with the economic challenges facing the U.S. today, government actually doesn’t matter?

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