In his masterful 1987 Crisis and Leviathan, Roberts Higgs illuminated how “governmental expansion historically has been highly concentrated in a few dramatic episodes, especially the world wars and the Great Depression”. The essence of that phenomenon is that “expansions of governmental power during a crisis do not disappear completely when normal socio-economic conditions return”. For expansion, Higgs does not mean an increase in government expenditure or employment: “what distinguishes the capital-letter leviathan is the wide scope of its effective authority over economic decision-making, that is, the great extent to which government officials rather than private citizens effectively decide how resources will be allocated, employed and enjoyed”. What we see at work in crises is not necessarily, or exclusively, spiraling public spending: it is also a change in the acceptance of legitimate undertakings on the part of the government.
The Wall Street Journal piece reports comments from Rahm Emmanuel and Steve Bannon, equally happy to end an era in which the government “was considered the problem”. I would say there is little evidence such an idea triumphed in the political arena. Attempts to “roll back the state” were few and difficult and encountered enormous resistance. The fact that the government does not keep its promises is not necessarily important. Interventions are argued and defended typically on their intentions, and rarely on their results.
Government spending tends to grow; we know that from “normal times”. In exceptional times, what grows is, besides spending, the very scope of governments. In that sense, we may look back to 2007-2008 as a tremendously “lucky” crisis. If we do not consider how it changed the workings of central banks, but focus on governments, it is amazing that the US Treasury owned GM for three years, and then sold it. In 2013, the federal government’s holdings of AIG acquired during the 2008 rescue were eliminated. What will happen this time?
The Wall Street Journal mentions an op-ed by Chris De Muth, who argued that in the mishmash of policies put together by the Trump administration, deregulation is playing a good part. In his debate with our David Henderson, Justin Wolfers pointed out that there is a silver lining for libertarianism in this crisis: there is evidence of government failures and people are suddenly alert to over-regulation that makes development of treatments more difficult and more expensive.
But the way this ends will depend by and large on the narrative which prevails in the public debate. On paper, there should be a reason for optimism: the economic crisis cannot be blamed, for once, on markets and businesses. It is the result of lockdowns, which are clearly mandated by the government, for the sake of public health. How shall this lead to grand experiments in rethinking the government/ private sector balance?
And yet it well may. The biggest reason is that Covid19 hit us after years in which folks on the right talked about industrial policy and folks on the left of a green new deal. The perceived need to “change capitalism” was already there, now the only matter is not to let a good crisis go to waste. The pandemic provides an ideal situation for raising barriers to trade. The “Chinese virus” offers a chance to justify government investment in companies and attempt to control their purchases and strategies as fitting into a wider geopolitical scheme.
In other words, I am afraid that evidence of state failures in the Covid19 crisis will not shape public opinion, because of an earlier, deep-seated persuasion of the fact that we need to go “beyond” capitalism. The fact that our economic predicament cannot be traced back to capitalism, or markets, or even the private sector generally speaking does not matter much. Resistance will be limited: the private sector is happy to take money, in these dire times. Right-wingers have embraced a rhetoric of grandiose government intervention, vs the old fashioned emphasis on the virtue of self-reliance, thrift and private enterprise. Some libertarians in the last few years thought that, given the protectionist turn of the right, it was perhaps useful trying to build bridges with the left: but most people on the left rejoice of this opportunity for bringing by ever-increasing government intervention, as they maintain that “our task is to utilize every manifestation of discontent and to gather and turn to the best account every protest, however small” (Lenin’s version of never allow a crisis to go waste).
Those who do not favor more government shall have one hope: that reality will curb the interventionists’ enthusiasm. Resources will not be enough to pursue the wildest dreams of government interventions, skyrocketing public debt will force to ponder new expenditures, the need for medical equipment and drugs, and testing machinery will caution against raising trade barriers. But we know that all of this will be interpreted by politicians as proving not that what they have done failed, but that more is needed. As Herbert Spencer explained to us long ago, “failure does not destroy faith in the agencies employed, but merely suggests more stringent use of such agencies or wider ramifications of them”.