Crisis, the Health Care Bill, and the Growth of Government

The passage of the health care demonstrates the ways in which economic crises create opportunities to expand the power of government, often in ways that have little connection to any effort to alleviate the crisis itself. Back in the fall of 2008, I expressed my fear that the combination of an economic crisis, political ignorance by voters, and unified Democratic control of the federal government would lead to a vast expansion of government if Obama were elected. White House Chief of Staff Rahm Emanuel famously said that the Democrats shouldn’t let “a serious crisis go to waste” because a crisis represents “an opportunity to do things you could not do before.”

I. Once Again, a Crisis Facilitates the Growth of Government.

Obama and the Democrats began to realize my expectations by passing a gargantuan “stimulus” bill and pushing a massive expansion of government control over health care, as well as promoting other major increases in the size and scope of government. But recent Republican political victories, especially Scott Brown’s win in Massachusetts, led many people to think that the health care bill would fail and the expansion of government might come to a halt. I had to admit that I had underestimated the political constraints inhibiting the administration. But I still thought that Democrats might be able to pass the bill by getting the House to adopt the proposal previously passed by the Senate – which has indeed happened.

The health care bill will now take its place with numerous Depression and wartime policies that expanded government in ways that would never have been possible absent the crisis, but which had no real connection to alleviating it. Absent the economic crisis, the Democrats would not have won such a sweeping victory in 2008, nor would Obama have had such an enormous reservoir of initial popularity to invest in pushing the health care bill through. As it turned out, the Democrats will have needed almost every bit of their huge crisis-created congressional majority in order to make up for defections in their own ranks.

II. Crisis-Enabled Measures that Make the Crisis Worse.

Whatever its other merits, the heath care bill does little if anything to alleviate the economic crisis that made its passage possible. Indeed, it may well end up exacerbating the crisis because it includes an employer mandate requiring any employers with more than 50 employees to either provide health insurance that meets various federal requirements or pay a $2000 fee per employee, if any of their employees receive federal health care subsidies. You don’t have to be a labor economist to predict that this increases the costs of hiring workers, and therefore is likely to increase unemployment or at least inhibit its reduction, as may already have happened under Massachusetts’ similar plan.

This too is not a new pattern. Many government-expanding policies enacted during the Depression and other past crises also exacerbated their effects. For example, the National Recovery Act – the centerpiece of the initial New Deal – significantly increased unemployment and raised prices for consumers. Later New Deal policies exacerbated unemployment in similar ways. The Agricultural Adjustment Act, famously upheld by the Supreme Court in Wickard v. Filburn, was a scheme intended to raise food prices at a time when many poor families were already having trouble making ends meet or suffering from malnutrition.

In most of these cases, political ignorance likely contributed to the passage of massive expansions of government that could actually make the crisis worse. Voters have incentives to be rationally ignorant about policy issues, and often don’t realize that proposals advanced in a time of crisis may actually exacerbate it or benefit narrow interest groups at the expense of the general public. Unlike much of the New Deal legislation, the health care bill has become quite unpopular. But public opposition would likely have been much stronger if more people realized that it was likely to increase unemployment, at least in the short run.

III. Will the Health Care Bill Become Permanently Entrenched?

The health care bill is also similar to previous historical examples of crisis-enabled legislation in so far as it will be extremely difficult to reverse. Sixty-five years after the Great Depression, we still have the kinds of perverse agricultural cartels created by the AAA, as well as numerous other dysfunctional policies first sold to the public as efforts to alleviate the Depression.

By creating a wide range of new entitlements and interest group payoffs, the health care bill is also likely to become entrenched over time, and even increase in scope. For example, the mandate requiring individuals to purchase insurance will create a ratchet for further expansions of government, as various interest groups lobby to increase the range of conditions against which people are required to buy insurance. Even if the Republicans retake control of Congress in the fall, they are unlikely to be able to repeal the bill in the face of Democratic opposition and a veto by President Obama. By the time a Republican president might be elected in 2012 or 2016, the new entitlements created by the bill will be sufficiently entrenched that they will be even more difficult to repeal or even limit – just as it has become extraordinarily difficult to constrain Medicare and Social Security.

Ultimately, the political lesson of the health care bill is that the combination of crisis and single-party control of the White House and Congress leads to massive government growth even in a situation where the proposal in question faces public skepticism and unified opposition by the minority party. I don’t claim that this by itself proves that the bill is a bad policy. But it does teach an important lesson about the dynamics of government in times of crisis.

UPDATE: The original version of this post went up just a few minutes before the bill passed. I have changed the language to reflect the fact that the House has now actually voted for the Senate bill.