The Era of Big Government Is Still Over

...and President Obama's State of the Union proved it.615_Obama_SOTU.jpg

President Barack Obama made the middle class the focus of his State of the Union address on Tuesday. He was lauded by some as fighting for jobs and opportunity, and even for launching a "war on inequality" equivalent to President Lyndon B. Johnson's 1960s War on Poverty. He was assailed by others for showing his true colors as a man of big government and wealth redistribution.

Yet the initiatives Obama proposed are striking not for their sweep but for their limited scope. That reflects both pragmatism and realism: Not only is the age of big government really over, so is the age of government as the transformative force in American society. And that is all for the best.

Wait a minute, you might reasonably object: What about healthcare? What about the proposals for minimum wage increases, for expanded preschool, for innovation centers, for $50 billion in spending on roads and infrastructure? Surely those are big government and aim, effectively or not, for transformation?

Healthcare and the changes under the Affordable Care Act are significant, and for now they have expanded the scope and cost of government However, those costs appear to be growing more slowly than expected, at least according to the Congressional Budget Office. While healthcare costs are increasingly untenable, the issue is one of healthcare costs for society as a whole. Recent legislation means government bears more of them, but someone will bear them no matter what.

So while the healthcare is billed as an expansion of government, it is more a continuing issue of cost and delivery of something that has to be paid for by someone and at some cost.

On almost every other front, government is receding -- not just from the financial crisis high tide of 2008-2009 but from decades before. Each of Obama's proposals hones and potentially reduces current spending, whether on education or on infrastructure. That $50 billion for roads appears large. In mid-2012, though, Congress authorized $120 billion in highway expenses through 2014, and much of what Obama proposes could be encompassed by focusing current spending.

Even if there is new spending there, it is a pittance compared to the interstate highway bills of the 1950s or the space program of the 1960s, let alone the many programs that encompassed the War on Poverty and led to a vast expansion of federal programs in healthcare, housing and education.

Take the minimum wage, the issue that received perhaps the most attention among the president's proposals, save gun control. But increasing the minimum wage isn't a government program. It's a bill that potentially mandates higher costs for some employers. Whether you love it or hate it, it is not an expansion of government ‑ and certainly not of government spending.

All these proposals, in fact, are small-bore for the post-New Deal era. They are small-bore compared to the massive 2009 stimulus bill of almost $800 billion. They are small-bore because there is no political will for them to be larger-bore, and because it is unclear just how much government can use the bazooka of big spending to effect significant changes in society.

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Zachary Karabell is Head of Global Strategy at Envestnet, a financial services firm, and author of The Leading Indicators: A Short History of the Numbers that Rule Our World. More

At River Twice Research, Karabell analyzes economic and political trends. He is also a senior advisor for Business for Social Responsibility. Previously, he was executive vice president, head of marketing and chief economist at Fred Alger Management, a New York-based investment firm, and president of Fred Alger and Company, as well as portfolio manager of the China-U.S. Growth Fund, which won a five-star designation from Morningstar. He was also executive vice president of Alger's Spectra Funds, which launched the $30 million Spectra Green Fund based on the idea that profit and sustainability are linked. Educated at Columbia, Oxford, and Harvard, where he received his Ph.D., he is the author of several books, including Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It (2009), The Last Campaign: How Harry Truman Won the 1948 Election, which won the Chicago Tribune Heartland Award, and Peace Be Upon You: The Story of Muslim, Christian, and Jewish Coexistence (2007), which examined the forgotten legacy of peace among the three faiths. In 2003, the World Economic Forum designated Karabell a "Global Leader for Tomorrow." He sits on the board of the World Policy Institute and the New America Foundation and is a member of the Council on Foreign Relations. He is a regular commentator on national news programs, such as CNBC and CNN, and has written for The Wall Street Journal, Newsweek, Time, The Washington Post, The New Republic, The Los Angeles Times, The New York Times, and Foreign Affairs.

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