Richard Nixon once famously remarked that: "we are all Keynesians now." This Republican stalwart was acknowledging a truism of his era. Government must support the private sector. Spending for roads, hospitals, universities, and even income maintenance programs are not only good in themselves. When consumer purchases or business investment lags, government expenditures can prevent deep recessions. Once again the threat of war and recession leads a Republican to resort to government initiatives to save the market. Nonetheless, political pressure will be needed to see that the beneficiaries of federal policy include more than the usual suspects.
War brings frightful damage and a chilling aftermath. But war has served a political purpose for both Democratic and Republican leaders. As the economy headed toward recession, the Bush administration was scrambling to increase military spending without violating its commitments to Social Security. Democrats eagerly awaited an opening to denounce the president for dipping into the Social Security "lock box" rather than paying down the national debt. Both sides knew that attempts to run a budget surplus during an economic downturn would not only fail but might even deepen a recession. Yet neither party had the courage to suggest that obituaries for "big government" and deficit spending might be a bit premature.
Unfortunately little imagination has gone into efforts to save a sinking economy. The administration, with support reminiscent of the Cold War, is resorting to the tried and true -- military spending. More cash for the Pentagon will serve as a modern Works Progress Administration. Businesses will need new hires to replace departing reservists. Unfortunately, much of this spending -- especially if a missile defense system is included -- will amount to little more than the boondoggles many conservatives associate with all government spending.
Economic reconstruction now also involves another old remedy, subsidies for airlines. Bush is right that commercial aviation cannot be allowed a plunge into bankruptcy. Many airline jobs would be lost and many other businesses depend on reliable air transport. Yet this agenda is filled with ironies. Every time subsidy for Amtrak or urban mass transit has come up, Republicans have waxed eloquent about the need to let the market determine transportation priorities. Now an airline industry that once insisted on deregulation and free markets has persuaded a Republican administration to grant a massive subsidy. That industry claims that government decisions and events beyond its control caused its current distress. Yet when textile or shoe workers lost their jobs to because of new government trade policies that allowed competition with foreign sweatshops, they heard paeans to the wonders of the free market. In any case, an industry that has consistently denounced government advice about the training and compensation its security personnel can hardly claim that it bears no responsibility for its current plight.
A subsidy to the airlines is merited, but it ought to include a quid pro quo. Subsidies should also be part of a larger program to redesign our transportation network. Long before the recent terrorism, airline deregulation had demonstrated that it was a failure. Scheduling problems and airport delays had made air travel far less convenient. Nor have the price breaks promised by deregulation materialized. Writing in the June 4 issue of The American Prospect, Merrill Goozner pointed out that, adjusted for fuel costs, fares declined at a faster rate before deregulation than since. At many airports, one or two airlines have gained monopoly status and overwhelm upstart competitors. To address these concerns, public policy need not return to the micro-regulation of the '50s and '60s. Nonetheless, the airlines should be forced to observe a passenger bill of rights -- especially when and if airline transit returns to its normal intensity. Flight frequencies should be limited and airlines required to cancel chronically late flights. Most importantly, where airlines have monopoly status, price ceilings are appropriate.
The problems springing from airport capacity are a symptom of inadequacies in our transportation infrastructure. Air travel stresses the ozone layer and steals precious urban space. We would be better served if the major cities in the Northeast, upper Midwest, and Northwest were linked by high- speed rail systems. Goozner points out that such a system would give business travelers timely alternatives where they can also work. Such a system will not emerge without subsidy, but the case for such subsidy becomes much stronger in the light of federal largess to the airline industry and the security burdens associated with air travel. As I write this piece, key congressional leaders have begun to address this point, but it remains unclear whether Congress and the president will commit to the long-term capital infusions needed to make Amtrak fiscally sustainable.
While Congress is in the business of providing a safety net for the airlines, it must reconsider the safety net for workers. Only about 40% of the current workforce is eligible for unemployment compensation. Congressional leaders may be sufficiently embarrassed by their largess to the airlines to make some specific concessions to airline workers. Nonetheless, the entire unemployment insurance system needs broader reforms of its eligibility standards. Such changes are not just a matter of equity. Unemployed workers are much more likely to spend new infusions of cash than are their six- or seven-figure executives.
Who will pay for more adequate unemployment insurance and long-term capital investment? It is entirely appropriate to engage in deficit spending now to finance unemployment insurance. Nonetheless, as the economy begins to rebound, the combination of the Bush tax cuts and higher capital spending -- especially if unproductive military spending escalates -- will push the economy into inflation. Remember Lyndon Johnson's futile experiment with guns and butter. A tax cut backloaded to 2005 is especially wrong now. Repealing it would help lower long-term interest rates and speed recovery.
The era of big government is dead. Long live big government. The serious question that remains is: big government for whom?
John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. He invites comments at email@example.com.