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Michael Lind On How America Will Change

In an effort to start making sense of what is an indisputably confusing situation, we asked some of the most thoughtful people we know the question: How will America change as a result of the economic downturn? Here's Michael Lind, Whitehead Senior Fellow at the New America Foundation and director of its American Infrastructure Initiative.

The effects of the greatest financial crisis since the Depression are only now beginning to be felt. By the time the crisis has run its course, a decade or more from now, the U.S. will be a radically different place.

Government may grow dramatically and permanently as a share of U.S. GDP. While the average OECD country has a government share of around 40 percent of national GDP, today American government at all levels--federal, state, and local--hovers around 30 percent of GDP, somewhat higher if you count tax-favored private benefits like employer-provided health care and 401(k)s. But even before the crisis, the cost of an aging population would have added (without inflated health care costs) about 4 percent of GDP to the government share in the next half century, except in the unlikely event that Congress carried out deep cuts in entitlements for middle-class seniors. Now, in the years ahead, the federal government may bail out not only homeowners, but also many retirees whose private savings have been devastated. And state and local governments may get a federal bail-out as well. In democracies, temporary spending programs tend to become permanent, so the "normal" government share of GDP in the U.S. may rise to 35 or even 40 percent. This will not be the end of the world, but it will be the end of America's small-government exceptionalism.

Another likely consequence is a shift of welfare benefits onto business. Confronted with a national debt that may exceed GDP, Congress will avoid creating expensive new social programs. Instead, politicians may use unfunded mandates or tax credits to pressure corporations into doing the job of the welfare state. For example, universal health care may come in the worst possible way, by forcing or coaxing employers to provide health care coverage for all workers. These and other employer mandates and benefits would increase the cost of hiring--and, as in some European countries, the result might be structural unemployment, alienation, and crime.

The desperate attempt to provide even more benefits through employers will burden small business more than big business--this, at a time when widespread bank and business failures will already be rewarding consolidation in finance and business. 

The U.S. economy a decade from now may be dominated by a few huge universal banks and a small number of gigantic corporations, all of them "too big to fail." In return for implicit government bail-out guarantees, these swollen private-sector Leviathans will abandon "greed is good" rhetoric for noble sentiments about corporate responsibility. The emerging system might be called "lemon corporatism." A managerial state dominated by oligopolies and monopolies, where government encourages employer paternalism as an alternative to public welfare spending, would resemble contemporary Japan and the dystopian America of "Rollerball."

Barring new, unavoidable conflicts, the Pentagon is also likely to be downsized, following the reduction of the U.S. efforts in Iraq and Afghanistan. The U.S. will remain the leading great power, but there will be no new American century, nor will Europe, hit even worse than the U.S., be a plausible partner in a Pax Atlantica. As in the 1970s, the U.S. will find itself in a multipolar world, struggling in both the commercial and the military arenas.

Hegel called this kind of irony "the cunning of history." Beginning in the 1970s, libertarians and neoliberals promised that deregulation would produce a borderless utopia for small enterprises and entrepreneurs. Instead, the result of free market fundamentalism is a global financial collapse that may produce an America with bigger government, more paternalism, and a financial and corporate oligopoly.

--Michael Lind