So, the preceding several posts hint at one way of attempting to move beyond the ideology of the Reagan era: begin by rejecting the ostensible significance of the distinction between big and small government, and then shift the discussion toward the question of democratic government. This would be a vision of government in which we no longer assume that markets and government are opposed, government is the problem, and markets are the solution—but instead, recognize that markets are creatures of government, and that our democratic choice has primacy over both general types of government action: direct through government spending, and indirect through government-created rules.
What are our goals as a democracy? In the American political tradition, freedom has always played a central role.
It is worth emphasizing that the debate over big versus small government is largely irrelevant to someone concerned with achieving the goals of freedom. In some contexts, addressing a problem through direct government action will make us more free; in others, addressing the problem through the rules of government-constructed markets will offer more freedom. Health insurance may be an example of the former, in part because all Americans need it at one time or another, their preferences are largely the same, and the overwhelming majority of consumers are not well-equipped to choose efficiently between the insurers that would best suit their needs. Groceries may be an example of the latter, in part because Americans have strongly divergent preferences, not all Americans need to buy any of the same groceries, and consumers are well-equipped to make efficient choices in a marketplace.
As Coase showed in “The Nature of the Firm,” sometimes markets are the most efficient way of managing a problem, and other times they are not. If markets were always the best solution, then there would be no need for firms with their centrally coordinated management: all tasks would be carried out through competitive bidding. The existence of firms, including many enormous ones (consider GE), suggests that centrally coordinated management can sometimes be more efficient than market processes, even on a large scale. In addition, looking beyond efficiency, the world around us is already full of contexts in which we choose not to allow market processes, because they would offend our values: organ donation, adoption, child labor. These marginal cases demonstrate a central point. We should recognize that we have a choice regarding when to use markets, and that the choice can and should be made in accordance with our values.
We have always been responsible, through our government, for choosing when to use markets, and what kinds of markets to use. We have always chosen the rules for markets based on the values of our democracy. But we have inherited from the classical liberal tradition a tendency to deny to ourselves that we are making these choices. We have acted too often in bad faith, imagining that a false necessity compelled us to make the choices we did, as though we were powerless to choose otherwise, or as though some universal law of economics dictated our choices—as though some arbitrarily chosen versions of nineteenth-century classical liberal markets are the only true markets, the only free markets, the only markets worthy of the name. None of this has ever been the case.
Again, contrary to the ideologies of the New Deal and of the Reagan era, neither direct government action, nor indirect government action through markets, is necessarily aligned with our freedoms. Because there is no universal rule for determining which approach will promote freedom most in any specific context, the question that should frame our politics is not whether government is “big” (tending to rely on direct government action) or “small” (tending to rely on indirect government action through markets) but whether our government is democratic, in the sense of being responsive to the public’s values—including, perhaps above all in the American political tradition, freedom.