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Subject Area: Political Theory

Patterns in Federal Intervention - Leonard P. Liggio, Literature of Liberty, Spring 1982, vol. 5, No. 1 [1982]

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Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.

Part of: Literature of Liberty: A Review of Contemporary Liberal Thought, 20 vols. 19781-982

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


Patterns in Federal Intervention

Naomi R. Lamoreaux

  • Assistant Professor of History, Brown University

“From Antitrust to Supply-Side Economics: The Strange History of Federal Intervention in the Economy.” In Essays in Supply Side Economics. Edited by David G. Raboy. Institute for Research on the Economics of Taxation: Washington, D.C., 1982, pp. 151–173

Supply-side economics represents the most recent of a series of economic policy consensuses that have occured periodically in the 20th century: the antitrust movement of the Progressive Era, Franklin Roosevelt's early New Deal, Lyndon Johnson's Great Society. The author traces the emergence and breakdown of these moods of public agreement on economic policy in order to shed light on the immediate prospects for the Reagan political and economic options. The overall pattern discerned in the drama of these consensuses is the following: Each political-economic consensus, motivated by fear of economic concentrations of power on the one hand and desire for economic security on the other, has expressed an alliance of the aspirations of individuals and groups whose interest would normally conflict. Each consensus thus carried in itself the seeds of its own dissolution and depended for its survival on a vagueness about the specific directions that policy would take. Once translated into concrete programs, each consensus tended to dissolve and the specific sub-merged interests began to reassert themselves. Each of these shifts in consensus periods has put its mark on history; “it is these periods when government's role in the economy has been most dramatically restructed.”

In the early 20th century, the Progressive Era witnessed the growth of a public consensus in America for an expanded role for the federal government in the economy to restrain big business and the Great Merger Movement. Those favoring federal antitrust action were divided into two camps. One camp, the New Nationalism (named after Theodore Roosevelt's platform in 1912) saw large-scale corporate mergers as positive innovations but in need of benign federal regulation to guarantee fair play. A second camp was named the New Freedom (after Woodrow Wilson's platform of 1912) and viewed mergers and corporate bigness more suspiciously. In its view the federal government had a responsibility to break up ill-gotten concentrations of capital and to prevent similar trusts from forming. The Progressive Era's antitrust consensus was combined with legislation that was “a model of vagueness.” To accomodate business and labor interests, for example, the Clayton Antitrust Act and the Federal Trade Commission Act left interpretation of enforcement up to the political compositions of regulatory commissions.

Lamoreaux traces similar patterns (of evolving consensus that cloaked interest group divisions until specific legislation was proposed) in subsequent American political-economic history. The Hoover administration's Associationism urged government-sponsored trade associations to rationalize price competition. Roosevelt's early New Deal and its center piece, the National Industrial Recovery Act was a logical extension of Hoover's embryonic government-sanctioned trade cartels. Federal intervention in the economy was now the new consensus but soon conflict among interest groups over specific legislative provisions ended Roosevelt's earlier coalition. In the later New Deal Roosevelt abandoned hope of consensus, and, moving leftward, he sought support for the Democratic Party among economically disadvantaged interest groups and their allies. Roosevelt's earlier intervention through NRA-sponsored cartels, in any event, would only upset the economy. It sought to deal with a depression through regulatory schemes designed for antitrust purposes. Roosevelt's Keynesian approach to government spending to stimulate the economy took place in 1937–1938.

New variations on the basic regulatory consensus pattern are detailed for the post-war Keynesianism. The Eisenhower administration played a role in the formation of Keynesian fiscal policy similar to Hoover in the emergence of trade Associationism. Under Eisenhower a conservative Keynesianism formulated by the Committee for Economic Development saw to it that government exerted a counter-cyclical pressure on the economy by running deficits during recessions and surpluses during booms. With a sluggish economy setting in at the end of the 50s, the Democrats viewed the Eisenhower-CED goal of economic stabilization as insufficient; they wanted the government to assure the more comprehensive task of promoting economic growth. Kennedy (who resembles Roosevelt in being a logical, more daring outgrowth of his predecessor's cautious interventionism) sought a consensus among groups by an activist program to stimulate investment spending through tax cuts. The illusion grew after 1964 that economic direction by government (informed by Keynesian economics) could unerringly fine-tune the economy and promote growth. Johnson sustained this faith that economic growth could be stimulated by government action, but substituted government spending for tax cuts. Prices and inflation rose but not output. The heyday of Keynesianism wanted with the debunking of the concept of “money illusion” and stagflation. The Vietnam War with its attendant government spending and inflation hastened the exposure of Keynesianism's miscalculations.

President Carter's anti-government platform prepared the way for Reagan's supply-side economic approach. The death of Keynesianism created a consensus that the root of the economic problem was government itself through its expansionary fiscal policy and its regulatory interventions. After the 1980 election “Reagan was in a position similar to Roosevelt in the 1930s and Kennedy in the 1960s. All three presidents were the beneficiaries of a gradual shift in public opinion about the role of government in the economy.” All three also had their way prepared by a predecessor of the opposite party. But we may also witness the dissolution of Reagan's anti-government consensus when conflicting interest groups disagree with the concrete policies of supply-side economics.