The Long March of the American Right

Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

With a last-minute agreement on lifting the debt ceiling, the immediate threat of legal and financial disaster from a default on United States government obligations has been averted. But the last week has provided additional insight into how and why the current governmental arrangement known as the United States of America will end.

The mainstream narrative is that the problem is “dysfunctional government” or “paralysis in Washington.” That’s true, up to a point, but the real problem is the steady decline in legitimacy of the federal government - and the way this is related to what has happened on the right of the political spectrum.

For an earlier view of American government, I recommend the World War II trilogy by Rick Atkinson - the third volume of which came out this year (“The Guns at Last Light”). There was plenty of mismanagement, including by the military at all levels, during that conflict. But there were also remarkable achievements. In the 1940s, many people believed, with good reason, in the ability of the federal government to both organize activities at home and to have a positive impact around the world.

This was, perhaps, the most lasting effect of the Great Depression. In the 1930s, the private economy stumbled and private financial arrangements failed in many ways - but, on the whole, government was perceived as stepping in to help.

This positive view of an expanded federal government never sat well with people on the right, but the organized pushback was limited through the 1950s. It was only with the turmoil of the Vietnam War and other social pressures in the 1960s that the conservatives got their chance - starting with political direct mailing (American Target Advertising was founded in 1965), the rise of talk radio (particularly from the 1980s), and early anti-tax campaigns (including Proposition 13, which cut property taxes sharply in California in 1978).

Future historians will no doubt emphasize some of the great ironies. Ronald Reagan campaigned against expanded government and for fiscal responsibility, but he was in charge while spending rose (think of the military) and deficits ballooned. He also did a deal with the Democrats on tax reform (its features included more revenue) in 1986.

The politician whose career better matches the long march of the American right is Newt Gingrich. Mr. Gingrich, elected to Congress in 1978, astutely saw the possibility of building a coalition that would turn the South into a Republican stronghold. Mr. Gingrich voted against the fiscal compromises between George H.W. Bush and the Democrats and, as speaker of the House, crafted the confrontations that led to the government shutdowns in late 1995 and early 1996.

Some people thought that unsuccessful political strategy was the end of the matter, but in fact it only indicated what was to come - increasing willingness to further undermine the government and to question the validity of its debts. Every time the United States comes to a line, the most extreme voices in the Republican Party want to go even further - this time calling for an actual default on government obligations in some form as a potentially good thing.

This backlash against government has been a long time coming, but - perhaps in the final irony - America’s fiscal affairs were in relatively good shape until quite recently. George W. Bush launched unpopular and expensive wars, expanded Medicare without paying for it and presided over the greatest financial crisis since the 1930s.

The Tea Party movement arose in early 2009 in direct response to the financial crisis and the lack of legitimacy around what were seen - correctly - as bailouts to a few people that were not available to most. Of course, some Tea Party groups also received financial support from various conservatives who had been working on these issues for a long time, but this just reinforces the point that these developments have been backed by people with deep pockets and a great deal of patience.

The economic recovery, although weak, has improved the nation’s fiscal picture - as have the large spending cuts and more modest revenue increases in the last few years (I recommend a blog post by Wendy Edelberg of the Congressional Budget Office for the details). According to the latest C.B.O. numbers, debt relative to gross domestic product remains below 120 percent through the 2030s. I regard this as manageable, with the major wild cards being the extent of additional foreign war follies or big financial system blowups.

How much should you cut your budget today because you don’t like what you see in a 20- or 30-year projection that (by law and convention) leaves out all the major downside risks but also any upside risks - like higher economic growth or improvements in technology that allow better control of medical costs (e.g., through improvements in the management of records and treatment)?

I recommend that the revenue base be strengthened as the economy recovers further over the coming decade, while keeping a lid on spending increases. There is no case for precipitous fiscal adjustment, let alone a political confrontation that generates great uncertainty and therefore deters both investment and the purchase of consumer durables (including housing).

But it’s too late for good short-term fiscal news or to insist that the problem the country faces over coming decades is the rising cost of health care (not the government-paid part of health care, but all health care costs). Too many people are convinced strongly that they know better than what is in the numbers.

The only thing that will prevent cataclysm this October is the opinion polls. As the government shutdown continues and the debt ceiling confrontation looms, the polls have moved against the Republicans. This serves to strengthen relatively more moderate views within that party.

But what will happen on the future day should the polls move in the other direction, i.e., should public opinion reward those who want a more dramatic confrontation? Counting on public opinion to react in a sensible fashion to every confusing situation in Washington is not a good idea.

The political pendulum swings back and forth. The Republicans are likely to do worse in 2014 as a result of their current tactics - just as Mr. Gingrich lost out in the midterm elections of 1998.

But the decline in legitimacy of the United States government is real and lasting; it cannot regain the prestige it had in the 1940s and 1950s. Reinforcing and accelerating this trend is perhaps the greatest damage caused by the financial crisis of 2007-8 and the “rescue” measures that ensued.

I am struck by the captains of industry who insist to me, in private, that large financial companies deserved their “liquidity” loans from the government in 2008-9 - and that the exact same policy should be pursued in the future because “asset prices always rebound.” I never hear them suggest that the same kind of support should have been extended to smaller businesses or homeowners. This reflects, at best, a political tin ear.

Sooner or later, the American public may elect a group of politicians determined to end the belief that the federal government can be trusted. Their initial steps in that direction will strengthen their showing in opinion polls - and they will be encouraged to go further. At that time, the United States will default on its debts and the world’s financial and fiscal systems will be plunged into chaos.