A Steroid Shot for Government?

The terrorist attacks will lead to an increase in federal spending, but don't expect a return to WW II or Vietnam-era budgets

By Howard Gleckman

Are we really about to return to an era of Big Government? The argument has been advanced in recent weeks, and it goes like this: In response to the terror attacks of Sept. 11, Washington will abandon the gradual shift toward a smaller, less powerful federal government. Soon, spending and aid from Washington will assume a role similar to what the nation saw in World War II and the Vietnam War.

That would be a huge and important trend. But the evidence suggests it's not happening and probably won't. Even as the U.S. shifts to a war footing, increases in spending for most programs will continue to be modest, barely enough to keep up with inflation. There are exceptions -- an airline bailout, some antirecessionary spending, and, of course, a military buildup. But even those increases in federal spending look as if they'll be relatively modest compared with increases in past wartime government policies.

Look at the high-profile military buildup. And remember we're not looking at the sort of massive increase in defense spending that typically accompanies old-style war. In times of battles past, huge amounts of material were damaged or destroyed. Planes were shot down, tanks were wrecked. They all had to be replaced.

Very little of that is going to happen in the war on terrorism. Sure, some equipment will be lost. But with special-operations forces and pinpoint strikes on military targets, it likely won't resemble what we've seen in the past.


  Here are some examples. In World War II, the government spent nearly 38% of the nation's total economic output on the military effort. In Korea, military spending nearly tripled, to 14% of gross domestic product in 1953, from 5% in 1950. In the cold war, President Reagan boosted defense spending to 6.2% of GDP in 1986, from 4.6% in 1979.

Now, Congress seems well on its way to adding $30 billion or so to defense spending for this year. But suppose it eventually boosts the Pentagon budget by $100 billion a year. That would increase defense spending by one-third, but only from 3% of GDP to 4% -- far below the post-World War II average.

Why then is the surplus disappearing? It's not because of new spending, which grew substantially less in FY 2001 than in 2000. Rather, it's because revenues are falling sharply, thanks to both the tax cut passed last May and the sagging economy. Total revenues this year will be $36 billion lower than they were in fiscal 2000. And lower taxes mean smaller government, not a return to the days of Big Government.


  And what of other shifts to government power? Well, Washington is going to get more involved in airport security. And Congress is likely to grant law enforcement some additional power, especially in dealing with immigration and, perhaps, in searching e-mail. But on a whole host of other issues -- the mass of health and safety regulations, rules governing business competition, and the like -- the Bush Administration's deregulatory efforts are likely to continue unchanged by the events of Sept. 11.

Polls suggest a burst in public confidence about government since Sept. 11. And it's true that Washington will spend a bit more money in the next few years than it planned. But a restoration of Roosevelt- or LBJ-style government? It just isn't likely.

Gleckman is a senior correspondent in BusinessWeek's Washington bureau. Follow his views every Tuesday in Washington Watch, only on BW Online

Edited by Douglas Harbrecht

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