Obama must persuade Americans that not all government is bad

It's a formidable task to explain the human cost of rapidly reducing the size of the state during a recession.

Barack Obama
The race between Obama and Romney is a deeper contest between the ideas of Hayek and Keynes. Photograph: Getty Images

Chief Justice John Roberts, one of the US’s most prominent conservative thinkers, is in bad odour with Republicans. They have accused him of treachery, of closet socialism, of insanity, even of hallucinations brought on by not taking his epilepsy medication – a particularly savage smear as it broadcasts that he suffers from the condition.

Roberts’s crime was to be the casting vote in the Supreme Court’s decision declaring President Obama’s universal health-care law legal according to the constitution. Republicans believe that what they call “Obamacare” is a giant step on the way to a national health service on the British model, a reform they consider tantamount to socialism, if not communism.

In reality, Obama’s law drives everyone into the arms of expensive private health insurance companies, which operate as a cartel, on pain of a stiff fine for those who opt not to participate. It would be like the British government insisting everyone enrol with Bupa. It is hardly socialism of any sort – but no matter.

The criminal act that conservatives accuse Roberts of committing is far greater than in­viting Americans on to a slippery slope that will end in Soviet-style tyranny. In his written judgment, Roberts avers that if Obama had solely obliged everyone to buy health insurance, that would indeed have been unconstitutional, because while the federal government can regulate commerce between states, it cannot regulate those who choose not to take part in a commercial transaction, as the failure to buy a product is, by definition, not commerce.

Tax appeal

But Roberts went on to argue that because the new law imposes a fine on those who do not buy health insurance, it amounts to a tax and therefore, as the federal government is entitled to tax citizens, the health-care law is constitutional. And that is where libertarians posing as conservatives – counting for at least one in ten registered Republican voters, if Ron Paul’s voting tally is any guide – part company with the conservative chief justice appointed by the last conservative president, George W Bush. Taxation is used to fund government and, in the eyes of many Republicans, government is a dangerous institution that threatens individual liberties.

Americans have had a profound hatred of taxation and government since the American Revolution more than 200 years ago. While the cry of the original Tea Party rebels – who dressed as Native Americans daubed with war-paint and tipped tea, which bore a British tax, into Boston Harbour – was “No taxation without representation”, their objection was not so much to the democratic deficit but to being taxed at all. The colonists had such a profound dislike of tax that they would rather have their wives and children scalped by Indians than pay taxes to fund the British soldiers who would keep their families’ hairlines intact.

In modern times the hatred of taxation was turned to political advantage by Barry Gold­water, the Republican presidential candidate in 1964, whose backwoods Arizona mentality made him doubt whether a distant government in Washington, DC was worth the expense. The heir to his mantle was Ronald Reagan, a former Democrat whose epiphany on tax was prompted by the ruinous rate he had to pay on his vast Hollywood income. His cry that not only could government not cure problems, but that government was itself the problem helped propel him into the White House.

Dislike of government of any sort is widespread in the US. For instance, it motivated the killers who bombed the federal government building in Oklahoma City in 1995, murdering 168. A similar anarchic strain fuels the modern Tea Party, named after their rebellious predecessors, which emerged two years ago after Congress passed universal health care. For many Republicans the predominant issues in the November election – the frail state of the economy and the repeal of “Obamacare” – represent a broader, more fundamental choice between big government and individual liberties.

The Tea Party has become the driving force of the Republican Party and the old-school paternalistic tradition is in full retreat. It has already intimidated the moderate Republican leadership by obliging them to sign a pledge not to vote for any measure that will raise even a cent in tax, or they will face challenges for their seats by Tea Party candidates.

The battle over government spending and borrowing and the speed of repayment of public debt resulting from the financial crisis of 2008/2009 has provided the perfect pretext to propose drastically cutting the size of the state by starving it of funds through slashing taxes. The impending election is, therefore, not so much about the unemployed and the spluttering economic recovery or the virtues of health care as the role and size of government.

Friedrich the great

The intellectual inspiration for such thinking comes mainly from Friedrich Hayek’s The Road to Serfdom, a long-running bestseller in the
US. But while Tea Party members have taken the slim tome as their bible, few have read it thoroughly, still less the rest of Hayek’s often dense oeuvre.

Hayek thought private enterprise was more responsive than state officials in meeting the public’s demands, but he believed in a powerful government to enforce regulations to ensure the market operated freely and fairly. Nor did he believe taxes should be cut unless the government was running a surplus. He thought John Maynard Keynes’s idea of slashing taxes to lift an economy out of recession was evidence of his innate irresponsibility.

The race between Obama and Mitt Romney, then, disguises a deeper contest between the ideas of Hayek and Keynes. Obama’s formidable task is to explain the human cost of rapidly reducing the size of the state during a recession. It won’t be easy. But if he is looking for a perfect example of how things can go terribly wrong, driving a fragile recovery into a double-dip recession with unintended increases in state borrowing, he need only look across the Atlantic at the antics of Messrs Cameron and Osborne.

Nicholas Wapshott is the author of “Keynes Hayek: the Clash That Defined Modern Economics” (W W Norton, £18.99)