In “Crisis, Bigger Government, and Ideological Change: Two Hypotheses on the Ratchet Phenomenon,” Robert Higgs discusses his theory of ratchet phenomenon. He studied the economic growth after the Great Depression and leading up to World War II. He posits that a great crisis will result in the rapid extreme growth of the government which remains to an extent after the crisis passes. His explanation is that this is a growth which is larger and remains larger than normal governmental growth under non-crisis circumstances. In his theory, big government is assumed to have effective authority over economic decision making. This is expected because in the moment of crisis, people want or demand immediate action rather than an extended political process, effectively permitting the government to act decisively. As Higgs stated, “I assume that the government possesses a substantial degree of autonomy in its policymaking.”[1] In this case it suggests that if the government takes the correct action during a crisis to appease the demands of the people, they can potentially continue until the people object. This is what Higgs has termed “welfare latitudinarianism or vulgar equity,”[2] because when and if the people feel they are equally benefitting from the larger government, they do not object to its expansion. This also explains why post-crisis the government does not reduce itself back to the pre-crisis level. There is no need to once the people have accepted the government’s larger role.
Tracking back to the Great Depression, Higgs applies this theory to the growth of the government under Franklin D. Roosevelt as well. In the case of Roosevelt, it was an attitude of noblesse oblige which also became “the new ethos the liberal establishment.”[3] At a time when the common man struggled for work, food, and basic necessities, this would seem like a noble cause. It also gave rise to bigger government with passage of several acts under Roosevelt designed to meet this idea of noblesse oblige. Some of those include the National Industrial Recovery Act, the Civil Works Administration, Emergency Relief Appropriation Act, to name a few from 1933.[4] Roosevelt effected many different social policies during his tenure as president, some of which continue today. In theory many of them were good ideas to put the jobless back to work and stimulate the economy.
These ideas according to Higgs can also be used historically to see how the powers of the government expanded, specifically from 1916-1945. The measures of growth can be seen in six key areas: “transportation, labor, agriculture, industry, credit, and international trade.”[5] Looking at the areas which Roosevelt focused on, this seems to be a plausible theory. This was applicable not just during the Great Depression, but in the buildup to the United States’ involvement in World War II. This is where Hugh Rockoff counters the theory presented by Higgs.
According to Rockoff in “World War II and the Growth of the U.S. Federal Government, Japan and the World Economy,” the idea that the government grows in response to a war or crisis through acquisitions and increased taxes “could apply to any war, or even to a peacetime emergency, but it might apply with special force to World War II because of the contrast with the Depression.”[6] In his analysis he separates military from civilian spending as well as the long-term costs of war. He states that the ratchet theory should be applied to any spending that does not involve the three aforementioned spending categories during wartime. It should look at the spending beyond those costs after its conclusion. His work goes on to do just that and brings several issues to light. He counters big government in the following statement, “The strategy of using new agencies was inherited from the Great Depression where it was also used to reassure conservatives that the expansion of the government was not intended to be permanent.”[7] Rockoff claims that these new agencies did not stay permanently post-crisis. He cites the creation of around 131 new agencies, 120 of which he states can be traced to their conclusion or absolution post World War II.[8] He suggests that rather than a ratchet phenomenon, it was Keynesian economics at play. Rockoff concludes then that while the ratchet idea is a reasonable theory that does not pan out in reality.
Bibliography
Higgs, Robert. “Crisis, Bigger Government, and Ideological Change: Two Hypotheses on the Ratchet Phenomenon,” Explorations in Economic History, Volume 22, Issue 1, 1985, Pages 1-28, https://doi.org/10.1016/0014-4983(85)90019-1. (http://www.sciencedirect.com/science/article/pii/0014498385900191)
Rockoff,Hugh. “World War II and the Growth of the U.S. Federal Government, Japan and the World Economy,” Volume 11, Issue 2, 1999, Pages 245-262, https://doi.org/10.1016/S0922-1425(98)00057-7.
[1] Robert Higgs, “Crisis, Bigger Government, and Ideological Change: Two Hypotheses on the Ratchet Phenomenon,” Explorations in Economic History, Volume 22, Issue 1, 1985, p. 7.
[2] Higgs, “Crisis,” p. 14.
[3] Ibid., p. 15., noblesse oblige was a social idea that the privileged are responsible for the underprivileged
[4] http://www.fdrlibrary.marist.edu/archives/resources/timeline.html
[5] Higgs, “Crisis,” p. 18-19.
[6] Hugh Rockoff. “World War II and the Growth of the U.S. Federal Government, Japan and the World Economy,” Volume 11, Issue 2, 1999, p. 246, https://doi.org/10.1016/S0922-1425(98)00057-7.
[7] Rockoff, “World War II,” p. 259.
[8] Ibid., 255, Table 4.
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