Last gasp for limited government?

Republicans fought an inspired battle against the stimulus bill, holding all but three of their 219 senators and congressmen. And they still lost.

Some of the almost $500 billion in stimulus spending will enter the permanent “baseline” of the federal budget, the starting point for all future budgets that, in the immutable law of Washington, always grow and never shrink.

From Ronald Reagan to Newt Gingrich, Republicans intent on limiting government during the past 25 years have succeeded in a limited way: From 1983 to 2000, the size of the federal government relative to GDP declined from 23.5 percent to 18.4 percent. Federal spending didn’t shrink, but it grew at a slower rate than the economy, providing more breathing room for the private sector.

It had bounced back to 20.9 percent last year, and could conceivably go as high as 28 percent this year. According to Newsweek (cover: “We Are All Socialists Now”), in 2010 total U.S. government spending will be 39.9 percent of GDP, only about 8 percent less than the average in the socialistic Eurozone countries. Is American exceptionalism about to be bundled off on a long trip to the Continent, never to return?

That’s the momentous question posed by Obama’s presidency. Those who favor socialism of the creeping variety are feasting on a collapse of Wall Street’s reputation as complete as that of the early 1930s, when one critic said of disgraced banker Charles E. Mitchell: “If you steal $25, you’re a thief. If you steal $250,000, you’re an embezzler. If you steal $2,500,000, you’re a financier.”

The lost moral authority of the financial sector — and the market generally — has accrued to government, now on the hook for $9.7 trillion worth of interventions in the economy. Whether this program is perceived to work, whether Obama further nationalizes heath care and how much of our wealth is claimed by looming entitlements will determine the country’s future, and its nature.

The backdrop to the debate over these questions is a roiling, up-for-grabs populism. The ascendant left-leaning populism feeds off anger at the new “malefactors of great wealth.” But a right-leaning populism is building. It takes the same anger but lumps government in with the malefactors, through its bailout of failed industries and its self-serving irresponsibility symbolized by silly pet projects in the stimulus bill and burgeoning deficits (which Republicans are newly outraged about).

Obama can’t get on the wrong side of this populist sentiment. It is why he did his rapid about-face on the nomination of Tom Daschle (a liberal swell enjoying a privileged Washington lifestyle, while neglecting his tax bills), and won’t yet ask for more spending as part of the latest financial bailout. Obama’s position gets more precarious if he ever imposes a broad-based tax increase to pay for an imminent deficit of nearly $2 trillion, larger than the entire federal government a mere eight years ago.

If Obama manages to cement an aggrandized government, his domestic political accomplishment will equal Ronald Reagan’s — although, obviously, in reverse. The late sociologist Seymour Lipset wrote a brilliant book on why the U.S. didn’t embrace socialism, called “It Didn’t Happen Here.” In a few years, its conclusion might look premature.