The Return of the State: Why Big Government is Back in the US and Europe
đź“šWhat You Will Learn
- Roots of the big government comeback post-2008 and COVID.
- Key policies driving state resurgence in US and EU.
- Pros and cons of expanded government in a multipolar world.
- Future outlook amid elections and global uncertainties.
đź“ťSummary
ℹ️Quick Facts
- US federal spending hit 25% of GDP in 2024, up from 20% pre-2020.
- EU's NextGenerationEU fund totals €800 billion for green and digital recovery.
- China's rise prompted US CHIPS Act: $52B in subsidies for semiconductors.
đź’ˇKey Takeaways
- Crises like pandemics and wars accelerate state expansion, reversing austerity trends.
- Industrial policy is mainstream: subsidies for tech, energy, and manufacturing.
- Public support grows for government roles in inequality, climate, and supply chains.
- Tensions rise between state power and democratic accountability.
- This shift challenges globalization, favoring 'friend-shoring' and protectionism.
Neoliberalism dominated since the 1980s, with Reagan and Thatcher slashing regulations and taxes. But the 2008 crisis exposed market failures, leading to bailouts and quantitative easing—state interventions disguised as temporary.
COVID-19 supercharged this: US spent $5T+ on relief; Europe rolled out furlough schemes protecting 40M jobs. By 2026, these habits stuck, with governments rejecting 'small state' dogma.
Inflation Reduction Act (2022) and EU Green Deal mark the pivot: trillions in climate subsidies signal permanent expansion.
Supply chain shocks from pandemics and Ukraine war revealed over-reliance on global trade. Governments now subsidize domestic production: US Inflation Reduction Act pours $370B into clean energy.
Inequality backlash: Post-COVID, 40% of Americans favor bigger government per polls. Europe's rising energy costs prompt state-owned utilities' revival.
Tech rivalry with China drives CHIPS and Science Act ($280B total), mirroring EU's €43B chip push. State picks winners in strategic sectors.
Industrial policy renaissance: US offers tax credits for EVs, batteries; Europe bans combustion engines by 2035 with massive grants.
Regulation ramps up: Antitrust suits against Big Tech, plus AI and data rules. Defense spending surges—NATO allies hit 2% GDP targets amid Russia threats.
Social spending evolves: Universal basic services over cash transfers, targeting housing, childcare amid aging populations.
Critics warn of inefficiency: Cronyism risks in subsidy allocation, as seen in past Solyndra failures. Debt piles up—EU fiscal rules strain under green investments.
Democratic erosion fears: Emergency powers linger post-crises. Yet voters reward interventionists, from Biden's infrastructure wins to Macron's nuclear bets.
Global trade frays: Tariffs and buy-local rules spark retaliation, slowing growth.
2026 elections test durability: US midterms, EU parliamentary votes could entrench or reverse trends. Climate deadlines demand more spending.
Hybrid model emerges: Market economies with strong state steering, akin to 'ordoliberalism 2.0'.
Long-term: Success hinges on innovation delivery, not just spending. Failure risks populist backlash against 'bloated bureaucracy'.
⚠️Things to Note
- Expansion risks debt burdens: US debt-to-GDP nears 130% in 2026.
- Not all 'big': Focus on targeted interventions, not universal welfare states.
- Geopolitical rivals like China fuel Western state capitalism.
- Populist politics on left and right demand more government action.