Resistance grows to Obama's bigger government

WASHINGTON Sun Mar 22, 2009 9:01am EDT

U.S. President Barack Obama is pictured at a meeting of business leaders at a hotel in Washington, March 12, 2009. REUTERS/Jason Reed

U.S. President Barack Obama is pictured at a meeting of business leaders at a hotel in Washington, March 12, 2009.

Credit: Reuters/Jason Reed

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WASHINGTON (Reuters) - A public furor over big bonuses paid by firms bailed out with U.S. taxpayer money is fueling resistance to President Barack Obama's ambitious plans to extend government intervention in the U.S. private sector.

Republican opponents say his commitment of huge sums to try to revive the ailing economy is driven by a philosophical belief in greater government intrusion in many areas, from healthcare to education, dubbing it socialism.

Obama is pursuing these policies just 13 years after President Bill Clinton, a fellow Democrat, disarmed Republican opponents by declaring: "The era of big government is over."

As the enormous cost of the Obama's effort to stimulate the economy grows, many are weighing just how far government should be extending its powers.

"We're in the midst of a huge political battle, which is being obscured behind a financial crisis," said Bruce Kogut, professor of ethics and corporate governance at Columbia University. "If the financial crisis wasn't here we'd be having this battle anyway."

"The question I think we need to figure out as a country is what is the proper role of government?" said David Moss, professor of economic history at Harvard Business School.

Regulation of the financial system to contain risk has not been adequate or effective, he said. "So on the financial front we want to try to find a Goldilocks scenario of not too much and not too little."

Obama administration officials have had to fend off accusations they were too easy on the financial industry, after the insurance giant AIG paid out millions of dollars in bonuses after accepting billions of dollars in taxpayer funds.

CHARGES OF SOCIALISM

Airing charges of socialism, opponents have sought to turn public opinion against Obama's big spending policies, including a record $3.55 trillion budget proposed for next year and a $787 billion economic stimulus package.

In the United States calling someone a socialist is often an insult, striking at the heart of American individualism and raising the fear of government fingers in everyone's business.

The word's powerful negative connotation prompted Obama to call The New York Times back after an interview to belatedly respond to a question on whether he was a socialist.

"It was hard for me to believe that you were entirely serious about that socialist question," Obama said, defending his policies as consistent with free-market principles.

"The fact that we've had to take these extraordinary measures and intervene is not an indication of my ideological preference, but an indication of the degree to which lax regulation and extravagant risk-taking has precipitated a crisis," he said.

Kogut said the socialist tag was misleading. "I think it's a weapon, I don't think it's honest," he said.

But analysts say the United States could learn from experiences in countries like France, Germany, and Sweden where governments have larger roles in business and social policy.

Along the political spectrum there are experts who believe that nationalization of failing U.S. banks -- a prospect that has alarmed some conservatives -- should be seriously considered. But Obama has so far avoided that step.

NO "RADICAL" MOVES

"President Obama, is he failing to move in this direction fully because he feels himself to be vulnerable on this socialist terminology which is being used?" Kogut said.

Sweden in the 1990s nationalized two banks, put their bad assets aside, and sold them back to the private sector at a small profit, he said. Both France and Germany provide more government aid for healthcare and the jobless than the United States.

Slinging the socialist term at Obama is more a symptom of the political fight in Washington over how to cope with the financial crisis and where to direct funds.

"It's not part of the American tradition, and yes socialism by and large remains a dirty word here, even the left shies clear of it," said Benn Steil, director of international economics at the Council on Foreign Relations.

Obama came to power on a wave of popular support with a strong record as a social liberal in the U.S. Senate. One of his goals is to redistribute some of the country's wealth, which appeals to those who say they want action to counter a growing gap between the rich and poor.

Moss said Obama had so far not made any "radical moves" given the extent of the crisis.

"I think he's trying to reframe the role of government," Moss said. "There's actually quite a general consensus that we veered too far in one direction, that is reluctance to use government authority when needed."

(Editing by David Storey)

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