Are We Headed for a New Normal?

In the midst of the worst federal deficit crisis in U. S. history, the current administration seems poised to hike costs for doing business with the federal government. According to the Wall Street Journal (“Procuring the Union Agenda,” March 9), “the Obama Administration is planning to force companies to raise pay and benefits for workers if they want continued access to federal contracts.”

Instead of having companies bid for federal contracts on the basis of low bids and quality products, the government would require all bidders to offer vaguely stated high benefits to their workers–a kind of Cadillac plan–before being eligible to win any bids. The first time the government tried this kind of tactic was in the 1930s–first with the Davis-Bacon bill, which drove up costs for taxpayers, and second with the National Recovery Act (NRA), which again drove up the costs of doing business with the federal government.

In the case of the NRA, the government refused a low bid on trucks to the government by Ford Motor Company because Henry Ford, an independent-minded man, had not signed the high-cost NRA code of business. At a press conference, FDR defended his decision to have the government pay $169,000 more for trucks, rather than do business with the more competitive Henry Ford.

Given that federal spending last year was 25 percent of GDP (as opposed to an average of about 20 percent in past years), that possible new law will keep federal spending high–perhaps creating a “new normal” of 25 percent federal spending. Of course, new taxes will have to be added to pay for the costs of the Cadillac union benefit plans, but President Obama seeks the votes of union members — and higher taxes may be the price he wants others to pay for his votes.

Under FDR, federal spending sharply increased and created a “new normal,” which necessitated higher income taxes (up to 79 percent on top incomes) and higher excise taxes on gas, cars, telephone calls, and even movie tickets. Are we headed for a “new normal” paid for by higher taxes?

Tagged as: Barack Obama, Davis-Bacon Bill, FDR, Federal Contracts, Federal Deficit, Ford Motor Company, National Debt, National Recovery Act, New Deal, Wall Street Journal