The Washington PostDemocracy Dies in Darkness

Government has always picked winners and losers

A welfare state doesn’t distort the market; it just makes government aid fairer

President Biden in Chester, Pa., on March 16. (Kevin Lamarque/Reuters)

With the American Rescue Plan, the Biden administration has not only witnessed the passage of the most sweeping federal relief effort in recent history, but also advanced an argument about the role of public policy as a force for good in our economy. Polling shows that the legislation is broadly popular, but critics on the right and among centrist Democrats are sounding familiar alarms about “activist” government, warning that overreach will stifle economic activity and distort natural market processes, thus hindering growth. Pundits and experts echo these warnings and insist government should limit itself to protecting unfettered — or free — markets.

But such arguments erase a fundamental reality: Throughout American history, public power has been a precondition of our markets, essential to their design and operations. Acts of governance and the exercise of public authority have always structured growth — and shaped the allocation of its rewards. More simply put, public power made our markets and regularly picks winners and losers. In fact, many of the goals being pursued by the Biden administration and promoted by the left aim to redress inequities created in no small part by past government action — government action that defenders of the status quo and critics of redistributive efforts would rather remain invisible.

Control of property has always been key to building wealth in the United States. Yet, the government’s choices dating to before the Constitution have determined who can claim land and share in its benefits. In 1787, Congress enacted the Northwest Ordinance, setting the terms of governance and settlement in newly conquered and purchased Western territories. It carved land into one-mile square lots, then tasked federal officials with granting or selling it. Affluent and, often, politically connected Americans quickly monopolized markets for property.

Subsequent policy interventions — land grants and management, forced removal of Indigenous populations, support for slavery — continued to privilege speculative property markets and this narrow class of investors at the expense of established communities and small landholders focused on self-sufficiency, family independence or communal provision.

Even government investments in infrastructure — which theoretically benefited all Americans — concentrated benefits on the economic elite. In 1862, President Abraham Lincoln signed the Pacific Railway Act, facilitating completion of the Transcontinental Railroad in just seven years and setting the stage for decades of commercial and industrial expansion. Yet it did so by gifting millions of acres of federal land, including much of the prime real estate along the new transport corridors, to favored corporate entities and speculators. In exchange, recipients committed to building and operating the rail network and catering, for the war’s duration, to the Union’s transport needs.

After the war, however, control of this valuable real estate — and repeated federal bailouts of railroad companies — ensured that most industries, from farming and ranching to mining and meatpacking, grew even more dependent upon large capital investments, further marginalizing those without property. Most working people found themselves debt-ridden and forced to negotiate for low wage work from the same corporations and large landowners that had profited from government aid.

Other postwar policies continued to pick winners and losers. Because Reconstruction-era governments denied most freedmen access to land — and because subsequent Jim Crow governments systematically restricted rights and freedom — African Americans remained disproportionately represented among the wage-earning poor. Meanwhile, revisions to state laws governing incorporation (New Jersey led the way) allowed firms such as Standard Oil to build massive industrial monopolies, shut out competition and create increasingly precarious conditions for wage earners. Corporate success and exploitative working conditions were not natural products of “market forces,” but the outcome of public policy choices.

Most officials proved indifferent to — or ignorant of — the uphill battle facing American workers. At an 1883 congressional hearing on poverty, a textile worker from Fall River, Mass., testified about his desperation. In response, a senator asked why the man didn’t “go out West” and perhaps “take up a homestead,” since the journey “would not cost you over $1,500.” Probably dumbfounded by the question, the mill worker replied: “Well, I never saw a $20 bill.”

The government’s role remained decisive in the 20th century. Together public spending, much of it on the military, coupled with tax and financial policy subsidized economic growth and often literally drew local and regional maps. The histories of the tech economy, suburban sprawl, redlining, industrial flight — first southward and westward and then overseas — and urban renewal are among the best-known examples. Government policies and investments enriched millions of Americans, yet also created a market for homeownership that, by design, channeled most of its benefits to Whites while often plundering majority-Black neighborhoods.

Popular movements demanding equity and inclusion have never accepted the government showering benefits on the economic elite and corporations. Anti-slavery protest helped precipitate the Civil War and abolish the “peculiar institution,” thus ending federal protection of the Southern planter class; meanwhile labor, civil rights, women’s rights and LGBTQ protests repeatedly challenged and changed a legal system that afforded its economic advantages to a privileged few. When governments have responded to this protest by defending voting and civil rights, policymaking and its economic outcomes have benefited a broader stratum of Americans.

Yet federal, state and municipal governments often resist these changes. It took generations for labor organizers to win federal support for their efforts to secure fair wages and safe working conditions. For much of U.S. history, public authorities regularly dispatched troops to attack striking workers. But in 1935, with passage of the Wagner Act, the federal government dramatically changed course and committed to protecting workers’ collective bargaining rights. Twelve years later, however, a newly conservative Congress weakened this federal commitment by passing the Taft Hartley Act, which limited unions’ protest options and allowed state governments to ban union shops.

Market purists decry legal protections for workers and a host of government safety net programs, arguing that they disrupt natural economic processes governed by the laws of supply and demand. But this argument rewrites the historical record.

Government action has always shaped production, consumer choices and the distribution of goods and services. Legal protections and public programs — from Social Security and Medicare, to minimum-wage law and civil rights protections, to environmental regulations and support for veterans and the unemployed — simply direct the benefits of government action more democratically and thus to more Americans, not just elites. These policies shape markets no more or less than the tax credits for businesses or the direct government spending that subsidizes select industries.

In reality, it remains nearly impossible to identify a facet of our daily lives that has not been shaped by an exercise of public power.

Yet our political culture regularly ignores this history, instead reinforcing powerful myths about free enterprise and an Eden-like laissez-faire American past when markets were unburdened by a regulatory presence. This amnesia explains why we regularly hear about hard-working farm families granted land under the Civil War-era Homestead Act but rarely discover most of them lost their property and were forced into tenancy or wage labor thanks to policies that hobbled debtors and favored powerful landowners and creditors.

Similarly, in the 20th and 21st centuries, popular memory tends to erase the public funding for dams, ports and energy projects that have subsidized agricultural and urban development, the federal programs that accelerated consolidation of farming and food production, the defense spending that transformed regional economies and the municipal zoning ordinances that fragmented control over local development and service provision. These policies have helped build modern agribusiness and the Internet, concentrate wealth and poverty geographically, and given corporations’ outsize influence over the governance of metropolitan regions.

This history undermines any attempts to draw sharp boundaries between public and private, while complicating cherished national narratives about hard work and economic well-being. Growth, innovation and distribution have never been separable from government action, which has left no corner of the American economy untouched.

It is a logical fallacy to insist that specific government interventions can disrupt the market’s normal or “natural” operations, because public power has always built our markets and set the conditions under which we live and work. Our current policy debates need to start with a recognition that our economy is — and has always been — a product of our politics.