Myth 4: Smaller government is always better.

Clearly this is not the case when it comes to investing in infrastructure, education, and research. But the financial crisis of 2008 made clear that government had a meaningful role to play in regulation, too. Not only did the federal government fail to oversee trading in the derivatives markets that led to the collapse in subprime mortgages, it didn't even record data on what was happening in those markets. Nor did it monitor the activities non-bank financial institutions, such as insurance companies and hedge funds, that were just as important as banks in these markets. Big government clearly was not the problem here.

In the midst of the financial crisis, reminders of the perils of too-small government were coming in from around the world. China, with its primitive regulatory apparatus, was being blindsided on an almost monthly basis by scandals surrounding its exported foods, drugs, and consumer products: poisonous toothpaste, melamine-tainted milk, defective blood-thinners, and toys covered with lead paint. These were the same kinds of scandals that convulsed the United States a century earlier and led to the modern regulatory system we have now. Did the Republicans want to go back to the early 1900s?

The American people certainly didn't. A poll by NBC and the Wall Street Journal found that in some areas, citizens wanted more regulation, not less. In fact, the "more regulation" votes outnumbered the "less regulation" votes by four-to-one for the financial industry and the oil industry, and by two-to-one for big corporations and the health care industry. The American people were speaking with a clear voice, but John Boehner, who was poised to become Speaker of the House after the Republican victories in November 2010, didn't seem to hear it. "The new majority here in Congress will be the voice of the American people," he said after the election. "We're going to continue and renew our efforts for a smaller, less costly and more accountable government here in Washington, D.C."

It was an especially odd thing to say for someone who should have known that the federal government had changed very little in the previous five decades. At the start of the Great Recession, Washington's non-defense spending represented about the same share of the overall economy as in 1959, the first year for which figures are available:

Figure 1: Federal non-defense and state and local government spending, share of economy

What had changed was the spending of state and local governments, whose share of the economy had grown by more than a third since the 1960s. And of course, Social Security and Medicare represented huge liabilities in the nation's future. Yet the other parts of the federal budget -- some crucial to long-term growth, like the Department of Transportation, and others to the orderly functioning of the economy, like the Justice Department -- were peculiar targets for Republicans' rhetoric.

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