Where has government retreated? The growth of power and size of the government has coincided with growth in conservatism and religious revivalism. W has increased government spending, control, power, influence, etc., more than anyone since Wilson.
Good point. These charts will turn your stomach:
http://www.freerepublic.com/focus/f-news/1400545/posts?page=59#55
But it does seem like the Conservative movement is growing in this country, even if W is exapnding socialism at the moment. School choice, personal retirement accounts, demise of unions, flat/fair tax proposals, all of these ideas are considered seriously and hopefully will be enacted in the next 10 years. Media turnover has been especially helpeful.
I think the statement, "as government retreats, religion and morality exapnd", is generally true, but on a fundemental level. It is hard to measure such an abstract thing.