Don't Despair, George Will

In an interview with Laura Ingraham, George Will despairs of the choice between Gingrich and Romney as GOP frontrunners:

Ask yourself this: Suppose Gingrich or Romney become president and gets re-elected – suppose you had eight years of this...What would the conservative movement be? How would it understand itself after eight years? I think what would have gone away, perhaps forever, is the sense of limited government, the Tenth Amendment, Madisonian government of limited, delegated and enumerated powers — the sense conservatism is indeed tied to limitations on federal authority and the police power wielded by Congress — that would all be gone. It’s hard to know what would be left.

In a column, Will doubles down on this line of criticism. Will is no fan of Romney, but he is an even bigger opponent of Gingrich, whom he calls the least conservative candidate. Instead, Will suggests Rick Perry and Jon Huntsman (whom more and more pundits have been giving a second look) as "conservative" alternatives.

I'm not sure that Will's despair here is entirely justified, however. After all, look at some of the salient points of George W. Bush's domestic record:

• Tax-cuts that were not offset by spending decreases and thereby added to the deficit (It's amusing to read a Heritage report from 2001 that predicted that the Bush tax-cuts would lead to the near-elimination of the federal debt by 2011.)
• Exploding government spending
  
• Anemic economic growth (well below the averages of past decades)
• Enormous deficit spending
• No Child Left Behind, which sets the stage for the federalization of public education and was probably the greatest expansion of federal power over education that the nation has ever seen
• Sundry other expansions of federal power, including the ban on the traditional tungsten incandescent bulb, which currently has conservatives up in arms
• A housing bubble (which the administration's policies encouraged)
• A near-economic meltdown

This list is partial, and doesn't consider the cases of the almosts that the Bush administration fought hard for but failed to achieve (such as Justice Harriet Miers). Bush's whole "compassionate conservatism" was premised on expanding federal power in order to achieve certain "compassionate" ends.

Somehow, small-government conservatism survived President Bush, and I see no reason why it could not survive some of the GOP presidential contenders, some of whom have a far more conservative campaign theme than Bush ever did. For example, though Will derides Romney as a "manager" or something, Romney's proposed policies would seem to have no small potential for promoting the aims of small-government conservatism.

To return to Will's column attacking Gingrinch for a moment, there's another point I'd like to look at:

Romney’s main objection to contemporary Washington seems to be that he is not administering it. God has 10 commandments, Woodrow Wilson had 14 points, Heinz had 57 varieties, but Romney’s economic platform has 59 planks — 56 more than necessary if you have low taxes, free trade and fewer regulatory burdens.

I think this formulation is a little glib. Consider "fewer regulatory burdens." The fact is that we currently live amidst a complex of regulations. Every regulation depends upon every other regulation (as traditional conservatism would recognize). So it's not enough to get rid of regulatory burdens but to revise these burdens in the right way. Under Bush, certain regulations were gotten rid of, but the intersection of this "deregulation" and other regulations that were kept in place brought American to the brink of a financial collapse. Will may sneer at technocratic tendencies, but skill in finessing current regulatory regimes would be no small aid to small-government policies.

(Crossposted at FrumForm)

Diminished Expectations

Many political analysts are focusing on the consequences of the poor economy for Barack Obama's re-election chances. High unemployment rates and an economy limping along (with a few spurts from massive deficit spending) are hardly propitious circumstances.

Yet these troubles have much deeper roots. According to government calculations, we have been mired in an anomalously extended period of poor economic growth since 2001. Many writers have focused on stagnating middle-class incomes, but looking at GDP numbers tells a similarly disappointing story. Since 2000, GDP growth has lagged well below historical averages. Based on Bret Swanson's calculations, GDP growth from 2001 to 2010 averaged only 1.6%; GDP growth averaged 3.5% from 1947 to 2000. No decade since the 1930s has shown worse average economic growth.

The fact that the economy suffered a huge setback in 2008 and 2009 might skew the averages for the 2000s down, but not by that much. Even before the most recent recession, economic growth still lagged far behind historical precedent. The boom times of the 2000s would be seen as hum-drum in earlier decades.

Here's an overall view of the growth of the American economy since 1930, with numbers drawn from the federal Bureau of Economic Analysis:

Now, to close up on the past three decades:


During the Bush years, 2004 was the only year when GDP growth exceeded the average growth rate of 1947 to 2000, and that was only by a fraction of a percent (3.6% vs. the average 3.5%). With 3.1% growth, 2005 was the only other year where economic growth exceeded 3%.

By way of contrast, there were only 2 years during the Clinton presidency when growth was less than 3% (2.9% in 1993 and 2.5% in 1995). After 1982, Reagan's presidency never witnessed any economic growth rate less than 3%. One-termer George HW Bush had as many years when the economy grew over 3% as his two-term son.

Perhaps an even starker piece of economic spin: until 2000, almost every president since Franklin D. Roosevelt saw multiple years when the economy grew faster than 4% (Bush 41 being the only exception). We have not witnessed that kind of growth in almost twelve years.

Under an extended era of the lowest top marginal tax rates since 1932 (with the exception of the brief period between 1988 and 1992),* we have also seen the most protracted period of economic stagnation since the Great Depression. Whatever the other implications of this fact, it does suggest that tax cuts alone will not be enough to restore the health of the American economy. Tax cuts could be part of a plan for economic renewal, but not the plan itself.

Nor is cutting spending an easy panacea. Federal spending as a percentage of GDP was higher during the Reagan administration than it was during the quiet stagnation of 2001-2007. Again, spending cuts may be part of the solution for our economic travails (government spending as a percentage of GDP was lower in the 1950s and 1960s), but they are not the solution itself.

The implications of this diminished growth are significant for the national body politic. The modern American state, as understood by presidents from Roosevelt to Reagan, is based on the marriage of strong economic growth and generous social insurance. Social Security, Medicare, unemployment insurance, and so forth are the privileges of a wealthy society, and, properly calibrated, they can contribute to this wealth. The ability of the United States to project martial force across the globe and to take a prominent role in the community of nations is also predicated upon national wealth.

Our national finances especially show the strain of this slow growth. At least half of our current deficit is due in some way to the poor economy, and economic stagnation imperils many of our leading social insurance programs. Moreover, many deficit reduction plans on both the left and the right assume economic growth that well outpaces that of the past decade: if growth doesn't improve, we'll need an army of chainsaws to begin to approach fiscal sustainability.

If the next twenty years see the same kind of anemic economic growth as the past ten, any reforms to "save" Social Security and Medicare will have a huge portion of pain. Those programs will become shadows of themselves, as the American economy is crippled with stagnation. A strengthened economy, on the other hand, would likely make the reforms of these programs much less painful. For example, while the trustees of Social Security estimate that the retirement program will exhaust its trust fund some time around 2030 under (comparatively) slow growth expectations; if average GDP growth reaches close to 2.9% per year, Social Security trustees estimate that the program's trust fund will be in the black for the foreseeable future. Reforms might need to be made eventually (especially for Medicare), but increased growth would provide a cushion for them.

This current turmoil provides an opportunity. Societies can gain new vitality by recognizing the limitations of the current status quo and by adapting to changes in the broader political-economic environment. Some might suggest that the United States must or should accept diminished growth. But it seems to me that, after all the storms this nation has weathered, there is no reason to give up on the American project's hope for popular enrichment. After all, Americans in the late 1970s faced an economic paradigm that had outlived its usefulness and an increasingly fractured geopolitical order. But, as Jim Manzi has explored, Ronald Reagan, working with Democrats and fellow Republicans, was able to forge a new consensus that helped lead to a renewed nation. We can cope with our troubles, if we have the imagination to challenge old assumptions and the daring to take new paths.

The Democratic stimulus has failed to meet expectations, and even a return to the conditions and policies of 2001-2007 would be a surrendering of the tradition of American economic growth. There is both an opportunity and need for Republican and conservative leaders to rethink contemporary orthodoxies. Reaganomics, extended past its time, becomes a zombie: rather being a set of policies of vital engagement, it degenerates into dogma and rigid ideology. The world and nation are not the same as they were in 1981. Conservative economic policy needs to recognize that fact.



*Moreover, federal revenue as a percentage of GDP was higher during much of the Reagan, Bush I, and Clinton administrations than during the period since 2000. This lowered revenue may be partly correlated with post-2000 economic stagnation.

What Was the Bush Economy?

Conflicts on the right are still simmering over what course to chart for the economy for the years ahead. Though many Republicans ran on economic issues in 2010, many of those economic issues have taken a back-seat to fiscal ones in 2011. Our fiscal health definitely affects our economic health (a collapse in the US bond rating would, for example, be very economically traumatic), but our economy also affects the nation's fiscal sustainability.

Arguments over how much government stimulus spending could be effective for rebooting the economy have been in the forefront of left and right discussions of the economy. Yet I think another (often unspoken) issue for many Republican debates about economic policy is the meaning of the Bush economy. Was it a time of great prosperity---an economic model to look back on with esteem---or was it much more mixed?

For one faction, the Bush years were fundamentally an economic success. There was a near-meltdown at the end, but the economic growth throughout that period can be isolated from the 2008 collapse. While there were problems with a housing bubble and excess spending, the economic policies of 2001-2009 on the whole led to real growth and prosperity. This faction has considerable power on the right. One sees, for example, commentators on the right often point to the Bush tax cuts (of 2001 and 2003) as kicking off huge economic growth, and use that claimed growth in order to argue for more tax cuts, especially for the wealthy, in the future.

Another faction on the right has a more pessimistic view of the Bush economic record. While this faction acknowledges the benefits of some of the tax cuts and other aspects of the Bush record, it also suggests that much of the growth of the Bush years was fueled by debt and the financialization of this debt. The housing bubble, inflated by federally-encouraged easy access to credit, allowed for a glut of money to flood the economy and pay for jobs in realty, construction, landscaping, retail, and so forth. This borrowed money was in turn leveraged by would-be financial wizards in various hedge funds and banks. While the fit of borrowing did create the illusion of growth, it was the equivalent of a middle-class family remortgaging its house to go on European vacations and buy a Bentley and gain a world of short-term luxury: it came from borrowing against the future, perhaps an amount that could never be paid back. The realization of the scope of this debt hit in 2008, and the story of 2009, 2010, and 2011 has been the transfer of this indebtedness from the private market to the government. TARP and other bailouts cycled through the debt of private banks, and now Americans, rather than flipping houses, collect multi-year unemployment benefits. Before, private borrowing fed the economy; now, public borrowing does.

For those of the first faction, the economic path ahead is fairly clear: get a Democrat out of office, keep cutting taxes for upper-income earners, cut government spending (or not), and we're back to Bush prosperity circa 2004.

The path is less clear for those of the second. For them, the real economic growth of the past decade has been anemic at best, and they are less sure that tax cuts for the wealthiest 1% should be the foundation for Republican economics. Such tax cuts may have a role to play, but they are not enough, especially in light of the spiraling inequality and economic stagnation in the American economy. But apostasy from tax cut monomania leads to a host of questions. Following this path may lead to the challenging of numerous elite orthodoxies---on regulatory, trade, and financial policies, among other areas.

The factions outlined above are not exclusive, nor are they totally comprehensive, but I think the difference between these two points is an important one for Republican economic discussions. A vision for the way forward is often shaped by a view of the road before. At a time when Obama's stimulus has failed by its own standards and the conventional wisdom of Democratic and Republican elites has fallen so sorely short, many conservatives are pondering a free-market way to renewed prosperity. How much of this way forward will involve Bush economics remains to be seen and debated.