It’s bad. Never mind that for two elections in a row Republicans have lost political independents by wide margins. Never mind that their reputation for competence is approaching Bernie Madoff-like levels, or that the nation’s demographic shift, particularly the growth in Latino voters, imperils their electoral future. Never mind that party leaders will return to Washington next year with less actual power than at any point since 1995. The real Republican concern is this: The deteriorating economy now threatens to undermine the political value of the GOP’s fundamental identity as the party of private markets and limited government.
The terrifying credit crisis is, as I write, morphing into a “liquidity trap,” a term from the bygone era of men’s hats and ladies’ girdles, or at least Japanese kimonos, when the monetary master’s of the universe risk losing control over the financial system, when regular people hoard their money, and when the economy looks to cycle ever downward. It’s not yet the Great Depression Redux, but it can be talked about in the same sentence. And in that lies the potential for great calamity for the party of Ronald Reagan and Barry Goldwater. Liquidity traps are fought with government interventions. They are fought successfully with big ones. Republicans now face the real possibility of a generation of American voters who will see government not as the problem, but as the solution.
The last time America faced such a major economic retrenchment, Franklin Delano Roosevelt responded with a massive expansion of government spending and regulation, new programs like Social Security and new protections for unions and workers, which were controversial at the time, but which proved to be popular over the long haul. It took leaders like Goldwater more than two decades to gain some significant popular traction in opposition to Roosevelt’s vision. Conservative economic ideas did not really impose themselves on the White House until 1981, more than 40 years after the bulk of the New Deal era had been established.
In the face of this peril, conservatives find themselves without leadership, direction, or even a cogent ideological response to the crisis. Conservative lodestars, like Dick Cheney, are warning of Herbert Hoover times if Republicans don’t open up the federal pocketbooks. Even President Bush has admitted that he “abandoned free market principles to save the free market system.” And he did not succeed, clearing the way for much more abandoning to come.
Following widely accepted Keynesian theories, Barack Obama has proposed an economic stimulus next year of perhaps $1 trillion over two years, money that will take time to filter into an ever-worsening economy. Whether or not it succeeds, all the voters who get jobs because of this new spending will know its source: For a time, Obamadollars will pay their mortgage or rent. Obamadollars will feed their children. As such, the Democratic president has the ability to build a vast new political coalition of support, much like the one that FDR built during the 1930s. Ask Republican political strategists to honestly tell you why they hate government spending and they all offer the same answer: It creates Democratic voters.
So where does that leave the Republican Party? Totally confused. Lines like “redistributing wealth” makes less sense when the wealth is running scared and your husband just got laid off. The “ownership society” becomes a joke when homes and stocks, the things we aspire to own, are consistently losing value. If government is the only bank willing to lend, it is not hard to understand that voters will support government lending. To make matters worse, Republicans in the House are not a unified bunch. Through the credit and auto bailout debates, Congressional Republicans behaved less like statesmen than stray cats on a sinking ship. According to his own strategists, John McCain only had a slim chance to win the White House this year, but once the House GOP voted down the first version of the bank bailout, his fate was sealed. Then after sinking their own electoral hopes, Republicans reversed course, clearing the way for a slightly-altered bailout a few days later. That’s not leadership you can believe in. As a strictly political matter, it was malpractice, or, more sympathetically, a lack of self-control and vision.
As it stands, Republican thinkers appear to be casting about wildly. With his own Rolodex under strain, House Majority Leader John Boehner has put out a public call for any economist who can give some rationale for opposing the Obama stimulus package. The response is so far less than impressive. At best, conservatives have retrenched to argue that the stimulus should focus more on tax cuts then spending. There is a highly technical debate going on between economists about why spending on public works should provide more stimulation than tax cuts for business and the wealthy. (In the classic textbooks, at least, the spending argument beats the tax cut argument.) It does not help the conservatives that their principal academic reference point to argue for tax cuts is a controversial interpretation of a paper written by Christina Romer, the expert on depression economics who is helping to draft Obama’s spend-heavy stimulus plan.
So what will Republicans do? In the short term, the answer is clear. They will retrench to a guerrilla war, a tactical battle much like the one adopted by McCain at the end of the general election. Next year will bring Republicans a great unifying gift in the form of the Employee Free Choice Act, a bill Democrats plan to push over the objections of many small- and middle-sized businesses that would allow the unionization of workplaces without a so-called “secret ballot.” Combined with the Blagojevich scandal, which does not appear to do the labor movement any favors, this could be a short-term political winner for Republicans, especially if it passes. They can cast Democrats as the party of big labor in much the same way that Democrats cast Republicans as the party of big oil. In the near term, Republicans also have the ability to recast themselves as reformers, as the loyal opposition to the waste, fraud and abuse that is endemic to government, and certain to pop up in any massive new spending program. But winning those battles will not win them the war.
What Republicans need is a new ideological message for a new economic era. One of the smartest Republican strategists I know suggested to me that the frame should not be about whether government is good or bad, but whether the solutions to our woes are classic Democrat–industrial age, centralized and top-down–or whether they are new Republican–Internet-age, market-based and bottom-up. Republicans, he recommends, should claim the mantle of innovative government, not just small government. The challenge here is that Obama will try to fill that space as well.
All that said, we also know that the Republican dilemma is not permanent. Karl Rove’s predictions of a generation of Republican rule seem ridiculous in retrospect. Democrats succumb to comfort or hubris at their own peril. But as the cups of eggnog clink and the yule log burns, Republican households across the country would do well to realize the grim future that now faces them in the short term. Christmas is a time for rest and self-reflection. Republicans have little time to rest, and much to reflect upon. Next year begins a new political era for America.