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Grand Old Party Poopers

Tuesday, January 15, 2013

The GOP’s contemporary message condenses down to the antithesis of Reagan’s: ‘It’s evening in America; the end is near.’

The GOP is overcommitted to the negative subject of deficit reduction through spending cuts. Republicans would be well advised to change the subject, because focusing on deficit reduction is bad strategy. Besides, there’s a better way to solve our problems, as Ronald Reagan has already demonstrated.

Both parties, at various times, have tried making deficit reduction their centerpiece issue. When Republicans have done it, it’s been about cutting spending — sometimes, but not always, with the qualifier “except defense.” When Democrats have tried it, it has usually been about raising taxes and cutting defense. But in either case, the deficit-reduction message has turned out to be a loser, no matter which side took up the mantle.

Walter Mondale’s presidential campaign learned that lesson in 1984, when he clearly articulated his commitment to deficit reduction in his acceptance speech: "Mr. Reagan will raise taxes, and so will I. He won't tell you. I just did." That message helped Mondale rack up a grand total of 13 electoral votes on Election Day. By contrast, Reagan and his positive message — “It’s morning again in America” — won the other 525.

The Democrats learned a few valuable lessons from that experience. When possible, stay away from the topic of deficit reduction — and when that’s not possible, avoid questions about entitlement costs or trends. Contain any spending discussion to defense cuts, and limit any talk about tax hikes to out-of-favor groups such as “the rich” and certain types of corporations — i.e., the ones that the party base and the middle class tend to identify as “them” instead of “us.” To this day, the Democrats skillfully apply the lessons they learned so well.

The Republicans, who should have learned a valuable lesson from the Reagan-Mondale experience, have apparently forgotten all about it.

On the other hand, the Republicans, who should have learned a valuable lesson from the Reagan-Mondale experience, have apparently forgotten all about it. Reagan demonstrated the way to win hearts, minds, and elections: by emphasizing the positives of jobs, growth, hope, and a secure future, then delivering results. The fundamentals of his basis for success were enabling and trusting the private sector to innovate and prosper, while fulfilling the government’s role of securing peace through strength. Politically unpopular deficits might be a near-term consequence of delivering on those commitments, but Reagan also showed that deficits can be prudent and sustainable for the long run in an environment of growing prosperity and security. Far too few of us have learned that lesson from the Reagan years, but it’s a vital takeaway nonetheless.

Today’s Republicans have lost the thread Reagan laid down for them. The GOP has become a bad-news party: its politicians and pundits imply that too many people will soon start collecting the Social Security benefits they earned, Medicare is going bankrupt, “investment” is just a code word for more unaffordable spending, the government is already “out of money,” unabashed money-printing by the Federal Reserve means that hyperinflation is just around the corner, and each “man, woman, and child” will someday, somehow have to pay off his or her share of the federal debt (now $50,000 each and climbing). In short, the GOP’s contemporary message condenses down to the antithesis of Reagan’s: “It’s evening in America; the end is near.”

Do the Republicans still have time to switch back to a positive message — or have they already outdone Mondale’s gaffe? The Republicans have a positive, winning argument available to them, but it’s lying dormant. To put it to work, they’ll have to back off the doomsday rhetoric and start believing in the positive case for growth, broad-based prosperity, and peace through strength. A return to growing prosperity is what happened during Reagan’s tenure, and it’s precisely what we need today. As Figure 1 and Figure 2 clearly illustrate, today’s large deficit is overwhelmingly due to the falloff in tax receipts caused by the growth shutdown in 2008 and the subsequent anemic recovery. 

Figure 1


Source: Federal Reserve Economic Data, Federal Reserve Bank of St. Louis

The output gap — the underperforming economy — is our biggest problem. As the Reagan recovery demonstrated, closing that gap by returning to robust growth solves a host of problems — including, eventually, a deficit problem. In other words, we don’t need a frontal assault on the deficit; instead, we need a determined, already-proven approach to growing prosperity and security.

Robust growth comes from investment, both public and private, in research, new technologies, methods, products, and services. It requires faith in the future, i.e., trusting an enabled private sector to innovate in favorable directions, mostly through a trial-and-error process.

Growth almost always requires a measure of debt financing, which, when successful, turns out to have been self-funding. Growth yields more workers who have higher skills, who provide the world with new products and services, and who earn larger paychecks and more take-home pay — all of which yields a surge of tax revenues for the government, which in turn — as Warren Buffett described — enhances the government’s “debt capacity.” Growth fuels a virtuous, long-run cycle of accelerating prosperity and debt sustainability.

Possible Elements of a New GOP Message

Switching to a positive message would require today’s GOP to embrace several “new” ideas. The big one is the one Reagan demonstrated (but didn’t trumpet): deficits incurred for making good investments (such as peace through strength and enabling private-sector growth) are not only harmless, they frequently end up funding themselves by accelerating tax receipts or preventing costly wars.

Another new idea: it’s time for the GOP to abandon the false rhetoric that “investment” is always just a code word for wasteful spending — when in fact “investing” in exploration, basic research, and national security is a legitimate duty of the government.

Figure 2


Source: Federal Reserve Economic Data, Federal Reserve Bank of St. Louis

Another new idea is that any wasteful spending we succeed in eradicating — in, say, the Defense Department — might be better utilized for deficit-neutral reallocation to worthwhile projects that enhance future security (such as cyber defense, or an “iron dome” defense against rogue missiles), instead of being applied toward the deficit.

A few more ideas: Might it be more growth-friendly to start viewing prospective immigrants as future job creators and taxpayers, instead of job-takers and welfare dependents? (After all, we do need more workers paying into the Social Security system, for one example.) Should we reform our obsolete immigration quota system in order to welcome foreign graduates of American universities in the “STEM” fields (science, technology, engineering, and math)? Would subsidizing the cost of obtaining accredited “STEM” degrees be a lucrative investment — similar in concept to the GI Bill?

Lastly: How about clarifying what conservatives mean by “smaller government”? Don’t they really mean that government has a “small list of duties” and should spend what it takes to do each one correctly, even if carrying out those duties requires deficit spending? George Washington said as much in his farewell address:

As a very important source of strength and security, cherish public credit.... Timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it, avoiding likewise the accumulation of debt.

In other words, borrowing money to prevent wars saves money in the long run; Washington said it, Reagan did it. And Washington’s principle still applies to this day. Consider the savings in lives and money, for example, if the September 11 attacks had been prevented, along with the two subsequent wars; might that have been a possibility, had we invested the early-1990s “peace dividend” in effective defenses against asymmetric threats — instead of “investing” it in a politically popular budget surplus? Another example: If a rogue nation were willing to attempt a single, surprise nuclear burst in the ionosphere over our heartland, killing our nation’s electric grid for good, isn’t it our government’s duty to prevent that from happening if possible — even if funding that investment requires borrowing the money? There’s little doubt that Washington would have said yes to both — or that Reagan would have seconded him.

It’s time for the GOP to abandon the false rhetoric that ‘investment’ is always just a code word for wasteful spending.

In any case, returning to robust, broadly shared growth is imperative, because a solid, vibrant, innovating economy turns deficits and debt into secondary issues at most. However, the GOP and the Democrats have starkly different formulas for getting to that goal.

Democrats advocate a Keynesian path back to growth: trusting government spending to stimulate demand for familiar products and services, trusting government bureaus to direct investment efficiently, effectively, and objectively, and trusting government to back away from its “temporary” stimuli, interventions, and employer-of-last-resort commitments if and when the economy gets moving again.

By contrast, Republicans — at least those who remember and understand the growth-friendly policies of Presidents Reagan, Kennedy, and Eisenhower — advocate a government that provides peace through strength, while investing in exploration, basic research, infrastructure, and a vibrant private sector innovating new, paradigm-changing products and services. Deficits and growing debt are harmless when they help generate the growth and strength we need. Author Rick Boettger simplified the concept for us: “Wealth is not ‘the money’; it’s what the money buys.”

Unfortunately, the GOP’s squeakiest wheels today seem obsessed with “the money” alone — as opposed to what we could get for the money. Its message is negative: “We’re out of money, and the end is near.” The GOP’s message could and should change to a positive one that kicks off a much-needed growth debate: “It could be morning again in America — and there’s a better way to get there than the path we’re on.”

Does a positive, Reaganesque message like that still have a chance with today’s Republicans?

Steve Conover retired recently from a 35-year career in corporate America. He has a BS in engineering, an MBA in finance, and a PhD in political economy.

FURTHER READING: Conover also writes “How to Reduce the Debt Burden for Future Generations,” “The Tea Party and the Debt Ceiling vs. Economic Growth,” and “How to Fix the Debt Ceiling (A Bigger Threat Than the Fiscal Cliff).” Alex Brill advocates “Returning to an Economic Growth Agenda.” James Pethokoukis shows that the “Obama Recovery Is Only Growing a Third as Fast as Reagan’s.” Kevin A. Hassett suggests “6 Ways to Fix the U.S. Economy.”

Image by Dianna Ingram / Bergman Group

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