Bloomberg News

Republicans’ Job-Growth Supply-Side Time Warp: Ramesh Ponnuru

June 07, 2011

June 7 (Bloomberg) -- Republicans are trying to change the subject from deficits and entitlements to the economy and jobs. In recent weeks, House Majority Leader Eric Cantor and Senator Rob Portman have each introduced jobs plans. This new focus is in part a reaction to polls saying that the Republican Medicare plan is unpopular and that the weak economy remains voters’ top concern.

But it also reflects an old division among Republicans -- and reveals the inadequacy of the party’s recent approach to reviving the economy.

The party formed its current economic views in the late 1970s, when an upstart band of journalists, politicians and economists, soon labeled “supply-siders,” overthrew its previous conventional wisdom. Representative Jack Kemp and the Wall Street Journal editorial page argued that old-style Republicans emphasized austerity and balanced budgets too much. This so- called root canal economics made for a losing political strategy.

Worse, it left Republicans supporting tax increases to pay for Democratic spending programs rather than promoting their own ideas. That’s why Newt Gingrich, then a young House ally of the supply-siders, called old-school Republican Senator Bob Dole a “tax collector for the welfare state.”

Support for Growth

Instead, the supply-siders argued that growth should take priority, and that marginal tax rates should be cut so that people would have stronger incentives to work, save and invest. Ronald Reagan sided with the supply-siders, and they have dominated the party ever since.

But the growth of the deficit -- and of the Tea Party movement -- has brought spending cuts back in vogue. In recent months, Republicans’ main priorities have been cutting spending in this year’s budget, cutting spending in next year’s budget and cutting spending in exchange for an increase in the debt limit. Representative Paul Ryan, chairman of the House Budget Committee, is responsible for much of this focus. But he also cites Kemp as one of his political heroes, and has privately expressed concern that the party’s support for economic growth is getting lost.

That’s what worries Cantor and Portman, too.

“You can’t just cut your way to the growth you want,” Cantor told me. Portman says voter sentiment in his home state of Ohio is deeply negative about the economy. He says, “It’s not technically a double-dip recession but it sure feels like that to most people.” Both of them try to marry the party’s deficit- cutting and growth-increasing impulses. “We’re now so deep into a fiscal hole that it’s impossible to get out of it without growth,” Portman said in an interview.

‘Tried and True’

Cantor’s plan includes cutting the top income-tax rate on individuals and corporations to 25 percent, the enactment of pending free-trade agreements with Colombia, Panama and South Korea, increased domestic energy production and measures to restrain regulation. Portman’s plan includes all of these elements, too, though sometimes more vaguely. Both legislators concede that these ideas aren’t new. They’re long-standing Republican policy preferences. Portman parries the charge of staleness by referring to his ideas as “tried and true.”

Cantor and Portman are surely right that their party needs an economic policy as well as a budget policy, right that this policy ought to be geared toward growth and right on many of the specifics as well. Those free-trade agreements haven’t been languishing in Congress because there is serious doubt that they would modestly help the economy. The roadblock has been the reluctance of Democratic politicians to cross unions.

Changed Circumstances

But half-remembered bits of Reaganism aren’t a sufficient conservative agenda for today. Circumstances have changed. Asked how his bill would improve wages, Portman told me that “wage growth has always accompanied economic growth.” That used to be true, but it wasn’t true during the middle of the past decade. During what some called “the Bush boom,” even as the size of the economy increased, the rise in health-care costs kept middle- income workers from getting raises.

Neither Cantor nor Portman does much to address this problem. If we want a thriving middle class, which is what most Americans have in mind when they think of a strong economy, we’ll have to address it.

A related defect of these plans is political: They provide no direct benefit for middle-class voters. Yet the supply-side revolution was politically successful in the first place because it offered these voters the chance to keep money in their pockets. Reagan in 1980 promised to cut tax rates for everyone and stop inflation from pushing middle-class voters into higher tax brackets. He won re-election, and his vice president won the election to succeed him, in part by promising to keep these voters’ taxes low. In 1994 and 2000, Republicans again made big wins in part by promising to cut taxes for middle-class parents.

Out of Touch

In recent years, though, Republicans have tried to cut taxes for corporations and high earners without doing anything for the middle class. (Anything direct, that is: The middle class was told it would benefit from higher growth.) It’s not surprising, then, that the Republican advantage on taxes has declined -- or that in recent elections, most voters haven’t told pollsters that Republicans are “in touch” with people like them.

Republicans haven’t learned the lessons of their success under Reagan or their failure under Bush. The country’s fiscal straits may make it difficult for Republicans to devise conservative ways of responding to the economic challenges that middle-class Americans now face.

But it must be said that they don’t appear to be trying very hard.

(Ramesh Ponnuru is a Bloomberg View columnist. The opinions expressed are his own.)

--Editors: Timothy Lavin, Mary Duenwald

Click on “Send Comment” in sidebar display to send a letter to the editor.

To contact the author of this column: Ramesh Ponnuru at rponnuru@bloomberg.net.

To contact the editor responsible for this column: Timothy Lavin at tlavin1@bloomberg.net.


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