A Return to Reaganism Won’t Be Enough

Tucker, Ross, Douglas, Kathleen, and Christine,

What should the GOP, and the conservative movement more generally, be concentrating on for the next few years? Developing, demonstrating, and communicating solutions to the current problems of the middle class.

Most conservatives who propose a return to “Reagan conservatism” don’t understand either the motivations or structure of the Reagan economic revolution. The 1970s were a period of economic crisis for America as it emerged from global supremacy to a new world of real economic competition. The Reagan economic strategy for meeting this challenge was sound money plus deregulation, broadly defined. It succeeded, but it exacerbated a number of pre-existing trends that began or accelerated in the ‘70s that tended to increase inequality.

International competition is now vastly more severe than it was 30 years ago. The economic rise of the Asian heartland is the fundamental geostrategic fact of the current era. In aggregate, America is rich and economically successful but increasingly unequal, with a stagnating middle class. If we give up the market-based reforms that allow us to prosper, we will lose by eventually allowing international competitors to defeat us. But if we let inequality grow unchecked, we will lose by eventually hollowing out the middle class and threatening social cohesion. This rock-and-a-hard-place problem, not some happy talk about the end of history, is what “globalization” means for the United States.

Seen in this light, the challenge in front of conservatives is clear: How do we continue to increase the market orientation of the American economy while helping more Americans to participate in it more equally?

Here are two ideas among many.

First, improve K-12 schools. U.S. public schools are in desperate need of improvement and have been for decades. We do not prepare the average American child to succeed versus international competition. Schools can do only so much to fix this—in a nation where 37 percent of births are out-of-wedlock, many children will be left behind—but it would be a great start if the average school didn’t go out of its way to make kids lazy and stupid.

No amount of money or number of “programs” will create anything more than marginal improvements, because public schools are organized to serve teachers and administrators rather than students and families. We need, at least initially, competition for students among public schools in which funding moves with students and in which schools are far freer to change how they operate. As we have seen in the private economy, only markets will force the unpleasant restructuring necessary to unleash potential. Conservatives have long had this goal but are unprepared to win the fight. Achieving it would be at least a decade-long project.

The role of the federal government could be limited but crucial. Suppose it established a comprehensive national exam by grade level to be administered by all schools and universities that receive any federal money and required each school to publish all results, along with other detailed data about school budgets, performance, and so forth each year. Secondary, profit-driven information providers, analogous to credit-rating agencies and equity analysts, would arise to inform decision-making. The federal role would be very much like that of the Securities and Exchange Commission for equity markets: to ensure that each school published accurate, timely, and detailed data. This would not only improve schools in the aggregate but also serve to provide a more realistic path of economic advancement to anybody with a reasonably responsible family and help to acculturate more Americans to a market economy. This would also become a model for other reform of entitlement programs, from retirement accounts to medial care.

Second, reconsider immigration policy. What if, once we had control of our southern border, we came to view the goal of immigration policy as recruiting instead of law enforcement? Once we established a target number of immigrants per year, we could set up recruiting offices looking for the best possible talent everywhere from Beijing to Helsinki. It would be great for America as a whole to have, say, 500,000 very smart, motivated people move here each year with the intention of becoming citizens. It would also do wonders for equality if they were not almost all desperately poor, unskilled, and competing with already low-wage workers.

Other examples of policies that can raise competitiveness and lower inequality, ranging from reduced small-business regulation to allowing individuals tax deductibility for private health care purchases to automatic (with an opt-out) enrollment for 401(k) plans, become obvious once you start to look for them. What they tend to have in common is a focus on building human capital and effective market institutions. That is, they build the key resources of the new economy.

The conservative movement has become excessively dogmatic and detached from realities on the ground. It needs to become more empirical and practical—which strike me as traditionally conservative attitudes.