Having come of age in the late 1990s, when the American economy was the envy of the world, the past half-decade has been a dispiriting slog. So, while I’ve learned to temper my enthusiasm about even the best economic news, I’ll admit that even I’m getting a little pepped up.
While the Great Recession has technically been over since the summer of 2009, a weak labor market and stagnant wages for all but a few have meant that most Americans have barely noticed. Now, however, there are signs that we’re in for a year or two of robust growth. The Commerce Department has just released revised estimates of U.S. gross domestic product from the second and third quarters of 2014, and it turns out that growth has been much stronger than we had originally assumed.
Going forward, plummeting oil prices will benefit almost all Americans, with the possible exception of those who’ve poured a lot of effort and time into accessing shale oil deposits here at home. John H. Makin of the American Enterprise Institute estimates that if the fall in oil prices sticks—it’s down from an average of $110 a barrel to about $70 a barrel—the economic impact will be much like that of a $160 billion tax cut. Exports are also rising, despite the fact that the U.S. dollar remains strong. All in all, it’s looking like a fairly merry Christmas, at least by the dismal standards of recent years. And if we’re lucky, next year might be better still.
So now, with my fingers crossed in the hope that I won’t jinx anything, I’ve started to wonder what a stronger economy might mean for American politics. Throughout the Obama years, Republicans have failed to offer a compelling economic agenda, choosing instead to point to the fact that the economy was not so hot, that unemployment levels were high, and that the federal deficit was eye-poppingly huge. It’s easy to see why the GOP decided to go this route. Americans, like the citizens of most market democracies, believe elected officials have magical powers when it comes to things like GDP growth, unemployment, and inflation. When things go wrong, the president gets the blame. When things go right, he gets the credit. This is despite the fact that the American economy is a complex beast that even our most sophisticated technocrats scarcely understand and the fact that Saudi sheikhs who decide to let the oil flow can have about as big an impact on how much U.S. households spend on Chinese-made tchotchkes this holiday season as a Congress that decides to slash payroll taxes. I’m exaggerating but only slightly.
In 2010 and 2014, reminding voters that “we are not currently in charge and things are bad” basically worked for Republicans, particularly with older white voters favorably disposed toward conservative candidates. In the next two years, this strategy is unlikely to work quite so well. It will get harder to deny that the economy is picking up a head of steam, that unemployment levels have gone from high to halfway decent, and that the federal budget deficit is getting smaller. Should Republicans congratulate President Obama on a job well done and leave it at that? Well, no. They need to do what they’ve failed to do for the past half-decade and explain why they can do a better job than the Democrats of steering the American economy.
But getting to this point will be very difficult. To state the obvious, the fact that the United States experienced the worst financial crisis in the living memory of all but a handful of nonagenarians while George W. Bush was in the White House has been hard for Republicans to overcome. One of Mitt Romney’s greatest failures in his 2012 campaign was his almost shocking inability to explain how he’d govern differently from Bush and why Republican economic policies wouldn’t lead to disaster. Romney, like most Republicans in the Obama era, fixated on shrinking the budget deficit. While he talked a big game about reviving economic growth, he did an awful job of explaining why growth was so sluggish and what he intended to do about it in the near term, tax cuts and deregulation aside.
What might Republicans have done differently? According to Texas State University economist David Beckworth and National Review’s Ramesh Ponnuru, the chief problem with the Republican worldview in the post-crisis years is that it has coupled calls for rapidly shrinking the federal deficit with fervent opposition to monetary stimulus, which the GOP has warned will lead to an inflationary spiral. Instead, Beckworth and Ponnuru insist that the Federal Reserve ought to have done more. They argue that the Fed ought to have announced that it would buy assets until nominal spending, or NGDP, reached a target level and that it intended to keep nominal spending growth on a predictable path. Had the Fed charted such a course, Beckworth and Ponnuru believe, the goal of fiscal consolidation would have been much easier to achieve, as higher nominal incomes would have kept more workers employed and more homeowners afloat, thus reducing the pressure to increase transfers. Many argue that NGDP targeting of the kind championed by Beckworth and Ponnuru is much easier said than done and that it is no panacea. That might be true. What is also true is that successful fiscal retrenchment efforts in countries like Canada and Sweden were accompanied by the same kind of accommodative monetary policy that American conservatives tend to oppose.
Republican economic prescriptions have often seemed timeless in the Obama era, in a bad way. By emphasizing tax cuts, deregulation, and balanced budgets—the same policies they favored in better times—the GOP ignored the particularities that made deficit spending a less pressing problem than mass unemployment, and they allowed chimerical fears of hyperinflation to outweigh the very real threat of deflation. Embracing monetary stimulus would have given the right a coherent way to favor fiscal consolidation while also acknowledging that the weakness of the post-crisis economy demanded a response. Calling for monetary expansion and, say, a much deeper temporary payroll tax cut, like the one proposed by Stanford University economist Michael Boskin, would have put the GOP in a much better position both substantively and politically. Instead, Republicans struggled to connect with the voters most directly affected by the dismal state of the labor market.
What should Republicans do now? They could do worse than to build on the work of Utah Sen. Mike Lee, Florida Sen. Marco Rubio, and Wisconsin Rep. Paul Ryan, all of whom have been thinking hard about the barriers to upward mobility in modern America. Good economic news today won’t change the fact that one in six American adults lacks the basic skills of literacy and numeracy, or that high-quality educational opportunities are beyond the reach of most American kids raised in low- and middle-income families. Nor will it change the fact that while Obamacare has expanded access to subsidized medical care, our health system remains a dysfunctional mess that limits our economic potential. Even though the worst of the housing bust is behind us, rigid regulations have made some of our most productive cities unaffordable, which in turn has driven millions of Americans to regions with cheap homes but also low wages.
There are no silver bullets for addressing these problems, but if Republicans don’t devote more of their energies to tackling them, they’ll have no chance of winning the elections to come—and they won’t deserve to win them either.