Washington & Wall Street: Building a New Conservative Economics

The latest government statistics on jobs and consumer spending once again show that the US economy is growing far more slowly than the majority of American economists, politicians and citizens hope and expect.  The issue of expectations is crucial because no one in American politics today has the courage and honesty to tell our citizens the truth, namely that the current rate of job creation and growth are “normal” given the country’s debt load and regressive tax policies.

“The first panacea for a mismanaged nation is inflation of the currency; the second is war,” Ernest Hemingway wrote.  “Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” 

In the case of both Washington & Wall Street, the pro-inflation, pro-war tendencies are clearly in control of the levers of power.  Since the start of the financial crisis in 2007, the Federal Open Market Committee led by Chairman Ben Bernanke has been pursuing an explicit target of 2% inflation, in order to support prices for homes and financial assets.  The idea of job creation is also mentioned by the FOMC from time to time, but clearly the first priority of the FOMC – or really the most pressing worry – is to promote inflation.  

The leader of the socialist tendency in American economics, Paul Krugman, argues that the real tradeoff facing America lies between deficits and job creation.  He claims that Republican concern about America’s debt and deficits is somehow hurting employment prospects.  He writes that “neither you nor I should forget that the madness of the GOP is the central issue of our time.” 

Krugman frets that Republican efforts to roll back socialist initiatives like Obamacare are threatening “looming chaos in U.S. governance.”  But he refuses to acknowledge that half of a century of bipartisan socialism in Washington is the real cause of America’s economic malaise.  The hard truth is that even during the supposed “Reagan Revolution” of the 1980s, the growth of federal spending, government and public debt was undiminished and continued over the past three decades.  And despite what many economists believe, there is such a thing as “crowding out” when it comes to government getting in the way of private sector job creation.

If you try to rise above the daily noise of the political debate over the direction of the economy, the basic truth is that all Americans really want the same things: personal and economic security.  We want a safe living environment for our families and our communities, and economic opportunity for all of the members of our society.  And we want our children to face a positive future when measured by these same basic needs.  The difference between Democrats and Republicans is that the former believe that more government and coercive collectivism is the answer, while Republicans believe in the power of the private sector and the voluntary action of free individuals.

The challenge facing conservatives is to create a new framework for arguing against the explicitly socialist policies now championed by the like of Paul Krugman, Barack Obama and the leaders of the Democratic Party.  Until Barack Obama took office, you could have argued that Richard Nixon was the most unambiguously socialist politician to occupy the White House since FDR.  His embrace of the Great Society, ending the link between the dollar and gold, and wage and price controls are not part of any recognizable conservative agenda.  But with Obamacare and the public bailout of the largest banks and non-bank companies, Obama now clearly is the most extreme left President in American history.

So can we craft a new American politics that enhances the role of the individual and the private sector?  Is it possible for conservatives to effectively refute the European style socialism that passes for serious thinking among Democrats like Krugman and much of the American economic community?  The answer is most definitely yes.  David Brooks puts the case nicely in his latest column in The New York Times:

“The Republican Party is drifting back to a place where it appears hostile to the basic pillars of the welfare state: to food stamps, for example. This will make the party what it was before the neocon infusion, a 43 percent party in national elections, rejected by minorities and the economically insecure.  The solution is not to go back to 1980. It’s to imagine what kind of values Americans should have, and what kind of limited but energetic government can reinforce those values.”

While Brooks is still a bit too far left in his prescription, conservatives do need to consider how to reinforce traditional American values such as individual freedom and private enterprise, while appealing to those Americans who have not yet tasted the sweet flavor of opportunity and success.  As my old boss Jack Kemp (R-NY) used to say: “A rising tide lifts all boats.”  We’ll be talking about this more in future columns. 


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