The Republicans’ Plan to Fix the Economy Is… We’re Still Waiting

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It is easy to criticize the economic policies of the Democrats now that they have been in power for a few years and have passed several important bills, but also because they have articulated a clear economic vision for the country: to expand the government’s role in the economy with more generous social program measures, higher taxes for the very wealthy, and an industrial policy that supports favored industries. They promise a more egalitarian economy carefully managed by savvy bureaucrats and unions.

Even if you don’t like the Democrats’ economic philosophy, at least it makes sense. Republicans don’t have such a clear vision, and in many ways that’s worse than having policies you don’t agree with.

We know what the Republicans stood for: limited government, which meant lower taxes and less regulation and spending. Even if party policies did not always follow these principles – there were forays into protectionism and high deficits – there was at least a free market ideal and a belief in individual initiative. While you still hear lip service to the old ideals, it’s a mystery how the Republicans intend to fix a low-growth, high-inflation economy. Adding to the confusion, some Republicans have begun to question free markets.

The lack of detail isolates the party from some criticism – you can’t analyze what’s not there. The closest thing we’ve gotten to a Republican economic agenda so far is House Minority Leader Kevin McCarthy’s “Pledge to America” ​​— a page of bullet points, whose most are not about economics. It begins with the promise of a “strong economy”, but is followed by vague promises to fight inflation by cutting “unnecessary spending” and raising wages through “pro-promotion tax and deregulation policies”. growth “. There’s also a bullet point about encouraging energy independence by halving the time it takes to get project permits, and there’s a mention of having more telemedicine. While sketchy, it at least seems fairly consistent with mainstream Republican politics.

I’m more concerned about another point that promises to “expand manufacturing in the United States and improve America’s economic competitiveness and cyber-resilience.” He also promises to stop tech companies from “putting politics before people”. While still vague, these ideas sound sympathetic to the new wing of the party that wants less trade and is keen on more industrial policy, as this speech by Florida Sen. Marco Rubio indicates. Other plans include strengthening the border and reducing illegal immigration, not to mention reforming or addressing legal migration issues, which the country needs to propel growth.

There are more details in the proposed budget, “Blueprint to Save America” ​​from the conservative House of Representatives caucus, the Republican Study Committee. It includes regulatory cuts (it ends sugar tariffs and makes professional licenses less expensive) and cuts spending by various government agencies. He also dares to put rights such as health insurance and social security on a more sustainable path and pledges to reduce taxes. But the budget also reduces legal and illegal migration and includes more loopholes and distortions (although it eliminates state and local tax deductions and social cliffs that discourage welfare recipients from finding jobs).

The blueprint is the closest Republicans have to a specific economic vision, but it doesn’t get much buy-in from the rest of the party. This is probably because parts of the budget are quite extreme, especially on social issues and immigration. But the mixed reception may also reflect a Republican Party that has become ambivalent about limiting government involvement in the economy.

For example, Republicans should explain to Americans why putting rights on a more sustainable path, with sensible reforms such as indexing the retirement age to life expectancy, is the fiscally responsible thing to do to taxpayers and beneficiaries. Instead, when Democrats accuse them of gutting the program, the GOP leadership is silent.

The Republican platform pretty much boils down to lower taxes, more domestic energy production, possible industrial policy, and a bunch of anti-reawakening initiatives. The withdrawal from free markets may have started with President Donald Trump cutting taxes and doing a lot of helpful deregulation, but he also promoted less trade and immigration, increased debt and advocated for a industrial policy with restrictions on trade as part of its attempts. to restore manufacturing in the United States.

Tax cuts and industrial policy are not a complete economic philosophy. Tax cuts can grow the economy by increasing incentives to work and invest. But for them to be able to spur growth without causing inflation, they must be part of a larger plan to reform the tax code (to make it more efficient) and reduce the distortions to the economy that arise wasteful spending and policies that discourage trade.

Trump’s inconsistent position on the markets now appears to be the Republican position. But putting all the change on Trump is naïve. There is a bigger shift in ongoing conservatism; we see the same thing abroad. The short-lived British Prime Minister Liz Truss claimed that her budget was pro-growth and focused on the free market, taking inspiration from Margaret Thatcher. But in the end, it was just a bunch of small unfunded tax cuts and big energy subsidies. These policies might have seemed popular on paper, but they were intellectually inconsistent and suggested no fiscal discipline.

Economists John Cochrane and Jon Hartley wrote that Truss’ failure to explain why his plans could work doomed them to failure. This suggested that she hadn’t really bought into it herself. Republican ambivalence toward pro-growth, market-based reforms suggests a similar fate if they attempt the same approach.

Maybe Republicans are just responding to what they think voters want. The neoliberal philosophy of freer trade and free markets has created growth, higher living standards and less poverty. But there were also displacements and more national inequalities. Trump’s popularity within the party could indicate that Republican voters want a government to be more involved in the economy, while cutting taxes. Yet polls suggest that is not the case, and voters simply want a competent government that enforces the laws we have. Competence, of course, is projected by a coherent and consistent economic philosophy.

Few Republicans want to take that risk, which may be why they focus more on the culture wars than on the economics. But with high inflation, skyrocketing debt and rising interest rates leaving less fiscal space to spend, a debate needs to take place about the proper role of government in the economy. I don’t like the Democrats’ vision, but at least it’s a vision. Right now it looks like the Republicans are trying to have it both ways, with more spending and interference in some areas, accompanied by more tax cuts. Maybe it will win the midterm elections, but it won’t help the economy.

More other writers at Bloomberg Opinion:

What happened to the political platform of the Republicans? : Jonathan Bernstein

Democrats should do more for Tim Ryan in Ohio: Julianna Goldman

Can the polls survive losing half the country? : Francis Wilkinson

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Allison Schrager is a Bloomberg Opinion columnist covering the economy. A senior fellow at the Manhattan Institute, she is the author of “An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk”.

More stories like this are available at bloomberg.com/opinion

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