Republicans Need to Embrace “Liberal” Economics

By Roy C. Smith

63 million people voted for Donald Trump in 2016, a flamboyant political outsider and neophyte, who somehow captured the primary elections by defeating a dozen more traditional Republican candidates, and then went on to beat a very well- known and well-entrenched Democratic superstar. It is true that fewer votes were cast for Trump than for Hillary Clinton, but his voters were in the right places so he won the electoral contest.

Just prior to the election, 39% of American voters (according to Pew Research) identified themselves as “independents,” 32% as Democrats but only 23% as Republicans.  Having such low popular appeal may be the reason why the Republican Party selected such an odd candidate, one with no Republican ties or credentials and little history of supporting Republican issues. This suggests that the ever more narrowly focused, post-Reagan GOP was already imploding even before the election.  

“Progressive” Democrats (as opposed to Progressive Republicans of Theo. Roosevelt’s time) led by Barack Obama were aiming to right the wrongs done to the American “middle class” by the George W. Bush administration, and make the economy fairer for all. But once Obama lost control of Congress after passing the controversial Affordable Care, and Dodd Frank Wall Street Reform Acts, there was little else he could do except by Executive Orders that could be reversed.  Hillary Clinton was seen to be Obama’s third-term, who would continue to swing the pendulum towards socialism. She won 66 million votes, but lost.

This happened after an unprecedented 16-year economic slowdown, involving two recession-producing financial crises, the 9/11 attack and two wars. Economic growth in the US that had averaged 3.5% for the previous fifty years was, since 2000, reduced to 2%. This period captured two eight-year presidential administrations, one Republican and one Democrat. Neither satisfied.

Both parties were seen also as having failed on the international front. Bush, for having launched a useless but intractable war in Iraq (and upsetting allies in doing so), and Obama for having “weakened” American power by turning soft in the Middle East, seeking a nuclear agreement with Iran, and generally loosing influence among allies and adversaries alike.  Both administrations, however, defended “globalization” as an unavoidable but beneficial fact of life for an economically connected world, and tried to bring about a sensible solution to America’s perceived immigration problems. Neither satisfied.

American wasn’t listening. Discontent with economic and foreign policies that Mr. Trump perceptively claimed was hurting the average person became rampant, and spread around the world. The UK approved of Brexit, apparently without understanding what it would mean; Western democracies in Europe and Japan began to reject elected governments and policies that had stood for openness and freedom; and other governments (Russia, China, Turkey, Poland, Hungary) that had previously been drawn towards these principles, began to turn away towards more authoritarian alternatives.

These developments prompted Bill Emmott, a former editor of The Economist, to write The Fate of the West, a thoughtful book published this year on what went wrong to tarnish the “world’s most successful idea,” that of Western liberal democracy. (“Liberal” used in the British sense, meaning being based on personal liberties). Emmott argues that the democratic system of governance that began in America two hundred and fifty years ago produced the best results history has ever seen in terms of economic development, prosperity, equality and the ability to preserve itself by being open to new ideas, free-market competition and political flexibility.  Emmott fears, however, that this best of all Western ideas has failed to deliver its expected promise over the past two decades, and is in danger of being replaced by “alternative” approaches to modern political-economic governance.

Certainly, Emmott is right in noting that the ability of the Republican Party, which has stood for trade, commerce, small government and free-markets for years, has lost its ability to sell them to the voters. Indeed, both political parties seem to have lost interest in promoting the notion of the broad common good in favor of sharply partisan programs that often are wrongheaded, ineffective or mistimed, and only appeal to narrow bases of the parties.

Republicans need a large tent so as to attract supporters from all walks of life and classes who must always be able to believe that there will be room for newcomers like themselves, or their children, to rise to the top. The tent could be filed with “independents” looking for common sense approaches to policies that will work for everyone, not just a hyperactive base of extreme true-believers.

Western liberal democratic ideas are perfectly suited to a big tent - the more under it the better. However, it is on the Republicans to make the case that free-market capitalism in a democracy only works well when it has the support of the people. The rights and privileges of capitalists have to be balanced by a system of laws and regulations that afford reliable protection for the rights of workers, minorities and, yes, property owners too. There must also be checks and balances throughout the system so the already rich and powerful don’t get to dominate outcomes, and everyone can have a fair shot at success. And, personal liberties to choose how one wants to live, pray, reproduce and protect oneself must be preserved, and limited only by the need not to endanger others. The less interference with these personal liberties, the better.

The Republican Party has to go back to its basics as it tries to rebuild the popular support it needs to be viable in the future; economic growth with fair play, efficient but minimal government, and the defense of personal liberties. There are other organizations people can join to advance their social, religious, or ethnic preferences.

But if the Party is going to go this way, it will need to be able to explain some of the basics of globalization, immigration, and health care to its supporters.  

For example, a 2014 study by The Economic Policy Institute reported that between 2008-2013, a net loss of 1.3 million American jobs occurred because of trade with China (3.2 million since 2001). This loss occurred when the US workforce averaged 156 million, so it only resented 0.8% over a five-year period, not so much. Though the US economy has underperformed prior post-recession growth rates, the workforce now has 160 million and an unemployment rate of 4.3%, and a great many workers affected by Chinese and other foreign competition have found other work. There really is no “carnage” here.

A good position for the Republican Party to take on globalization is that, on balance, free-trade keeps American corporations competitive and helps more Americans than it hurts through lower prices and jobs with foreign companies in the US, but some things need to be done to keep it better balanced. Such things as robust negotiations with foreign trade partners to be sure dumping of goods in the US does not occur and that barriers to US exports are removed. There also needs to be more and better job retraining provided for displaced workers.

Mr. Trump also got a lot of traction from his hardline immigration policies, with no one from the Republican Party arguing for the moderate and practical approach George W. Bush took, but could not carry, in 2006. The simple truth is that America needs immigrants to fill in for the loss of workers that our aging population has created, so we need to admit some immigrants, including a good number who prop up our agricultural, hospitality and construction industries. Recent studies have shown that first generation immigrants (legal and illegal) are an expense to taxpayers, but subsequent generations contribute far more tax revenues than they cost. But, border controls and enforcement of visitation rights are important too, and should be stressed.

And there is health care, an area where Republicans have been operating against their own interests and those expressed by the electorate through polls. An essential opposition to creeping socialism has caused Republicans to oppose national health care programs. And they have defended the liberties of doctors and others who don’t want to be told how to treat patients by government bureaucrats. But, over many years, changing technologies, the new economics of the insurance-based US healthcare industry, and some creeping socialism have reached a point that requires the traditional Republican positions to be reexamined in the interest of providing healthcare services all Americans want, but providing them more efficiently. 

A 2013 study published in The American Journal of Public Health showed that US government tax-funded expenditures accounted for 64.3% of all U.S. health spending, and The Affordable Care Act would increase that figure by only 3% to 67.3% by 2024.  The expenditures include direct government payments for Medicare, Medicaid and the Veterans Administration (47.8% of overall health spending), government outlays for government employees’ private health insurance coverage, and tax subsidies to other health care programs, made up the rest. US healthcare expenditures per capita are the highest in the world, exceeding those even of countries, like Mr. Emmott’s UK, with full universal coverage systems.

So, if the present system is already covering two-thirds of the population, and not cost-effectively, maybe the system would work better if Medicare covered everyone and everyone paid into it in some way (like everyone does for Social Security). This made be too heavy a lift for present Republican leaders, but future ones might offer an open mind on the subject.

The world’s most successful idea should not be forgotten by modern Republicans, especially at a time when Republicans control all the branches of government but the public does not think it is doing a good job. Realclear Politics scoring currently shows 26% more people think the country is heading in the “wrong direction” than in the right one.

There is still time to Republicans to embrace Liberal economic principles before this administration leaves office, though it probably won’t be easy. The party may not survive its conservative base if it doesn’t.