What conservatives don't understand about the modern U.S. economy

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A new manifesto making the rounds in conservative circles is as much a time-travel tale as the new comic-book movie, X-Men: Days of Future Past. Activists hope that embracing supposedly timeless economic policies, such as tax cuts and balanced budgets, will unite and then ignite the Republican Party. Reagan-era nostalgia, unfortunately, is not much of a superpower. Without recognition that new economic challenges require new thinking and new solutions, this tired GOP sequel is unlikely to attract much of an audience.

The 10-page document emerged from a recent hush-hush meeting of top conservative leaders, including Sens. Ted Cruz (R-Texas) and Mike Lee (R-Utah), co-organized by Reagan Attorney General Ed Meese. Titled "Reform, Restore, Modernize — An Agenda To Restore The American Dream," the plan covers foreign policy and cultural issues, as well as economic policy.

From the get-go, the manifesto stumbles in its macroeconomic analysis. It bemoans the Not-So-Great Recovery. But there is no suggestion the economy faces longer-term problems that predate Obamanomics. There have been jobless recoveries after each of the past three downturns, with each leading to a depressed share of middle-class jobs. Globalization and automation are playing a role. Going forward, some economists fear a permanently bifurcated labor force with rising pay for a slice of tech-savvy workers, and stagnant wages for everyone else. It's not all about Obama's economy.

Such a potential scenario demands a policy agenda including education reform, a national innovation policy encouraging more startups and federal research spending, and wage subsidies for low-income workers.

But if your analytical lens is a simplistic "Barack Obama is Jimmy Carter," then a different policy path naturally follows. Not surprisingly, the conservative plan calls for a vague lowering of "tax rates for every taxpayer." Broad, across-the-board tax cuts are straight out of the Reaganomics playbook, and have been a GOP policy staple for three decades. Such tax cuts made terrific sense 30 years ago, when the top rate was 70 percent and inflation kept nudging households into higher and higher tax brackets. But even with the Obama tax hikes, the top-marginal tax rate today is just 39.6 percent. And nearly half of Americans don't pay any income tax at all. For most of those folks, payroll taxes are what really count.

Moreover, lowering income taxes without offsetting spending cuts or higher taxes elsewhere — the plan offers neither — is unrealistic. And let's face facts: Coping with America's rising elderly population will require a higher national tax burden in coming decades even with a reformed entitlement system.

Another blast-from-the past policy proposal: Requiring Congress to pass a balanced budget. As with the tax cut idea, this budget balancing is presented as obviously self-recommending. It ignores the fiscal reality that the current budget deficit is collapsing after temporarily ballooning during the Great Recession. There is no evidence that markets fear a U.S. debt crisis. Of course, rising entitlement spending will soon cause the red ink to start running again. But the plan makes no mention of reforming Medicare or Social Security.

Light taxation and small government are principles worth preserving. But they must be applied in a modern fashion. If conservatives and Republicans desire a return to relevancy, then they can't offer today's voters reruns from the '80s and '90s in an attempt at solving yesterday's problems.

You can read the whole manifesto here:

Reform, Restore, Modernize by Zeke Miller

http://theweek.com/article/index/262104/what-conservatives-dont-understand-about-the-modern-us-economy

Edited May 28, 2014 by Porterhouse