It's easy to criticize the Democrats’ economic policies now that they have had a few years in power and passed several big bills, but also because they've articulated a clear economic vision for the country: expanding the government’s role in the economy with more generous social programs, higher taxes for the very wealthy and industrial policy that supports favored industries. They promise a more equal economy carefully managed by wise bureaucrats and labor unions.
Even if you don’t like the Democrats’ economic philosophy, it's at least coherent. Republicans don't have such a clear vision, and in many ways that’s worse than having policies you disagree with.
We do know what Republicans used to stand for: limited government, which meant lower taxes and less regulation and spending. Even though the party's policies didn't always follow those 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'll still hear some lip service to the old ideals, it's a mystery how Republicans intend to fix a low-growth, high-inflation economy. Adding to the confusion, some Republicans have begun questioning free markets.
The lack of detail does insulate the party from some criticism — you can't analyze what's not there. So far, the closest thing we have to a Republican economic agenda is House Minority Leader Kevin McCarthy’s “Commitment to America” — one page of bullet points, most of which are not about the economy. It does lead off with the promise of "An Economy That's Strong," but that's followed by vague pledges to fight inflation by curbing “wasteful spending” and increasing pay with “pro-growth tax and deregulatory policies.” There's also a bullet point on encouraging energy independence by cutting in half the time required to get project permits, and there's a mention of having more telemedicine. Though short on detail, this at least sounds fairly consistent with traditional Republican policies.
I'm more concerned about another bullet point that promises to “expand US manufacturing and enhance America’s economic competitiveness and cyber resiliency.” It also promises to stop tech companies from “putting politics ahead of people.” While still vague, those ideas sound sympathetic to the new wing of the party that wants less trade and is enthusiastic for more industrial policy, as this speech from Florida Senator Marco Rubio indicates. Other plans include strengthening the border and curtailing illegal immigration, with no mention of reforming or fixing problems with legal migration, which the country needs to help propel growth.
There’s more detail in the proposed budget, “Blueprint to Save America” from the House of Representatives’ conservative caucus, the Republican Study Committee. It includes cuts to regulations (it ends sugar tariffs and makes occupational licensing less onerous) and reduces spending on various government agencies. It also dares to put entitlements such as Medicare and Social Security on a more sustainable path and pledges to cut taxes. But the budget also reduces both legal and illegal migration and includes more loopholes and distortions (though it does eliminate state and local tax deductions and welfare cliffs that discourage welfare recipients from getting jobs).
The blueprint is the closest thing Republicans have to a specific economic vision, but it's not getting 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 lukewarm reception may also reflect a Republican Party that has become ambivalent to the idea of limiting government involvement in the economy.
For example, Republicans should be explaining to Americans why putting entitlements on a more sustainable path, with reasonable reforms such as indexing the retirement age to life expectancy, is the fiscally responsible thing to do for both taxpayers and beneficiaries. Instead, when Democrats accuse them of gutting the program, 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-woke initiatives. The retreat from free markets may have started with President Donald Trump, who did cut taxes and do lots of useful deregulation, but he also favored less trade and immigration, increased the debt and advocated for industrial policy with restrictions on trade as part of his attempts to restore manufacturing to the US.
Tax cuts and industrial policy is not a complete economic philosophy. Tax cuts can grow the economy by increasing the incentives to work and invest. But in order for them to boost growth without causing inflation they need to be part of a bigger plan to reform the tax code (to make it more efficient) and to reduce distortions in the economy that stem from wasteful spending and policies that discourage commerce.
Trump’s inconsistent stance on markets now appears to be the Republican position. But putting the change all on Trump is naive. There's a bigger shift in conservativism underway; we see the same thing overseas. Short-lived British Prime Minister Liz Truss claimed her budget was pro-growth and free market driven, taking inspiration from Margaret Thatcher. But in the end it was just a bunch of small, unfunded tax cuts and large 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’ inability to articulate why her plans could work doomed them to failure. It suggested she didn't truly buy in to them herself. Republican ambivalence to pro-growth, market-based reforms suggests a similar fate if they try the same approach.
Maybe Republicans are just responding to what they think voters want. The neo-liberal philosophy of freer trade and free markets did create growth, higher living standards and less poverty. But there was also displacement and more domestic inequality. Trump’s popularity in the party could signal that Republican voters want a government to be more involved in the economy, along with lower taxes. Yet polls suggest they don’t , and that voters just want a government that's competent and 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're focusing more on culture wars than economic plans. But with high inflation, soaring debt and rising interest rates leaving less fiscal room to spend, a debate needs to be had about the right role for government in the economy. I don’t love the Democrats’ vision, but at least it’s a vision. It seems right now that the Republicans are trying to have it both ways, with more spending and interference in some areas, accompanied by more tax cuts. Perhaps that will win the midterms, but it won’t help the economy.
____
ABOUT THE WRITER
Allison Schrager is a Bloomberg Opinion columnist covering economics. A senior fellow at the Manhattan Institute, she is author of “An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk.”
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
