Why GOP is wrong on the economy

Scot Lehigh

Sunday, Nov. 18, 2012 | 2 a.m.

Mitt Romney may be busy rationalizing his loss, but Republicans elsewhere are starting to come to grips with it. Some are trying to divine where the GOP went wrong and, more importantly, how to return to its once-winning ways.

But for the GOP, which has suffered stinging defeats in three of the past four election cycles, much more will be required than merely adopting a more realistic position on illegal immigration. The party needs to turn away from what Louisiana Gov. Bobby Jindal calls “dumbed-down conservatism.”

“We need to stop being simplistic ... and we need to stop insulting the intelligence of the voters,” Jindal told Politico this week.

He’s spot on. Taking conservatism up-market intellectually will mean weaning the party off the seductive anti-Obama mythomania of Fox News; off the pugnacious partisanship that personally profits commentators such as Rush Limbaugh, Laura Ingraham and Ann Coulter; and off the cross-eyed conspiracy theories of professional buffoons such as Donald Trump.

But more importantly, it will require a return to politics and policies based on fact and evidence. And perhaps nowhere is that need more acute than on economics.

Since the election of Ronald Reagan, supply-side economics — in brief, the belief that lower tax rates, particularly on upper earners, will increase incentives to produce things, resulting in economic growth that benefits everyone — has been the doctrine of the Republican Party. The Wall Street Journal editorial page has become a reflexive cheerleading squad for supply-sidism, while powerful groups such as the Club for Growth and Americans for Tax Reform have policed party ranks for deviations from the approved theology.

The adherence to supply-side theory has come despite, rather than because of, real-world results. Much of the Reagan-era prosperity attributed thereto was really the result of Keynesianism that dared not speak its name. That category includes the big, deficit-financed defense build-up and income tax cuts that boosted consumer spending.

Meanwhile, the past three decades have proved key supply-side tenets crashingly wrong. Chief among them is the assertion that lower marginal income tax rates for upper earners are an essential catalyst to growth. Another is the related warning that tax increases on the well-to-do will inevitably cause economic calamity.

Further, no credible economist still takes seriously the notion that income tax cuts will spark enough growth to pay for themselves. That idea has become so discredited that most GOP candidates no longer make the claim openly, yet its influence remains evident in the unrealistic growth assumptions that undergird GOP economic proposals — and in many conservatives’ refusal to acknowledge how much the Bush-era tax cuts have contributed to our fiscal mess.

Supply-siders once could build their conceptual castles in the air and hope the average person would be swept away by the magical mystery of it all. But voters now have two test periods for easy comparison: The Clinton years, whose impressive prosperity defied supply-side predictions, and the George W. Bush era, when the economic recovery underperformed other post-war comebacks. But rather than alter their dogma, supply-siders contort history and logic to assign Clinton’s success to Reagan or, even more risibly, Newt Gingrich.

And so the GOP regularly marches into battle defending policies that voters rightly see as helping an elite fraction of the population, without any benefit for the rest of America. The GOP’s one-time reputation as a responsible fiscal steward also has suffered serious damage in the supply-side era.

We saw all of that play out in this election. Mitt Romney and Paul Ryan issued the usual call for tax cuts and the predictable warnings about increasing rates on “job creators.”

President Barack Obama portrayed the GOP ticket as favoring a return to the failed policies of the Republican past and noted that the Romney-Ryan plans would necessitate deep cuts in social programs. Likening his own agenda to Bill Clinton’s policies, the Democratic incumbent called for making upper-earners pay more — and for a recovery led by the middle class. We all know the result.

Political recalibration is never painless, particularly when it comes to fundamental beliefs. But if Republicans are serious about their soul-searching, they’ll recognize this: It’s time for a change in the GOP’s economic doctrine.

Scot Lehigh writes for the Boston Globe.