The Coming Upheaval in Republican Economics

It may seem paradoxical, even perverse, to suggest that the Republican party is soon going to have to abandon free market ideology. But this is quite likely true, and it may be the political weapon that will marginalize Democrats for a generation.
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Since the late 1970s, when the Eisenhower-to-Nixon era of accommodation to the New Deal sputtered to a close, what it has meant to be a Republican in economics has been obvious.

It has meant free markets.

Republican free-market ideology was, in fact, so successful for most of this era that it dragged the Democrats, and the country at large, along with it -- a process vividly ratified by the "New Democrat" policies of Bill Clinton and shabbily confirmed by the absence of any real economic CHANGE™ by the Obama administration.

Margaret Thatcher (ratified by Tony Blair) and others did similarly abroad.

So it may seem paradoxical, even perverse, to suggest that the Republican party is soon going to have to abandon free market ideology as its principal economic lodestar.

But this is quite likely true, and it may be the political weapon that will marginalize Democrats for a generation -- if the Republicans learn to use it right.

What's the coming alternative to free-market-centered economics? Economic nationalism.

This means, for a start, a turning away from the post-1948 Republican party's embrace of free trade and returning to the party's traditional protectionism.

Beyond this, it also means a turning away from the private-sector-only model of economic growth and back to what Abraham Lincoln would have called "internal improvements," a term that embraced everything from subsidized railroads to the land-grant colleges that were the technical backbone of the American heartland for a century.

Federalist Alexander Hamilton, the intellectual father of American capitalism, would also have understood economic nationalism as an appropriate economic philosophy for conservatives. He established America's Independence-to-WWII protectionist tradition and laid out, in his Report on Manufactures submitted to Congress in 1791, the basic principles underlying governmental support for technological and industrial growth.

So economic nationalism is a perfectly credible conservative economic policy. It is not, whatever libertarians may say, a form of "socialism."

Understanding why the Republican party must embrace economic nationalism or die requires ruthless honesty about what it means to be right-wing in the first place.

Generically speaking, and with a lot of caveats and complexities, being on the right means seeking one's essential leverage to make society function in the needs of life's winners. Being on the left means the same but with life's losers.

This taxonomy is not intended to prove which side is correct -- if it did, it wouldn't be an objective taxonomy -- but it does hold, broadly speaking, over a wide range of issues, nations, and historical eras.

In the case of economics, "life's winners" obviously means the rich, the middle class, and, generically, everyone else who's satisfied with their economic lot. "Life's losers" means the poor and the dissatisfied.

This determines what's left and right in economics. But it doesn't settle what kind of right-wing economics the right will embrace at any given moment, because within this general framework, there is more than one option.

Free-market ideology is obviously one choice, because in a free market, the winners come out on top. So that's one viable rightist economic philosophy, and has, indeed, often been adopted by rightists around the world with political and economic success.

But there's also another rightist view, which centers not on the inequality between domestic winners and losers, but on the inequality between Americans and the rest of the world. And that's what economic nationalism is fundamentally about, and why it's a plausible rightist position. This position has also, in many historical circumstances, been adopted by rightists with political and economic success.

What we are probably about to witness -- and it's a good thing -- is a flipping of the American right from the one position to the other.

More concretely, the Republican party is going to be forced in this direction by the sheer pressure of events.

Free market ideology -- and also, to be fair, "free" market ideology, with scare quotes, because many of these free market policies are only so in name -- is directly responsible for two of America's biggest current economic mistakes: our embrace of free trade and our neglect of federal support for technological innovation.

These mistakes are a huge part of why we're not coming out of recession, can't create decent jobs, and are having our backsides handed to us in international competition.

I have previously discussed why free trade is harming us here, here, and here. I have discussed America's innovation deficit here and here.

What killed free market ideology? Two things: globalism and state capitalism abroad.

In the absence of globalism, that is, in an American economy where imports are a small percentage of GDP -- say, the roughly 5 percent they were in 1970 as opposed to the 17 percent they are now -- domestic markets, free or otherwise, are relatively insulated from foreign events.

But with a highly globalized economy, domestic markets are wide open. Which means (as is hardly a secret to most Americans) that foreign competition has a huge impact on our domestic economy.

And unfortunately, that foreign competition is increasingly not based on free markets. Despite all the laissez faire mythology about how government can't ever make anything work in economics, China is cleaning our clock practicing what Intel chairman Craig Barrett has called "a central planning form of capitalism."

As a result, foreign state capitalism is forcing America into economic nationalism. Like it or not, we don't have a choice -- except, of course, surrender and economic decline. For the first time since the American Revolution, the United States is being pushed around by foreign economic forces, rather than being an economic force reshaping the rest of the world.

The hard fact is that America cannot compete playing Marquis of Queensbury rules against foreign competitors (read: "China") who play by the Law of the Jungle. We can't even compete against foreign competitors who play by the cleaned-up, polite, gentrified version of the same practiced by Japan, Germany, and their imitators from South Korea to Switzerland.

If the Republican party doesn't get ahead of this curve here and proactively embrace economic nationalism, it risks being sidelined for a generation or more by the Democrats embracing it.

Democrats won't call it economic nationalism if they embrace these policies. Nationalism hasn't been a popular concept with them ideologically since Harry Truman's time. If they go this route, they won't give the same reasons or appeal to the same historical precedents as Republicans would. But they won't have to, as there exist perfectly respectable leftist reasons to use instead.

In fact, the Democrats are at present closer than the Republicans to doing both these things. For example, a higher percentage of Democrats in the House have soured on free trade, and a higher percentage are willing to support state-funded innovation.

Which means that Republicans had better start thinking all this through real soon.

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