Three decades ago, George H.W. Bush decried supply-side economic theories as “voodoo.” Now,
of the Economist says, the 2012 GOP field is embracing even older faulty ideas — and Americans could feel the pain.
When John McCain was running for the Republican presidential nomination nearly 12 years ago, he declared that Alan Greenspan was so critical to the economy that, if the then-Federal Reserve chairman died, he’d put sunglasses on the body, prop him up and hope no one noticed.
It’s safe to say that GOP opinions of the Fed have slipped a bit since. Texas Gov. Rick Perry, a newly declared candidate for president, said it would be “treasonous” for Greenspan’s successor, Ben Bernanke, to “print more money between now and the election” in an effort to boost the economy. Other candidates have been equally damning if slightly less extreme in their statements. Rep. Michele Bachmann of Minnesota has accused the Fed of “debasing the currency,” while Rep. Ron Paul of Texas has written a bestseller called “End the Fed.” The party’s economic standard-bearer in the House, Paul Ryan of Wisconsin, repeatedly charges the Fed with “bailing out” what he considers President Obama’s reckless fiscal policy and wants the institution stripped of its mandate to promote employment.
Congressional leaders agree on an unappetizing debt-limit deal.
If Republicans dislike monetary stimulus, they loathe its fiscal cousin even more, routinely labeling Obama’s stimulus as ineffective, or worse, counterproductive. They want balanced budgets, the sooner the better. Bachmann, for instance, has advocated an immediate 40 percent cut to federal spending by barring any increase in the debt ceiling. This, too, is at odds with the party’s earlier views. The administration of George W. Bush sold its 2001 and 2003 tax cuts as Keynesian-style economic stimulus. Lawrence Lindsey, a top Bush adviser, even likened opponents of the tax cuts to President Herbert Hoover, whose obsession with balancing the budget in 1932 worsened the Great Depression.
Certainly, some of this rhetoric is just political opportunism. The Fed and the stimulus package are handy proxies for Republicans’ real target, which is Obama in the 2012 election. But something more fundamental is going on: The economic ideology of the Republican Party has changed in recent years in an important and little-appreciated direction. Liberals and conservatives in the United States have long differed on how much the government should meddle in individual markets, whether for energy or health care. But they have largely agreed that the government should have at least some role in smoothing out the ups and downs of the business cycle — what economists call “macroeconomic stabilization,” that is, containing inflation in good times and boosting employment in bad.
But this is the consensus that many Republicans in effect now reject. In their view, the government has no more role meddling in the business cycle than in any other market. “Many of our problems can be traced to a misguided belief by politicians that the American economy is something that can be controlled or micromanaged or influenced positively by government intervention and borrowing,” House Speaker John Boehner (R-Ohio) said in a speech in May. He went on to explain that “for job creators, the ‘promise’ of a large new initiative coming out of Washington is more like a threat. It freezes them. … The rash of ‘stimulus’ legislation passed by Congress in recent years has been one of those obstacles.”