November 9, 2010

Important lessons for conservatives from Obama - Part 1

As a conservative, I’m loath to admit that there are things to learn from President Obama. But he does provide us with a number of examples of what to do and what not to do as a movement. Coming out of  the 2010 midterm election cycle, the lessons are worth noting. Of course a number of people have pointed out the electoral lessons and there is much to be said about how to win elections. Most of it has already been said - repeatedly. But there's value in focusing on how to govern. Thinking we know enough to not make the same mistakes as President Obama, or past Republican Congresses will likely lead to a similar fate for conservatives that the President has suffered in his approval ratings slide. How can conservatism benefit from what Obama has done while governing?

There are a number of  observable Presidential Do's and Don'ts.  The Republicans are not entirely in a position to govern legislatively for two years before the next election cycle.  That's because of the Senate. That is both an advantage and a disadvantage.  Starting with the Don't items I'm going to take a look at some of the lessons the GOP should keep in mind in its approach to governance for the next two years, or perhaps more generally, always.


1.  Over-reach.  The biggest lesson from the President has been his over-reach.  He has pushed harder, and for more than anyone in a long time, at least anyone with such enormous power.  From health care to cap and trade to the stimulus bill and the omnibus bill, the President has been consistently pushing.  Pushing for more spending, more government control.  The nation is naturally disinclined to swing in that direction, despite the pushing, hence the swing back to the center-right.

The problem here is the swing back in votes is over, how far does the swing in Congressional action need to go in order to gain public confidence but not seem like over-reach?  It's complicated by the Senate situation and the Presidential veto.  While there may be a wish to fix everything right away, the reality is twofold against that - the GOP doesn't control enough, and over-reach will cause yet another reach back towards the center.

That's why you hear a lot of liberal commentators now suggesting the Democrat strategy of standing back and saying to the Republicans 'go ahead and start cutting spending'.  Given the electorate's wishes to do so, and the lack of freedom to get everything the GOP's way, there are some advantages still in the Republicans' position.  I can hear some of you readers thinking - this guy's a RINO.  He's not serious about fixing things.  He's talking like Karl Rove.

Let's not get carried away.

I'm quite serious about tackling everything from earmarks to Social Security.  But it as to be done intelligently.  It has to be done in a measured way so as not to facilitate a reversal of the 2010 election results.  All I'm advocating is taking advantage of what is easily accomplished, while chipping away at the harder stuff in smaller steps, all the while keeping mindful of the narrative that needs to be kept alive: Republicans care about the deficit and they are managing it on an even keel basis.  If that narrative holds, the need to keep the GOP engaged in that direction becomes a lot easier for voters.  The flip side of the narrative, jobs, requires that people understand that the Keynesian stimulus approach as always, didn't work and therefore growing jobs requires the government get out of the way.

Let's take a look at some of the individual items that fall into the don't over-reach category.

The Bush Tax Cuts.  There is enormous uncertainty about the future of taxation as the Democrats cut and run to avoid dealing with this issue.  They didn't want to offend their liberal base by being in favor of tax cuts, so they left it for the Republicans to deal with.  That's a good thing for Republicans as what is a Democrat disadvantage in extending the tax cuts, is a Republican advantage in doing so.

But how is it done without over-reach?  How is it done in a way that doesn't turn off the independent voters who swung back to the GOP?  Consensus.  By working with the Democrats on this one the GOP can look less partisan than the Democrats did, that's a political plus.  It also takes away the over-reach problem on this issue.  The good news is a lot of Democrats feel a little safer in compromising on this one so the GOP has room to push the envelop a tiny bit.

The approach I would take is to continue to insist that the tax cuts cut across all income levels.  In doing so the GOP has to strongly make the case that job creators will be predominantly the people in the higher brackets so they need the relief and certainty too.  The alternative is off-shoring.  The case that class warfare is divisive and that a common goal of a healthy economy needs a united approach, is the same argument Reagan made with his rising tide analogy.

But where to compromise? Well, in light of making the tax cuts permanent, consider extending them for 7 years instead of permanently.  Or 5 years. Or 3 years.  The coming down in years is the compromise.  Reach for the highest number possible, but be willing to settle for less than 'forever'.  5 years doesn't really have to mean 5  years either. Remember, the Democrats aren't negotiating from a position of strength.  Depending on the strength of the narrative sticking, the GOP has a stronger hand and can come off as compromising more than they really are. The optics matter as much as the details.

The Deficit Given the extension of the Bush Tax Cuts, getting a handle on the deficit is a really tough step.  I'm a firm believer in the concept of the Laffer Curve, but knowing where the country sits on that curve is another story.  So is the fact that while in the long run tax cuts increase government revenue, it is certainly not the case in the very short term.  Look at the Bush Tax Cuts in 2003.  They exploded government revenue to new highs.
As the Wall Street Journal's Stephen Moore illuminates in his 2008 book "The End of Prosperity" (Threshold Editions), Mr. Bush's 2001 tax cuts failed to revive an economy still staggering from the bursting of the dot-com bubble. Mr. Bush's strategy had been to adopt a demand-side, Keynesian stimulus, hoping that putting a few extra dollars in Americans' pockets would jump-start the economy through increased consumption. This approach faltered, not just because Americans opted to save their rebates, but because it neglected the importance of business investment to overall growth. Predictably, the economy lagged and government revenues stagnated. What the United States needed then (and needs now) was to stimulate investment, not consumption.

By 2003, Mr. Bush grasped this lesson. In that year, he cut the dividend and capital gains rates to 15 percent each, and the economy responded. In two years, stocks rose 20 percent. In three years, $15 trillion of new wealth was created. The U.S. economy added 8 million new jobs from mid-2003 to early 2007, and the median household increased its wealth by $20,000 in real terms.

But the real jolt for tax-cutting opponents was that the 03 Bush tax cuts also generated a massive increase in federal tax receipts. From 2004 to 2007, federal tax revenues increased by $785 billion, the largest four-year increase in American history. According to the Treasury Department, individual and corporate income tax receipts were up 40 percent in the three years following the Bush tax cuts. And (bonus) the rich paid an even higher percentage of the total tax burden than they had at any time in at least the previous 40 years. This was news to the New York Times, whose astonished editorial board could only describe the gains as a "surprise windfall."
But the optics remain that tax cuts hurt the national deficit.  The GOP has two years to see the benefits from the tax cut extension. I that enough time to make the case for more GOP gains in 2012?  It's not clear.  Keep in mind that the extension is not new tax cuts either.  It's merely an extension of the status quo.  The impact won't be as dramatic as in 2004-2007.

Assuming a revenue neutral impact, or even a positive impact, the Washington Times article continues and explains the real issue with the deficit;
Unfortunately, Mr. Bush allowed Congress to spend away those additional tax revenues. The fact is that the increase in tax revenues that flowed from the '03 tax cuts could have paid for the wars in Afghanistan and Iraq and then some but for rampant discretionary domestic spending.
But the targets for the GOP now need to be in the hundreds of billions per year to be impactful. And discretionary spending is a drop in the bucket compared to non-discretionary spending. Rolling back spending to 2008 levels is a start. But bigger things need to be addressed. Tackling Social Security, Medicare and Medicaid now would be over-reach. They aren't even possible with the current Senate and President. Failing to extend the debt ceiling would be an over-reach, not to mention a PR disaster.

But getting spending cuts by allowing Democrat input on what to cut in non-defense discretionary spending items seems inclusive enough. Tying the approval of the debt-ceiling to mandatory future spending cuts is another opportunity. Minimizing the size of the ceiling extension and limiting the number of times it can be done to say one or two more before the ceiling has to start being reduced is optically terrific. If the Democrats don't get on board with it, they'll look like the spendaholics they are.

Starting a panel on defining the future state of Social Security, Medicare and Medicaid that is not a commission but rather a cross country town hall is a public relations opportunity as well.  It's more inclusive than Democrats and it pretty much bypasses them while having them still appear to have a seat at the panel table. Remember, optics.  This also buys time until 2012 when the real work that will require some teeth (and votes) can be done.

Rolling back Obamacare.  This is a tricky one.  Starving it is probably much more achievable.  It's not even clear if a repeal is truly over-reach.  I think repeal might be possible if the Republicans can come up with a better, simpler, cheaper alternative.  That could take time.  It would look like the GOP taking their eyes off the economy like Democrats did.  So how to manage it?  Put repeal to a vote.  Repeal will get killed in the Senate, but the GOP can say they tried, and that perhaps a compromise can be worked out with Democrats. Democrats are not going to want to compromise on their signature legislation that they ironically refused to run on in 2010.  So while they refuse to compromise, the GOP can refuse to fund. Starve it while waiting for the Democrats to compromise.  They'll probably come around pretty quickly to pressure the GOP into some sort of funding for it.  The GOP will be stuck having to do something, but they do have a lot of leverage.  A bit of funding and a lot of repealing is possible.  Take out the individual mandate.  That seems like a winner with voters.  And without that, the legislation loses a lot of it's power.

Over-reach has two components - real and perceived.  The most important aspect of not over-reaching is perception.  As time passes, more can be accomplished by taking smaller steps.  There's a lot that needs to be done, I'm just arguing that over-reach now will lead to electoral problems in 2012.  The Republicans have to prove they are serious about jobs and debt and they'll reap rewards in the 2012 elections.  Those elections have Democrat Senators playing more defense than the 2010 elections did.  And there is the Presidential slot up for grabs too. Conservatives need the GOP to win that as much as they need them to be serious about the real economic issues facing the nation.  The balance is tricky and over-reach is tempting and far too easy to do, just ask ask President Obama.

There are lessons for conservatives from Obama.  They need to heed his mistakes and adjust accordingly before plotting their course for the next two years.  At least that's my impression.

Next Up in Part 2 - being responsive.

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