Conservatism, Free Markets, and America’s Post-Obama Economy

Regardless of who becomes America’s forty-fifth president in January 2017, the new chief executive and Congress will face considerable social, foreign policy, and economic challenges. That’s true of any president and legislature. The economic problems, however, will especially be formidable: not, we hope, because of something akin to the financial crisis that confronted President Obama upon assuming office, but because of long-term difficulties for which minor policy tweaks won’t be a sufficient response.

These circumstances will present market-inclined conservative reformers with a choice. One option is to pursue incremental improvements, such as tinkering with various regulations or mildly scaling back the rate of growth in entitlements without substantially reducing the scope and depth of government economic interventionism. The other possibility is to take a page out of the progressive playbook. This would be to pursue a more expansive agenda: one that not only pushes the American economy in a free market direction to the same degree that Franklin Roosevelt’s New Deal and Lyndon Johnson’s Great Society seriously undermined economic liberty, but that, like progressivism, also makes a point of underscoring the values that must be promoted and embraced if such transformations are to last.

The Challenge

The negative first-quarter of growth recorded in 2015 was a pertinent reminder that, for all the improvements since the nadir of 2008, America’s economy is not in good shape. Many commentators have expressed concerns about the size of America’s public debt and the political difficulties associated with reducing it. Marshaling coalitions to oppose reductions in the biggest federal government spending items—i.e., welfare programs—that consistently cause expenditures to exceed revenues is not hard. Conversely, those who might be expected to support spending reductions are a more politically diffuse, less easily mobilized group.

Another challenge, stated in the 2015 Index of Economic Freedom, is “a 1.6-point decline in overall economic freedom [in America] over the past five years [that] reflects broad-based deteriorations in key policy areas, particularly those related to upholding the rule of law and limited government.” What the Irish entrepreneur Declan Ganley aptly calls “crony corporatism” has also worsened in America insofar as, according to the Index’s editors, “High levels of government spending and the expansion and complexity of the government’s regulatory agenda have increased opportunities for political favoritism and cronyism.” Overcoming this problem is especially hard when so many interest groups across the political spectrum benefit from such arrangements.

Employment presents its own complications. Though the official national unemployment rate has declined from 10 percent in October 2009 to 5.5 percent in May this year, the overall employment situation is best described as mixed. Long-term unemployment, for instance, constitutes a larger share of unemployment than during that which followed any previous recession. Closely related to this is minimal wage growth. As a recent Economist article stated, “Inflation-adjusted wages for typical workers are stagnant. In fact, they have barely grown in the past five years; average hourly earnings rose 2 percent year-on-year in February of 2015: about the same as in February of 2010.” Hence, when American wage earners say they sense little improvement in their economic conditions, they are mirroring a reality captured in wage statistics.

America’s labor-market difficulties, however, don’t stop there. The percentage of Americans aged sixteen and over who are either employed or “actively looking for work” has steadily declined since 2001. This fall in the labor-market participation rate to 62.8 percent in April this year (lower than the rates of many other developed countries, such as Australia and Canada) owes something to demography as baby boomers retire. But as the Congressional Budget Office noted in 2014, “poor prospects in the labor market seem to have had an unusually large effect in recent years.” Some downsides of this decrease—such as productivity losses and an increased burden on welfare programs—are easily measurable. Others, such as the negative impact on people’s sense of self-worth, are harder to measure, but are no less real.

Why an Ambitious Agenda?

Clearly, our economy is hardly performing at an optimal level. Of course, a society’s well-being can’t be reduced to GDP growth. It’s also true that economic prosperity generates its own set of problems, such as lackadaisical attitudes towards the need for fiscal discipline. Nonetheless, a dynamic American economy is surely preferable to, say, France’s stagnant one, let alone those of economic dystopias such as Argentina, Greece, and Venezuela.

Doing nothing isn’t an option for American conservatives. I’d suggest, however, that the incremental approach generally followed by conservatives—which often amounts to trying to adjust, rather than override or completely dispense with, policies enacted by progressives—isn’t going to be enough either. Conservatives are instinctively wary of major upheavals. Yet if they really believe that progressive economic policies are seriously damaging the common good, they should perhaps do what progressives do: implement fundamental changes.

One example of such a reform would be dramatically simplifying the federal tax code. This currently amounts to 74,600 pages. That’s up from 60,044 pages in 2004 and 26,400 in 1984. The Internal Revenue Service may not be the government’s most popular agency, but its job is surely rendered impossible by the tax code’s sheer length and complexity. A major reason for the tax code’s size is that it’s used to promote numerous social and economic goals, ranging from making childcare affordable for more people to encouraging companies to switch to ethanol fuel. Some of these objectives may well be worthy aims, but is the tax code really the best way to try and achieve such ends? The distorting effects that such measures have upon the incentives that inform economic decisions are well established.

A drastic reform of the tax code to curb its use as a tool of social engineering should go hand-in-hand with another radical alteration. Corporate welfare has long been a feature of American economic life. Now, however, it goes far beyond direct subsidies or the workings of the Export-Import Bank. It also includes special loans and tax breaks for specific industries and even regulations designed to favor particular businesses in a given industry. Often presented and sometimes conceived as ways to help “the little guy” (such as small farmers), most forms of assistance go to well established, large corporations, as the economist Veronique de Rugy and others have illustrated.

Prioritizing an end to corporate welfare isn’t, however, just about introducing more competitive efficiencies into America’s economy. The broader impact would be considerable, just as Obamacare’s effects go far beyond healthcare issues. Purging the business and political worlds of crony corporatism would, for example, help pave the way for seriously overhauling America’s welfare state. Congressman Paul Ryan put it well when he said, “if we can’t get corporations off the dole, how in the world can we credibly reform social welfare programs?” Above all, ending corporate welfare would help restore integrity to American business and government. As de Rugy pointedly stated in testimony to Congress this year:

Government subsidies create an unhealthy—and sometimes corrupt—relationship between commercial interests and the government. The more the government has intervened in energy markets, the more lobbying activity has been generated. The more subsidies that it hands out to businesses, the more pressure policymakers face to keep the federal spigot flowing. As the number of lobbyists grow, more economic decisions are made on the basis of politics, and more resources are misallocated. And the door opens to cronyism and corruption.

Economic Policy Beyond Economics

These are just some big-ticket items that could form part of an ambitious post-Obama conservative economic agenda. Others might include redrafting the Federal Reserve’s charter so as to limit its scope to monetary stability. This would force legislators to stop relying on easy money policies to compensate for their failures to implement regulatory reforms that facilitate greater productivity and lasting employment. Another would be aggressively pursuing expansive free trade agreements with any nation willing to sign them in the face of resurgent protectionism across America.

But whatever fundamental reforms might be pursued, I don’t doubt there would be substantial electoral costs for conservatives if they were actually implemented. The retribution from powerful interest groups would be swift and lasting. Nevertheless, once weighty economic changes are institutionalized, they are hard to dislodge. That has been the lesson of the Affordable Care Act and the various legacies bequeathed by presidents Wilson, Roosevelt, and Johnson.

Solidifying such reforms, however, also means that conservatives should learn from and imitate progressives’ skill in explaining their economic reforms in terms of explicit value commitments. Progressives have long understood the efficacy of doing this. Witness the way in which they have relentlessly deployed the language of justice and equality to persuade many people of the rightness of incessant government economic intervention and expansive welfare states.

Though it often seems to be the case, progressives don’t enjoy a monopoly on narratives about the good and the economy. Yet many conservatives seem reluctant to discuss economic issues in moral terms. Crony corporatism is fundamentally unjust. A lengthy and excessively complicated tax code does undermine rule of law. So why do so many conservatives handicap themselves by relying on strictly technical arguments, mixed with occasional antiphons to negative liberty and appeals to be “pragmatic,” when addressing these matters?

The oddness of this situation is underscored by the fact that American conservatives can draw upon numerous normative resources to make their case. These range from the commercial republicanism espoused by Alexander Hamilton and other Founders, to the economic vision portrayed in Michael Novak’s The Spirit of Democratic Capitalism. Though differing in certain emphases, these sources share an understanding of commerce and the institutions that promote economic liberty as indispensable to societies that take the good life seriously.

In short, pro-market conservative reformers need to grasp what progressives have recognized for decades: that people who embrace social democratic views of economic life will become increasingly disinclined to protect the values and institutions undergirding a market economy. That’s why any serious conservative economic agenda must involve not just root-and-branch reform, but also transformation in the way that conservatives make their case for the optimal direction for economic life in a post-Obama America.