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Rich Danker: GOP Still Has Some Explaining to Do on the Economy
Republicans are beginning to feel good again now that the other side is against the ropes. President Barack Obama and the Democratic majority in Congress are reeling from the backlash against their health-care bill. The Democrats’ liberal overreach — on health care, cap and trade, and the stimulus — appear to have greased the wheels for a GOP comeback in next year’s midterm elections.
Yet Republicans haven’t suddenly refurbished their image through the Democrats’ missteps. The GOP still has not redressed the blame voters put on it for last year’s financial crisis. The economic tailspin that poisoned the end of George W. Bush’s presidency and sunk the chances of Sen. John McCain succeeding him broke the electorate’s trust in the Republican Party’s handling of the economy. It will take firm understanding and resolve to get it back. Fortunately, the GOP has a blueprint for doing so.
In October 1929, the stock market crash brought the Roaring Twenties to a halt. President Herbert Hoover spent the next three years making matters worse by restricting trade and raising taxes dramatically.
When Franklin Roosevelt took office in 1933, economic output had contracted 23 percent and the unemployment rate reached the same mark. Even though the Great Depression would continue on Roosevelt’s watch for seven more years, Hoover and his fellow Republicans in Congress were blamed for it.
For the next 48 years, the GOP carried water for Hoover, accepting the fault for the cataclysmic event and yet not bothering to figure out what he had done wrong. In fact, they largely repeated his interventionist, anti-growth policies. A string of economic failures — two recessions under President Dwight Eisenhower, Barry Goldwater’s defense of the 90 percent top tax rate in his blowout loss to Lyndon Johnson, Richard Nixon’s wage and price control scheme — littered their record.
It wasn’t until Ronald Reagan was elected in 1980 that voters trusted Republicans with the national economy again. Why? Reagan and his policymakers finally buried Hoover and the Great Depression.
Reagan’s proposal to bring down income and investment tax rates was the first major tax-cutting plan by a Republican presidential candidate since Calvin Coolidge. It was drawn up by New York Congressman Jack Kemp, who introduced the legislation in Congress in 1978.
By that point, a national tax revolt that had been simmering through the 1970s was under way. On June 6, 1978, California voters passed Proposition 13, which sharply restricted property taxes. The same day in New Jersey, Jeffrey Bell, a 34-year-old Vietnam veteran, defeated incumbent Clifford Case in the Republican Senate primary on a tax-cut platform. Bell’s top policy adviser was Jude Wanniski, a firebrand Wall Street Journal editorial page writer who resigned the next day after being spotted by a newspaper executive handing out leaflets for Bell.
In addition to persuading Kemp, Bell and scores of other Republicans on the merits of cutting taxes, Wanniski had made an incredible discovery of his own that did the most to put the past in its place.
While researching for his book on political economy, The Way the World Works, he found that the Great Crash of October 1929 correlated with the advancement of the Smoot-Hawley tariff legislation in Congress. The bill, which imposed tariffs on thousands of imports and prompted European countries retaliate, wasn’t signed into law until the middle of the next year. But Wanniski noticed that the increasing probability of its passage in Congress had induced a sell-off in stocks as traders anticipated the coming shutdown of world trade. The Great Crash, in other words, was a distress signal to Washington that went unheeded. Smoot-Hawley and Hoover’s subsequent tax hike were discovered to be the real economic factors that caused the Great Depression.
These ideas about taxes and trade propelled Reagan to the White House and revived the U.S. economy from the stagflation of the 1970s. With this rebirth of classical economic theory, dubbed “supply-side economics” by the phrase-savvy Wanniski, Republicans atoned for the mistakes of Hoover and regained credibility on the economy. For the first time in 36 years, the party gained control of the White House and the Senate. The following period of GOP dominance on both ends of Pennsylvania Avenue demonstrated the trust voters placed in it for those ideas.
This brings us back to the current mess.
Republicans still have not articulated a coherent explanation for the financial crisis of last fall; they don’t have one. Bush and McCain joined Democrats in excoriating the greed and overreach on Wall Street. Conservative Republicans blamed it on too much government spending during the Bush years. Few Republican lawmakers have considered monetary policy as a culprit.
Their torpor in searching for the truth leaves little hope that they will be able to resurrect voters’ trust in their handling of the economy. Much like Kemp and Reagan did in 1978, they should listen to outside voices carrying unconventional ideas. It shouldn’t take another half-century for Republicans to figure out what went wrong.
— Rich Danker is a graduate student at the Pepperdine School of Public Policy in Malibu.
Comments
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» on 09.03.09 @ 08:21 AM
The Republicans had their chance. They screwed the country up and now they have nothing to offer other than criticism of the Democratic agenda.
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» on 09.03.09 @ 09:12 AM
2012 wont come soon enough…
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» on 09.03.09 @ 10:28 AM
Mr. Danker apparently reads and listens to only one side of the media. The Republicans clearly presented major contributing reasons for the financial crisis…in part,
Freddie Mac, Fannie Mae to name a few. Chris Dodds, Barney Frank and others who expressed that all have a RIGHT to housing(where is that in the Constitution?)should look in the mirror about helping create the mess we are in. When Republicans brought up the impending doom of this type of lending to people who would not be able to pay the loans, they were labeled by the Dems as racists. And these same politicians still act as if they had no part in any of it. We’d be out of this mess sooner if the Administration would quit telling everyone the Government will take care of them. Some are sitting around waiting for this to happen instead of figuring out how to get more Funemployment.
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» on 09.03.09 @ 10:33 AM
A large part of the financial problems that are facing the country today stem from the 1977 Community Reinvestment Act (CRA) which was brought to life by Jimmy Carter. The premise of the CRA was to put pressure on financial institutions to make loans to people who didn’t have the the ability to pay the loans back. The Carter Administration termed those financial institutions (who only offered loans to those individuals with the ability to repay them) with ‘redlining neighborhoods’. From 1977 onward, the Federal Government (see Fannie Mae) have added to the original premise of the CRA and have underwritten loans for individuals seeking housing that even a loan shark in South Philadelphia wouldn’t touch.
I think that the article (as written) provides us the opportunity to ask the question of Republicans. ‘What Have You Done for Me lately?”...however, to paint the current financial situation with a ‘broad brush’ in questioning Republicans only needed to be addressed.
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» on 09.03.09 @ 10:52 AM
This is a provocative and intelligent article. Nice to see this kind of sober and reasoned approach from a graduate student. Hope to see more from Mr. Danker.
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» on 09.03.09 @ 11:30 AM
Way to go… I ,as a democrat, don’t agree with all of this, but am proud of you… Dee
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» on 09.03.09 @ 02:06 PM
The democrats were in control of both houses of Congress during the economic downturn! Or didn’t they teach you that at Pepperdine? But it’s so much fun to still blame Bush and the Republicans for everything. I think that makes it fair to blame Obama for continuing the same policies and making the debt 4 times worse in only 100 days.
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» on 09.03.09 @ 02:10 PM
Hoover has as much similarity to the Republican party of today as JFK has to do with the Democratic party of today. JFK was a tax cut fiscal conservative, much like Reagan.
He wanted to cut taxes to spur the economy:
http://www.youtube.com/watch?v=aEdXrfIMdiU
Go back to school and learn some history this time.
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» on 09.03.09 @ 02:40 PM
Well said, Rich. I’d like to hear more about how the Fed’s monetary policy influenced/compounded the crisis.
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» on 09.03.09 @ 03:05 PM
This is an excellent article. I wish more Republicans would make reasoned arguments like this instead of repeating “big lies” about birth certificates, death panels and socialism (etc.) You are not a dining room table, Mr. Danker.
However, the messy process of creating a health care bill is still ongoing. Assertions that Democrats are “reeling” are premature. Any backlash against the many proposed health care bills, especially among seniors, is based on misinformation. Sarah Palin’s absurd “Obama Death Panels” statements about the proposed health care bills are reminiscent of her “Obama pals around with terrorists” lies during the campaign. We know how that worked out!
Regarding the causes of the 1930’s depression and current recession, you focus on the triggers and not the real underlying cause, which is over-leveraging. Smoot-Hawley was the match that ignited the large pool of (over-leveraged) gasoline.
http://www.savingtoinvest.com/2008/09/leverage-101-real-cause-of-financial.html
The recent recession has its roots in the 1999 Gramm-Leach-Bliley Act which deregulated banks leading to enormously over-leveraged investments, especially in housing. Note that this bill was proposed by a Republican congress, but supported and signed by Bill Clinton. Everyone was happy with the enormous leveraged (paper) wealth it created, until the inevitable collapse.
http://www.bizjournals.com/phoenix/stories/2008/09/15/daily81.html
Once Hoover allowed the banking system to collapse, we were in for a long depression regardless of what Roosevelt did. The New Deal deficit spending certainly lessened the severity of the depression, until the enormous deficit spending during WWII jump started the economy again. Only massive government spending could get us out of the depression.
Obama, George W. Bush, Ben Bernanke and Hank Paulson must be credited with saving the banking system and preventing another great depression, despite the opposition of congressional Republican ideologues.
Why We Didn’t Crash
http://www.washingtonpost.com/wp-dyn/content/article/2009/08/23/AR2009082302034.html
You blame Obama for not ending the recession sooner like you try to blame Roosevelt for the length of the depression. Neither had the power to do anything more than lessen their severity.
I believe that many of the problems of the current Republican party stem from the over-idolizing of Ronald Reagan. For example, here’s what he said arguing against Medicare and Social Security in 1961:
“Pretty soon your son won’t decide when he’s in school, where he will go or what he will do for a living. He will wait for the government to tell him.”
http://en.wikipedia.org/wiki/Ronald_Reagan_Speaks_Out_Against_Socialized_Medicine
Of course, Medicare passed and did nothing of the sort. Continued Republican use of misinformation like this no longer resonates in the age of Google, where facts can be checked. Young people are especially skilled in Internet fact checking. The future of the Republican party depends on abandoning fear-based smears and putting forth reasoned arguments and ideologies.
May I suggest a new Republican mentor, George H. W. Bush (senior)? His foreign policy was perfection. He ran the Gulf War precisely by the “Powell Doctrine”, and he raised taxes when necessary after the war to avoid increasing the deficit, which allowed the prosperity and surpluses of the Clinton years.
http://en.wikipedia.org/wiki/Powell_Doctrine
Bill B.
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» on 09.03.09 @ 03:59 PM
Well said, Rich. I’d like to hear more about how the Fed’s monetary policy influenced/compounded the crisis.
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» on 09.03.09 @ 05:17 PM
Duke? Where are you?
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» on 09.03.09 @ 06:13 PM
Excellent points. This article would make the great Republican Tevin Downey would be proud
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» on 09.03.09 @ 08:22 PM
Wow, a republican that sounds somewhat reasonable, finally.
You don’t post any solutions, but that’s ok, the call for reasoned arguments is revolutionary enough. The main problem with the party is too many people believe Limbaugh, Hannity, Malkin, Beck, etc. are actually intelligent political analysts with solutions. They are entertainers, nothing more, without a shred of consistency (providing Jon Stewart et al with endless material, Hannity will complain about Obama doing something, but Stewart will find a Hannity piece from last year praising W for doing the same thing). How in the world did they become the mouthpiece for the party.
I agree with Bill B, misinformation spouted by these mouth-breathing entertainers is too easily discredited in this age.
The CRA causing the meltdown? That has been so thoroughly refuted its almost pointless to mention. CRA loans aren’t even a significant percentage of the bad loans, and nothing in the CRA mentions requiring companies to give loans to anyone who breathes, that was a “rational market” product.
The Democrats controlling congress during the downturn? For the last two years of W’s presidency, maybe, and they were pathetic and didn’t do a thing.
The fact Republicans need to grasp is that they had total control. Every policy that W wanted, and every policy that every Republican congressman and senator wanted, happened. This economy is the result of those policies. Placing any blame on Obama is silly, and every rational person knows it.
True conservatives need to take back the Republican party, and come up with some ideas. Otherwise the Republican party will remain the joke that it is right now.
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» on 09.04.09 @ 06:26 AM
Reagan lowered taxes, and is therefore, a god. But he was a disaster in every other sense. He borrowed trillions to pump up his fake recovery, deregulated industries that then ran amok. And opened the treasury to the arms industry. What a guy.
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» on 09.04.09 @ 08:36 AM
Obviously ‘SB Parent’ didn’t comprehend my statement completely “From 1977 onward, the Federal Government (see Fannie Mae) have added to the original premise of the CRA and have underwritten loans for individuals seeking housing that even a loan shark in South Philadelphia wouldn’t touch.”
At the time of the inception of the CRA, I worked for the first Savings and Loan institution in Washington, D.C. that was targeted by the Carter Administration for ‘redlining’. The subsequent pressures brought about through the INITIAL actions of ‘act’ had a great deal to do with this institutions demise in 1982. Little did anyone know that a Washington D.C. institution that started in 1881 and upheld the rules and regulations of the government would be brought down by those in government. The CRA of 1977 was not the sole reason for this financial institutions demise, but, as I stated earlier ‘the Federal Government (see Fannie Mae) have added to the original premise of the CRA and have underwritten loans for individuals seeking housing that even a loan shark in South Philadelphia wouldn’t touch.”
Having had to chase down, prepare documentation for litigation purposes and explain our actions against those who refused to abide by the articles of repayment, I disagree.
‘Those Who Ignore History Are Doomed To Repeat It”
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» on 09.04.09 @ 10:06 PM
Well said, Rich. I’d like to hear more about how the Fed’s monetary policy influenced/compounded the crisis.
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