DAVID BROOKS: Middle- Class Capitalists

NYT

In 1974, a group of economists and journalists got together in a bar and launched supply-side economics. It was a superb political and economic package. It addressed a big problem: stagflation. It had a clear policy focus: marginal tax rates. It celebrated a certain sort of personality: the risk-taking entrepreneur. It made it clear that the new, growth-oriented Republican Party would be different from the old, green-eyeshade one.

Supply-side economics had a good run, but continual tax cuts can no longer be the centerpiece of Republican economic policy. The demographics have changed. The U.S. is an aging society. We have made expensive promises to our seniors. We can’t keep those promises at the current tax levels, let alone at reduced ones. As David Frum writes in “Comeback,” his indispensable new book: “In the face of such a huge fiscal gap, the days of broad, across-the-board, middle-class tax cutting are over.”

The political situation has changed, too. Republicans used to appeal to the investor class with economic policies and the working class with values, crime and welfare policies. But that formula has broken down. The workers are walking away from the G.O.P., and the only way to win them back is by listening to their economic concerns.

As a result, smart Republicans are groping for a new economic model, and as they do, Republican economic policies are shifting. The entrepreneur is no longer king. The wage-earner is king. As the presidential campaign rolls into Michigan, it’s clear that Republicans are adjusting their priorities to win back the anxious middle class.

The Republicans who are reaching toward this new model still sound very different from Democrats. They never describe American workers as victims. They never describe globalization as a remorselessly punishing process. They argue that individuals can still control their own destinies, provided they work hard and get educated. They believe it would be a catastrophe if the U.S. abandoned free trade or adopted a European-style safety net and suffered European tax rates.

But they envision a different role for government than the 1980s Republicans. “Americans aren’t afraid of competing in a global economy,” says Douglas Holtz-Eakin, John McCain’s economic adviser, “They’re afraid they’re doing it by themselves. They want a government that is on their side.” In this new model, government is sort of like Vince Lombardi, setting a context that allows individuals and families to compete.

There are four main spheres of policy innovation. First, a human capital agenda. The U.S. needs a more skilled work force, but for the first time in our history it is getting a generation no better educated than its parents.

To remedy this, Ramesh Ponnuru of The National Review proposes an increased child tax credit to reduce the stress on young families, the seedbed of human capital. Gov. Mark Sanford of South Carolina proposes tuition tax credits for families earning less than $75,000. The G.O.P. presidential candidates vow to spend more on scientific research and to take on special interests like the teachers’ unions. If schools can’t fire bad teachers and reward good ones, then nothing else we do to improve education will do any good.

Second, Republicans have embraced health care reform. While Democrats emphasize the uninsured, Republicans emphasize cost control. They understand that it’s not a question of protecting health markets from government takeover. Government already controls and distorts health care. It’s a question of straightening out the system so that it is clear who is paying and for what.

Mitt Romney supports private insurance enforced by a universal mandate. McCain talks about paying for outcomes rather than tests to cut down on unnecessary procedures. Mike Huckabee promotes an activist agenda to reduce obesity and prevent chronic illness.

Third, Republicans are putting together pieces of what you might call a resiliency agenda to help families withstand setbacks. McCain would subsidize the wages of workers who were laid off and forced to take lower-paying jobs. President Bush has proposed $3,500 personal re-employment accounts. Senator Jeff Sessions of Alabama supports $1,000 at-birth savings accounts, so that every American has assets to fall back on. Romney has a plan to aggressively increase savings, and Fred Thompson proposes a federal 401(k).

Finally, Republicans are shifting their emphasis from tax cutting to fiscal rectitude. McCain, Huckabee and Thompson emphasize spending control and dealing with the monumental problem of entitlements. Middle-class workers don’t worry so much about investment incentives. They worry that their government is fiscally decadent and fundamentally irresponsible.

This spring Ross Douthat and Reihan Salam will publish “Grand New Party,” a book about efforts to win back the so-called Sam’s Club Republicans. The book will be groundbreaking, but the campaign can’t wait. Republican candidates are shifting focus right now.