Why the financial crisis has benefited conservatives

When the stock market crashed and credit markets froze in the fall of 2008, conservatives panicked. And they had reason to. After all, the unfolding financial crisis bore striking similarities to the financial crisis of 1929, which, in addition to precipitating the Great Depression, discredited conservatism in the eyes of a generation of voters and ushered in an era of liberalism that would last for half a century.

For a while in late 2008 and early 2009, it looked like history was repeating itself. Voters were enraged at Wall Street, at bankers, and, presumably, at the ideology most closely associated with Wall Street and bankers, conservatism. Polls showed that voters blamed President Bush for the economic turmoil, and in November of 2008 voters gave Barack Obama—who was in a dead heat with John McCain when the financial crisis struck—a larger share of the popular vote than they had given any Democratic presidential candidate since Lyndon Johnson. Congressional Republicans had lost ground, too: by late spring of 2009, Democrats had an 80-seat majority in the House and a filibuster-proof majority in the Senate.

The financial crisis gave Democrats an excuse to ramp up social spending and aggressively regulate large sectors of the economy. And the large Democratic congressional majorities that the financial crisis had helped secure gave them the votes to do so. After passing the largest stimulus in the history of the world in April, Democrats quickly pivoted to their top domestic priority: a bill that would extend health insurance coverage to 40 million uninsured Americans. It looked like the New Deal all over again.

But it wasn’t long before Obama’s new New Deal ran out of steam. The Democrats’ health care bill stalled in Congress, support for President Obama dropped, and the number of Americans identifying as liberals declined while the number of Americans identifying as conservatives reached record highs. By the end of the year, Republicans were ahead of Democrats in Gallup’s generic ballot and conservative Republican gubernatorial candidates had won convincing victories in Virginia and New Jersey. Less than a year after commentators had declared conservatism “dead,” conservatism was not only alive, it was ascendant.

How did conservatism recover so quickly from an event that just months earlier had seemed like a near-fatal blow?

It’s partly because liberals overplayed their hand: the massive stimulus, the ill-conceived health care bill and the ambitious cap-and-trade proposal were all deeply unpopular with most Americans.

But I think there’s another, more basic reason why, two years after the Dow Jones Industrial Average lost nearly half its value under a Republican president, Republicans have a good shot at winning back control of both houses of Congress: the financial crisis was actually good for conservatism.

By causing tax revenue to plummet and government spending to skyrocket, the financial crisis sent the federal budget deficit spiraling out of control. The out-of-control deficit has played into the hands of conservatives by discrediting liberals’ most alluring argument: that the government can create costly new social programs without raising taxes on the middle class. It is now clear to most Americans that the government is broke and they have no choice but to reject costly new entitlement programs and accept cuts to existing ones. Unless, of course, they are willing to pay more in taxes, which they are not: Americans prefer spending cuts to tax hikes by a three-to-one margin. This explains why Republicans are poised to pick up between 25 and 100 congressional seats in this fall’s midterm elections.