Thankfully, the United States is not the Soviet Union. Americans are wealthier, healthier, and — most importantly — freer. The American economy has many more structural strengths and is in many ways far more vital than the Soviet system was in the 1980s.
But this collapse in growth has an important warning. Built upon a flawed premise, the U.S.S.R. failed to cope with a market-oriented world economy and eventually collapsed. The United States’s founding premises are far nobler, but the U.S., too, is struggling in the face of new internal and external challenges. The nobility of its founding principles would make the collapse of the United States a cause for especial mourning, so it is even more pressing to diagnose our problems and to search for solutions.
In the new order of globalism, the United States has seen its industrial sector become a hollowed-out shell, as domestic legislation penalizes industry and U.S. trade policies encourage other nations to distort the marketplace. The financial sector has morphed into an ever-more powerful and unstable casino; with the backing of government (including the present White House), banks have increasingly centralized and exposed the U.S. and global financial systems to new systemic risks. Our nation’s health-care system grows increasingly more expensive, unwieldy, and bureaucratic. A mortgage bubble fed by easy credit and corruption and made worse by stagnating incomes has left many households with a mountain of debt. Depressed incomes for the middle class both facilitated the era of excess credit — politicians in Washington were anxious to grant at least the illusion of progress to the average American — and exacerbated its fallout — even as Americans borrowed more, they became less able to pay back their debts. Years of stagnating median hourly pay-rates have come home to roost, depressing domestic demand and the capacity of the market to renew itself.
This broader economic faltering has also accelerated the rate of government spending. Part of the story of the past four or so years is the transfer of private indebtedness to the public; with the anemic growth of the past decade no longer able to be financed by private borrowing, the federal government has stepped in.
Some would like to make the next election a mere rehash of past ones, drawing the central line in the sand as one about tax cuts and, with the Ryan pick, Medicare reform. Yet we should acknowledge that the economic policies of Ronald Reagan, like his foreign policies, were targeted to a specific set of problems at a specific time. Since the Bush tax cuts went into effect, the average effective capital gains tax rate has been lower than it was for nearly every year of Reagan’s presidency (with the brief exception of 1982). The maximum capital gains tax rate has certainly been lower over the last near-decade than in the past. Taxes as a percentage of GDP have not been lower in decades. Yet still our economy stumbles along. If tax cuts were the silver bullet for renewal, our nights would still not be scarred with the howling of disappointment. Meanwhile, the Medicare reform advanced by Congressman Ryan would not take effect for over a decade; if such a reform were to bear any economic benefits, we would not feel their full force for many years. Assumptions that government spending cuts will also provide a magic panacea are also possibly mistaken. During George W. Bush’s administration, government spending as a percentage of the whole economy was lower every year than it ever was under Reagan, yet economic growth under Reagan far outpaced that of the 2001-2009 period. (Of course, the Obama administration’s record also shows that spending hikes alone will not guarantee economic prosperity.)
In the face of the seeming stagnation of the late 1970s, Ronald Reagan and other Republicans led with new solutions, restoring the pace of economic growth for the next two decades. It might be time for conservatives to engage in a new thoroughgoing search for solutions, one that goes beyond the policies of tax cuts and the rhetoric of spending cuts. America’s industrial prowess must be restored, its health-care system revised, its financial sector reformed, its middle class renewed. In a graveyard of failed policies, conservatives must be willing to explore the broader palette of policy responses.