Democratic Party Faces a Choice

A very good read, especially for you Democrats.........

Kausismo Or Death? Dems Face Tough Choices Past 2010

Walter Russell Mead
the-american-interest.com
Oct. 8, 2010

Lost in the chatter about the potential GOP tsunami in the midterm elections is one simple fact: if American politics still operated on the rules of the twentieth century, the Democrats would own this political cycle.

The issues that concern voters most in this cycle (unemployment, insider power, Wall Street greed) are, or used to be, Democratic issues. This should be the Democrats’ time. That it isn’t speaks volumes about the changes the country is facing.

Forget the excuses: bad economy, midterm blahs. Franklin Roosevelt inherited a bad economy from his GOP predecessor. And the Depression wasn’t over by the 1934 midterms. Far from it. Unemployment still stood at 21.7%. The Depression still had six years to run.

Arguably, President Obama has more successes to point to at this point in his presidency than most. Not only has he passed health care and financial reform legislation; the much-derided TARP has ended up costing much less than expected. Once estimated at an eye popping $700 billion, TARP looks set to expire at a net taxpayer cost of something like $29 billion, reports the widely respected Financial Times. Coming in $671 billion under budget isn’t a bad record for a government program that most economists believe avoided a massive financial meltdown.

In 1934 Democrats gained 13 seats in the House and an impressive 9 in the Senate. Today, they are heading for what George W. Bush would call a ‘thumpin.’

Why? Basically, because voters believed that the Democrats had the answers to the country’s problems. Deficit spending, government intervention, support for the labor movement, heavy infrastructure investment: people believed that the only way forward was to have more of these things.

Moreover, people were angry. They were angry at the financial shenanigans on Wall Street. They were angry about income disparities between the wealthy and the workers. They were angry about falling farm incomes. They were angry about low wages, long hours, and unsafe working conditions — and they believed that the Democrats wanted to help and knew how to do so.

Voters weren’t happy about their economic circumstances in 1934. They didn’t think that FDR and the New Deal had ended the Depression. But they believed that Democrats had answers that, sooner or later, would work, and they believed that Democrats were on the side of the future.

In the new century that is no longer true. Voters are as worried about the future as they were in 1934. They are as angry at Wall Street and at inequality as they were back then. But a crucial segment of the voting public no longer thinks that the Democrats are part of the solution. The public is losing confidence in the ability of Democrats to solve the kind of problems they once trusted Democrats to solve. The latest Gallup poll shows that an eye-popping 54% of likely voters polled identified themselves as “conservative,” while only 18% embraced the liberal label.

In 1934 Democratic voters were motivated by the continuing existence of the Depression. Economic hard times made it more important, not less important, to support the President and his allies on Capitol Hill. Today even most Democrats do not feel that way — and it is Democratic discouragement more than GOP enthusiasm that will turn a tough midterm into a tsunami.

What is killing the Democrats this fall isn’t the midterm blues. It isn’t the bad economy. It is something much deeper, and I don’t see it changing anytime soon. The national economy is changing in ways that make traditional Democratic solutions less useful even as change makes traditional Democratic concerns more important. Yes, inequality is rising. Yes, the standard of living of many Americans is no longer rising. Yes, access to vital services — especially, but not only, health care and higher education — is increasingly difficult for many Americans to secure. Yes, the financial system went haywire in the last twenty years, generating enormous amounts of wealth for some without creating lasting value for society as a whole.

All this is very real, and for many Democrats and die-hard liberals it makes the call of the New Deal impossible to resist. That the history of the 1930s was repeating itself was the core conviction of many Democrats as President Obama took the oath of office. The economic crisis was a liberal opportunity not to be missed. Just as the Depression allowed FDR to transform American society and grow the government, so the Great Recession would allow President Obama to reconfigure the role of government in America today.

The trouble is that most of the 20th century Democratic solutions won’t work very well in the vastly changed economic landscape of the 21st century. Whatever one thinks of Keynesian economics, the benefits of deficit spending were clearly greater in the 1930s (when the US was essentially a closed economy) than they are today. If Americans have more money to spend, they are likely to go down to Walmart and buy something from China. The multiplier effect of government spending is weaker than it used to be.

Worse, the disastrous growth of public sector labor unions and years of political pandering by shortsighted and selfish politicians have made government a much less effective tool than it used to be. Per-pupil spending no longer bears much relationship to educational outcomes; if we double spending on teacher salaries we are not likely to double, or perhaps even to improve, educational standards. The extraordinary cost of government in union-dominated, politically dysfunctional states like California, New York and Illinois imposes crippling tax burdens on local economies. Firing state employees and slashing the wages and pensions of those who remain will do more for these states, sadly, than bulking up state spending on exciting new programs.

Government investment to promote economic growth is also less promising than it used to be. The accelerated pace of technological innovation makes it harder to predict where the economic future lies; think of the French investment in the once famous ‘Mini-tel’ system, destined to be destroyed and made worthless by the rise of the Internet. Government planners, even Harvard-educated ones with Truly Gigantic Brains, are simply not able to predict what technologies will really matter twenty, ten or even five years down the road.

In fact, the only real economic policy today that has any chance of working in the United States today is to promote the emergence of small business. Many of those businesses will fail; some will become thriving though never large enterprises; a few will become world-changing giants like Microsoft and Google.

Unfortunately for Democrats, the policies needed to support the emergence of an entrepreneurial, small-business-fueled society are almost the opposite of the classical policies that 20th-century Democratic ideology supports. Large business usually welcomes government intervention in the economy — if only because large businesses have the power to influence the government policies that affect them most directly. Regulations that raise the cost of entry into the market (everything from minimum wage laws, extensive paperwork requirements, taxes, environmental regulations, health care and other social mandates) benefit well-capitalized, large firms who thrive on economies of scale by making it hard for feisty newcomers to emerge and challenge existing product lines and business models.

The grand strategy of Democratic policy in the 20th century was to use the confluence of interests between big established business and organized labor to set up a nationally regulated marketplace that served major interests of both groups. (I’ve posted about this earlier in a series of posts on the “Blue Social Model.”) That strategy for all its shortcomings arguably once served the national interest better than any conceivable alternative. Now, it’s a recipe for economic disaster in the long run, and for electoral failure next month.

A viable national economic strategy today would have three component parts: long term measures to reduce the costs and overhead of small business by making government and the legal system cheaper and less intrusive; efforts to transform the marketplace for services like health care, education and others now provided largely by government into the private sector so that entrepreneurs can build new kinds of business while reducing the social cost of these vital and necessary services; and a way to provide the country with an affordable infrastructure that allows small business to flourish and enjoy the benefits of a national market at a low cost.

Making these strategies work requires effective and intelligent governance, and the provision of infrastructure at least is something that meshes with traditional Democratic concerns and ideals. But a party dominated by public sector unions is going to have a hard time shifting over to the kind of ideas that can command majority support in the 21st century. Almost all the changes Democrats need to make involve policies that the teachers’ unions, civil service unions, and the professional guilds (like lawyers and academics) hate.

Until Democrats figure out how to build a bridge to the 21st century, the party will continue to face the kind of sterile conflicts between its social-democratic, big government heart and its Clintonian head that have dogged it since the Carter administration. In the short term, infrastructure promotion looks like the issue with the most potential to attract wide public support. But in the longer term, the Democrats will have to choose between the public sector union movement and the American people as a whole. President Obama’s election gave Dems a brief, euphoric moment of hope, but that has long since faded away.

The Democratic Party has a choice to make: the hard road pointed out by thinkers and party activists like Mickey Kaus or a slow and lingering death. So far, the choice is for death. Moving forward, the prospect of winning is a powerful political force, but so is inertia — and the public sector unions have a lot of cash. We shall see.