A Jobs Agenda for Republicans

“Not just no – Hell no!” That slogan of Sarah Palin’s has animated many Republicans in recent months as November’s US mid-term elections near. It has done well for Ms Palin herself; her political action committee raised $865,000 in the second quarter. The former Alaska governor’s example has inspired even more radical imitators: Minnesota congresswoman Michele Bachmann – who last week accused the president of “turning our country into a nation of slaves” – raised twice as much as Ms Palin over the same period.

It is not so clear, however, that this mood is serving the larger party or the country as a whole. A competition in which those who say the wildest things raise the most money and emerge as the most visible leaders overshadows the truth that most Republicans are committed to reasonable, businesslike governance. As the mid-terms draw close, the party needs less rhetoric and more policy.

Republicans rolled out the famous “Contract with America” six weeks before surging to victory in the 1994 congressional election. That contract focused the party’s attention on the voters it most urgently needed to win: Republicans who had abandoned George H.W. Bush in 1992 to follow the third-party candidate, Ross Perot. The 1994 contract sought to assure voters that Republicans had responses to the problems uppermost in their minds. It also imposed a discipline on candidates: do not “muse” and stick to the script.

Sixteen years later, and Republican leaders have been working through the spring and summer on a similar platform for 2010. As yet it remains uncertain whether they will produce anything. But if they do, it is easy to guess what it will feature: a promise to vote to repeal President Barack Obama’s healthcare plan, measures to favour business investment, and the extension of former President George W. Bush’s tax cuts otherwise slated to expire at the end of this year.

These promises are inadequate. A vote to repeal healthcare would be symbolic only: even if repeal passed, which it would not, the president would veto it. Extending the Bush tax cuts would be helpful to long-term economic growth – but hardly constitutes an effective anti-recession measure. The Bush tax cuts have been in force since 2001 and 2003. The crash of October 2008 and the ensuing recession happened anyway. The medicine that did not prevent the disease is hardly likely to cure it.

Yet there are policy improvements that Republicans could deliver – and which would help lift the country out of the worst recession since 1945. The first is a payroll tax holiday. Mr Obama added $787bn to the national debt with a poorly designed “fiscal stimulus” that did little to create jobs. Now is the time for a Republican alternative. The US collects about $40bn a month from the payroll tax that funds Social Security and Medicare. A one-year holiday from such payments would put money in workers’ pockets and encourage employers to hire, at only a little more than half the cost of the Obama stimulus. The holiday would have been a great idea in January 2009. It still is now.

Elsewhere, while the US economy makes a statistical recovery, job creation is stalled. Individuals and companies are saving their cash, because debt reduction is the priority for those who fear deflation. To get the cash moving we need moderate inflation, which reduces the burden of debt. Even better, since the largest single holder of US cash is the Central Bank of China, US inflation conscripts an unco-operative China into contributing its fair share to global economic recovery. Congress, of course, does not make monetary policy. But it can express opinions – and, over time, the Federal Reserve does listen.

The next stage of a positive Republican agenda would be a genuine bonfire of regulations. We have had a regulation fiesta over the past 10 years. The Weidenbaum Center at Washington University in St Louis generates a “regulation budget” for the federal budget. Many of these regulations govern the energy sector, commanding utilities to use some power sources rather than others, regardless of cost. By its calculations, the regulation budget grew at a faster rate in the 2000s than in any decade since the 1970s, nearly doubling.

This torrent commenced well before Mr Obama’s signature reforms and is accelerating. The failure of regulation where it is most justified – finance – has opened the door to a surge in regulation where it is least justified. In the single year 2010-2011, its costs will jump by 4 per cent in real terms, according to the Weidenbaum Center.

Finally, since we cannot repeal healthcare reform, we must repair it. The Obama healthcare plan loads heavy new taxes on work and investment. It expands Medicaid, the health programme for the poor that is already the fastest-growing item in the budget of most states. Instead of illusory promises of repeal, Republicans should address the threats to American prosperity embedded in the Obama plan’s bad financing.

Healthcare reform should be paid for in ways that do not discourage work and investment, most plausibly by substituting new taxes on energy or carbon for Mr Obama’s taxes on “unearned income” and payrolls.

You don’t need a positive programme to win an election, as the Democrats proved with their anti-Bush campaign in 2006. “Hell no” is a fine slogan for the “out party.” Very soon, the Republicans may again be “in.” It is time for a party of “yes.”

Originally published in the Financial Times.