Successful companies tend to “stick to the knitting,” focusing on things they are good at, note Tom Peters and Robert Waterman in their seminal book about successful businesses, In Search of Excellence. Conservatives could do with taking that advice right now when it comes to economic policy.
What has made conservative economic policy successful is its focus on getting the dead hand of government out of people’s lives and allowing the invisible hand of the market to take over. By focusing on the supply side of economics—cutting taxes, deregulating, and recognizing property rights of businesses that supply goods and services—conservatives allowed the economy to flourish in the Reagan and Gingrich years. These moves petered out under former President George W. Bush, and the result was an economy burdened by an administrative state that contributed to the 2008 financial crisis.
Former President Barack Obama doubled down on the administrative state. Experts suggested that America would never see real economic growth again. The war on coal, Operation Choke Point, and other Obama administration initiatives wreaked havoc on businesses across America, resulting in significant discontent that contributed to the surprise election of President Trump.
Initially, the new president and Congress focused on traditional conservative policy, tax cuts and deregulation, with good results. Growth quickly picked up to more than 3 percent with the potential for going much higher. However, as the administration’s focus has shifted, and with a shift in party control of Congress, economic prospects have dimmed.
Part of the shift in focus was a repudiation of longstanding conservative support for free trade. The Trump administration's “tough” trade policy is unabashedly protectionist, a policy former President Ronald Reagan called “stupid,” adding, “We must resist protectionism because it can only lead to fewer jobs for them and fewer jobs for us.” The thousands of auto workers and others who have lost jobs as a result of the tariff wars would agree.
The administration is also toying with using anti-trust law to harm businesses it has political disagreements with, undermining the traditional conservative respect for property rights. Furthermore, some conservative commentators are calling for the state to take on a more explicitly paternalist role, intervening to prop up communities that have been the victims of the administrative state.
Turning away from the free market has cost us, not only in terms of jobs but reduced growth. Third quarter 2018 growth would have been more than 5 percent without the trade wars. As my colleague Wayne Crews suggests, the administration’s new regulatory actions could possibly wipe out the economic gains from its early deregulatory actions.
In all of this, conservatives have lost sight of the fundamental insights of free market economics: that people do best when allowed to find their own way. So rather than trying to promote exports by making imports more expensive, or breaking up firms, or issuing wage subsidies, conservatives should “stick to the knitting” and focus on the supply side.
If an industry is suffering and uncompetitive on the world stage, deregulate it.
If a community is hurting and lacks dynamism, grant it exemption from rules that hurt new businesses by making it a development zone.
If companies are finding it hard to raise cash, deregulate the financial industry.
If startups are selling out to big companies, change the rules that make IPOs difficult.
If employers find it difficult to hire more people, liberalize employment laws.
If people find it hard to make ends meet, cut their taxes.
If people find it hard to buy a home, lift zoning restrictions and financial rules that make it difficult to originate mortgages for the less-well off.
These policies are tried and true. They derive from the knowledge that wealth grows when property rights are well-defined, incentives are aligned in the right direction, and costs are not artificially raised by bureaucracy. Blurring property rights, perverting incentives, and imposing bureaucracy are hallmarks of the left-liberal economic approach that has never worked.
Conservatives should stick to the knitting when it comes to economics. Jettisoning the tried and tested in favor of whatever new theory comes along is profoundly unconservative.
Originally published at the Washington Examiner.