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Is the GOP Losing Sight of Reaganomics?

By Thomas Bray

The latest Nobel Prize for economics, awarded to Edmund S. Phelps of Columbia University, is yet another reminder that "Reaganomics" remains the dominant economic theory of our times. Phelps received the prize for work in the late 1960s challenging the conventional liberal wisdom that the path to higher employment lies with easier money.

In fact, argued Phelps, the public would rationally fear that such a policy would sooner or later trigger a ruinous inflation, pushing up interest rates and depressing economic activity - which is exactly what happened in the 1970s. It fell to another recent Nobel Prize winner, Robert Mundell, to explicitly call for turning this policy mix on its head, keeping the dollar stable while stimulating work and investment through reductions in marginal tax rates.

Reagan, who had not been averse to raising taxes as governor of California, bought into the new thinking in the late 1970s - and swept to landslide victories in 1980 and 1984. Likewise, to pull the economy out of its slump he inherited in 2001, George W. Bush pushed through a new round of tax cuts, which now are producing a gusher of revenue, and won reelection in 2004.

These days, however, Republicans are having difficulty exploiting the incentivist principles that brought them to the dance. Some even seem to be downplaying them. In Michigan, for example, Republican senatorial candidate Mike Bouchard, the Oakland County sheriff and former state senator who was expected to give first-term incumbent Deborah Stabenow a stiff challenge, stresses his homeland security credentials and his tough stand towards illegal immigration.

On his website he does list 10 steps he would take to keep the economy humming. No. 1 is cutting "red tape" on small business. No. 2 is giving the president line-item veto authority - a sort of stop-us-before-we-spend-again approach. Only when we get to No. 3 do we find Bouchard calling for making the Bush tax cuts permanent.

To be sure, in the other high-visibility Michigan race, Republican gubernatorial candidate Dick DeVos is playing up the idea of tax cuts at the state level. He backed a proposal to zero out Michigan's onerous Single Business Tax. And he doubled down recently by proposing to reduce or eliminate the state's even more onerous tax on business plant and equipment.

DeVos clearly believes the proposals will buttress his claim that, as a former business executive, he knows what is needed to reverse Michigan's single-state recession. As DeVos spokesman John Truscott points out, "if we don't get the business and job situation straight, then we'll never fix our problems in the state, or get revenue going in the right direction so we can do the things like cut [individual] income taxes."

But unless DeVos first gets elected, he won't have that chance. Polls show him still within striking distance of Granholm but apparently stalled after an exceptionally strong campaign start. A weak performance in his first debate with Granholm may be partly responsible, but his strategy of cutting business taxes risks making him appear to be just another Chamber of Commerce-style Republican rather than the sort of Main Street Republican who, like Reagan, would place the economic interests of the average Joe first.

Perhaps the award of a Nobel Prize by the Swedes is a sign that an idea's power is already on the wane. (Though it should be noted that Swedish voters themselves recently elected a tax-cutting prime minister.) If so, Republican candidates may suffer an accelerating inability to keep their coalition together - particularly at a time when their inevitable defects of leadership have been so prominently on display.

Tom Bray writes columns for The Detroit News and RealClearPolitics.com. Email: tbray@detnews.com

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