A Significant GOP Convention Jude Wanniski September 5, 1984

Executive Summary: The Republican meeting in Dallas, seemingly dull, was one of the most significant party gatherings of modern times. It strengthened the GOP's claim as the party of growth and for the first time accepted a global framework for leadership. As the Democrats embrace isolationism and austerity, the GOP can soon become the majority party. A review of party political history, from Lincoln on, sets the context for understanding the Reagan "transition presidency." The Goldwater and Rockefeller wings have withered and the "Kemp wing" emerges, dominating the writing of the GOP platform and being seen as the party's future. Reagan's second term will be more "supply side" than the first as the transition is completed. All serious contenders for the Republican nomination in 1988 will be growth/internationalists, with Bush making a conversion. The realignment process can be speeded up in the campaign pressures of the next two months.

A Significant GOP Convention

As far as the national news media were concerned, the Republican national convention in Dallas last month was one big yawn. Nothing happened except the coronation of Ronald Reagan. A carefully orchestrated convention program with predictable Mondale-bashing speeches and the usual "balloon drop." A "right-wing takeover" of the platform, which "everyone knows" the White House will ignore. All in all, one of the least significant party gatherings of modern times.

But from a broad, historic viewpoint, this 1984 GOP convention was one of the most significant party gatherings of modern times. Taken in conjunction with the Democratic conclave in San Francisco, Dallas solidified and strengthened the GOP's claim as the national party of economic growth. And by embracing internationalism and the challenge of global leadership, the Republicans put themselves on a path that will undoubtedly make them the majority party before the end of the decade.

The GOP, remember, was the party of economic growth and the dominant party in the U.S. from Lincoln and the Civil War to Hoover and the Great Depression. But its agenda throughout that stretch was almost entirely domestic in nature, even isolationist. "Foreign entanglements," to use Washington's phrase, were abhorred. Economic isolationism was preferred and the protective tariff was a staple of party doctrine. Internal, no-holds-barred economic growth was a central tenet of Republicanism. Foreign policy was the Monroe Doctrine, with military power deployed to keep France out of Mexico, expel Spain from Cuba, and maintain the borders of Fortress America. 

The Democratic Party, meanwhile, was the internationalist party. This developed naturally out of its post-Civil War base in the Deep South, with its vested interest in free trade, cotton exports and opposition to the protective tariff. The party also attracted those elements of society that needed protection from an untrammeled capitalist class, chiefly debtors who suffered in the periodic monetary deflations of the era and the immigrant working class that got short shrift from the laissez faire Republicans. 

In an organic sense, the "Republic model" was becoming obsolete at the turn of the century. Economic isolationism no longer served the needs of a nation that was having world leadership thrust upon it. Woodrow Wilson's election in 1912 brought the United States into the international arena and led to the U.S. intervention in Europe's war for democracy. In economics, Wilson's first year, 1913, saw passage of the low-rates Underwood Tariff, the progressive income tax (with rates of one to six percent over $3,000), and the Federal Reserve Act, designed to protect the debtor class via an "elastic currency."

The Democrats, who pushed income-tax progressivity to a 76 percent rate during World War I, could have retained power in the postwar era had they brought the rates down to spur economic growth. But it was not in their lineage or experience to focus on economic growth. The electorate had to turn again to the GOP to make this adjustment, ushering in one more decade of spectacular economic growth within an isolationist framework. The foreign-policy goals of the Harding-Coolidge administrations were to get the wartime loans of the U.S. allies paid down and to extract reparations from the defeated Germans. 

This isolationist blind spot was of course what caused the stock market crash of 1929, the Great Depression, and the demise of the GOP as the majority party. Because they did not understand the disastrous implications of the Smoot-Hawley Tariff Act on the world economy, Republicans in October 1929 made the key decisions that led to its adoption the following June; they did so believing it would enhance the domestic economy.

The Democratic Party thereupon built the New Deal Coalition on this wreckage. Its internationalist bent suited it to the challenge of global leadership. This was manifest in the series of reciprocal trade agreements negotiated in the 1930s and the willingness to assist the global forces of democracy even prior to Pearl Harbor (which probably invited Pearl Harbor). The Democrats became the party of economic growth as well, but with the focus now on the government as the manager of the economy. Having submerged the Republicans, the Democrats persuaded themselves that it was laissez faire that had become obsolete. The Keynesian model, which promised economic growth through income redistribution and the management of aggregate consumer demand was made to order for the Democrats. And after World War II, within the framework of Bretton Woods, the formula worked well enough. The Democrats this time repealed the wartime taxes. They continued to chip away at Smoot-Hawley through several "Rounds" of global tariff cuts. And the Keynesians took credit for the economic boom that followed the Kennedy tax cuts of 1964.

All this success fortified Democratic self-confidence in their internationalist, government-managed growth model. And it sought to persuade the rest of the world of the efficacy of this model. 

The GOP meanwhile had become the party of reaction and austerity, resisting the Democratic model as being essentially socialistic, but without putting forward a growth model of its own. Indeed, the party hit bottom at its national convention in San Francisco in 1964, lashing out against the just-passed Kennedy tax cuts that the Goldwaterites had bitterly opposed as "budget-busting." The party was filled with angry and bitter people, lacking confidence in themselves, in democracy, and in any realistic hope of ever again becoming the dominant force in America.

The following four years, though, brought the first serious shock to Democratic self-confidence. Their visions of saving the world via their wonderful Keynesian growth model turned to ashes in Vietnam. In exchange for military support, the Kennedy-Johnson administrations had forced this development model on the South Vietnamese government: high taxes and income redistribution, a managed currency and a central plan. The mix quickly destroyed the South Vietnamese economy and invited a Marxist-Leninist victory.

Enter Richard Nixon in 1968, the first true Republican President who could be called internationalist. It was Nixon, certainly not Goldwater, who initiated the revival of the Republican Party by nurturing its global outlook; the remaining reactionary elements in the GOP are still hostile to the Nixon global vision.

But Nixon still did not have it all together. He had made internationalism respectable in the party, but he had no growth model. In fact, accepting the Keynesian claim that their theory produced the Kennedy tax cuts and the following boom, Nixon proclaimed himself a Keynesian and turned himself over to their model. He doubled the capital-gains tax in 1969, swallowed Herbert Stein's "full-employment budget" concept as a rationale for increased government spending, and destroyed Bretton Woods in 1971 to permit the manipulation of the currency to suit the managers of aggregate demand. Nixon today regrets these decisions, aware of the contribution they made to his downfall through the collapsing economy of 1974.

The Carter-Mondale years really finished off what was left of the Democratic Party's confidence in its growth model, and with it went its globalism. When your model has failed, why bother to share it with anyone? It is now the Democratic Party that is filled with anger and bitterness, losing confidence in democracy itself, offering "fear of the future, fear of growth, fear of global leadership," as Jack Kemp put it in Dallas. Now it is the Democrats who lash out at the "budget-busting" Reagan tax cuts and promise the electorate higher taxes, trade protectionism and isolationism. "This is a sure sign of an emerging minority party," said Kemp.

There were also sure signs in Dallas of the GOP emerging as the majority party. The national media, especially the television networks, did not seem to have the foggiest idea of what was going on. Political reporters and network newspeople, because they are almost all Democrats, for the most part view the Republican Party in terms of a conservative, Goldwater wing, and a liberal, Rockefeller wing. The convention and party platform were seen to be triumphs for the Goldwater wing, the "far right," the "kooks and crazies." David Brinkley went so far as to assert that the convention was a triumph and vindication of Senator Goldwater. Against this light, the press viewed White House resistance to the tax specifics in the platform with sympathy, suggesting the President is somewhat to the left of his party.

Reagan himself sees the internal party development more accurately; in his acceptance speech he observed that it was not a question of "right" or "left," but of "up or down." Yet in the broad, historical context, Ronald Reagan does lag the revolutionary elements in the GOP and might properly be viewed as a transition President. He ran in 1980 as a populist, growth-oriented candidate with ideas viewed as "Voodoo economics" by the Eastern Establishment wing. But his first decision as the GOP nominee was to name George Bush his running mate, thereby unifying these disparate elements in the party. His first major decision as President-elect was to name James Baker III, not Ed Meese, his chief-of-staff, Baker of course having been Bush's campaign manager. The tension in his administration in his first term was between these two major elements in the party, the old and the new, revolutionary and incrementalist, as the new ideas were tested.

The convention in Dallas reflected the impatience of the populist wing with this mode. The success of "Reaganomics" in producing astonishing non-inflationary growth has emboldened the firebrands and Young Turks of the GOP who dominated the writing of the platform. They want to hear no more of second-term budget-balancing tax increases and scotched White House attempts to preserve "wiggle room" for such an increase in 1985. And where the White House has been timid, even servile, in permitting the Federal Reserve to combat economic growth through deflation, the platform barely restrains outrage at the Fed's "destabilization." In all but name, the platform commits the party to the specifics of a Kemp-Kasten flat-tax reform, also reflecting impatience with White House caution about "specificity." 

The foreign policy plank, written by Kemp's subcommittee, is also the most internationalist ever adopted by a Republican convention. There is virtually none of the rage, bitterness and bellicosity that characterized the Fortress America days. This, too, reflects the party's new-found confidence in democratic capitalism as a role model for the Third World. Even where it commits the U.S. to seeking superiority over the Soviet Union, the platform makes it clear that it is economic and technological superiority that it strives for, that it is prepared to end the arms race at parity.

The Brinkleys, Rathers and Restons seemed quick and easy to describe this as the most conservative platform in GOP history, but it is without doubt the most radical. It is in fact the first platform in the party's history that commits the party to global leadership, economically and politically, with growth-oriented democratic capitalism as the foundation of that leadership. The Goldwater and Rockefeller factions have withered and are dying out; the future of the party clearly is with the radicals, the "Kemp wing" of the party.

What does this mean for a Reagan second term? The single most important fact to bear in mind is that Reagan can not seek re-election in 1988, which means his transitional presidency will be completed in his second term. The Eastern Establishment knows, as everyone in Dallas knew, that it's rapidly running out of gas, and that the Kemp wing of the party will consolidate its gains in the years ahead and become the dominant faction in 1988. If it is to share in the party's future and the power that implies, it knows it must seek accommodation instead of striving to block its progress at every turn.

The mainstream political reporters have already decided that the 1988 GOP convention will be a knock-down contentious one, with President Reagan no longer able to unify the party with his charm, good humor, etc. But it is ideas that are unifying the party, and the chances are that the 1988 convention will be even less ideologically contentious and divisive than was Dallas. The reason is that Reagan's second term will be more emphatically successful than his first, precisely because there will be fewer barriers to supply-side influence on domestic and international economic policy.

There will be, after all, no need for the administration to again confront the horrendous stagflation it encountered when Reagan took office. In the first term, the Federal Reserve crudely grappled inflation to a halt with an unnecessary, massive deflation that produced one of the worst recessions of our time. The Fed is again leading the economy toward a recession, or at least a pause, but the administration is going along with Paul Volcker's brinksmanship on the implied promise that there will be a "soft landing." If he doesn't produce, there will be plenty of support in Washington for institutional reforms at the Fed. In any event, there's much less of a monetary problem in 1984 than there was in 1980. With a gold standard mentioned favorably in the GOP platform, we can again see the potential of the President moving toward a new Bretton Woods in his second term. The Democrats are already ridiculing this "kooky idea," and it will be very interesting to see how the President handles the topic when it comes up in his debates with Mondale, as it no doubt will.

There had been the threat of a 1985 tax increase of major proportions but as Leonard Silk of The New York Times had pointed out, the militancy of the Young Turks at the convention has really ruled out Reagan support for any such contingency. Not only will the President be given no such mandate, but the militancy at Dallas has already been projected into 1985. Rep. Trent Lott, the House Minority Whip, has announced that he will no longer carry the administration's water on tax increases, as he did in 1982 and this year, but will be first in line throwing rocks at any tax proposals. Instead, White House and Treasury are by now bound to produce tax "simplification" along the lines of Kemp-Kasten, although enactment will be no easy matter.

The second Reagan term, then, should be more supply-side than the first. But it doesn't necessarily follow that a George Bush could not be the Republican presidential nominee in 1988, even given the direction the party has taken. The political handicappers are already writing that in 1988 this "Kemp wing" of the party will be represented in the presidential sweepstakes by Kemp himself, by Lew Lehrman, Rep. Newt Gingrich perhaps, Gov. Pierre Dupont of Delaware, Gov. George Deukmejian of California, or Trent Lott of Mississippi (whose stock among supply-siders skyrocketed as the result of his performance at the convention). George Bush is still seen as an adversary, but by 1988, it's conceivable now that Bush himself (who has ample numbers of supply-siders on his personal staff) will be safely inside the model. It's far less likely that Senator Dole or Howard Baker can make that trek and will be left behind, wasting their time even thinking about the presidency.

It remains, of course, for the President to be re-elected in November. Chances of him losing now seem remote, given the disarray of the Democratic ticket and the way the tax issue developed in Dallas. But depending on how the campaign and the economy unfold these next two months, he can still win in a way that produces only small gains in the congressional races. White House refusal to publicly complain about Volcker's brinksmanship at the Fed will cost the GOP at the polls, especially in the mid-West. And White House refusal to be as daring and specific on a second-term agenda also hurts. But there is nothing as intense and compact as a two-month presidential campaign in the United States. Pressures that ordinarily take a year or two to produce a certain flow of events can often produce the same results in the period between Labor Day and Election Day. Hold on to your hats.