Re: Rob Portman’s Field of Dreams

by Douglas Holtz-Eakin

This week, Senator Rob Portman took to the pages of the Wall Street Journal and made a compelling case that the United States faces a debt challenge that, if left unaddressed will lead to painful and perhaps precipitous economic harm for the country. This straightforward observation received predictable critiques (from Paul Krugman, e.g.,) and surprising criticism — in particular, Henry Olsen’s call in a Corner post for a more pandering approach from the GOP. Because Olsen’s critique reflects a growing trend in conservatives’ thinking, it merits a rebuttal.

Henry Olsen’s essential objection to Senator Portman’s article is that it isn’t a palatable economic agenda for working-class white voters in Ohio and elsewhere in the Midwest. What makes Senator Portman’s observation about the nation’s debt challenge so distasteful? According to Mr. Olsen, there’s just nothing “in it for them.” I disagree.

First, it is important to note that Senator Portman’s WSJ piece is not an expansive economic agenda, and more importantly, never claimed to be. Portman correctly observes that economic growth is an essential element to addressing these challenges, and touches on areas that would enhance the nation’s growth prospects, but the central focus is on the nation’s fiscal trajectory. Asserting that Portman’s budget observations should be taken as a comprehensive economic plan does short shrift to the piece’s acknowledgement that other essential policy changes are part of a growth agenda. Any growth policy would include a fiscal plan, but not a fiscal plan alone.

Second, the nation’s fiscal outlook has very real economic consequences that affect the very people Mr. Olsen asserts there’s nothing “in it for them” by trying to address the U.S. budget challenge. Every credible budget observer has noted that the nation’s fiscal policy is unsustainable. One can only conclude in the future one of three things must then happen: Spending will be reduced, taxes will be raised, or the U.S. will experience a sovereign debt crisis. Those looking to invest or hire in the United States must assess the likelihood and timing of these policy changes, two of which — taxes and a crisis — are decidedly anti-growth.

The key to their expectations, and thus their willingness to expand the U.S. economy, hinges on controlling spending — especially the large mandatory programs that drive the budget outlook. To date, there has been no serious effort to change their trajectory. If entrepreneurs, small firms, and investors become convinced that there will be no change, then radically higher taxes or interest rates are the only options and the current pace of investment, innovation, and employment growth in the U.S. will suffer.

While there has been a significant research controversy over the size of any negative impact on growth presented by a large debt burden, there is no evidence that growth is enhanced. The only issue is how much damage is being done. That means that the stock boy or cashier that Mr. Olsen cites is stuck making $31,000 a year — leaving forgone income on the table for every year the U.S. underperforms economically. Perhaps Mr. Olsen thinks that this is too complicated an argument to make to voters. He may be right. But Senator Portman is to be commended for trying instead of adopting the president and other Democrats’ strategy of making empty promises of continued federal largesse.

Lastly, having glossed over the fact that Mr. Portman’s Journal piece was not a standalone economic agenda, Mr. Olsen decided to advance an alternative. Some of the suggested policies may be worthy of consideration, but if the sole criterion for successful policy design is how much it expands transfer programs, serious Republicans should stay away. Why would a Republican suggest a $9 minimum wage at the federal level? Democrats have already outbid that offer — and always will. The only casualties along the way are the people who apply to be cashiers or stock boys and never get a call back. That’s hardly an economic agenda worth pursuing.

It is certainly true that in the last two national elections, Republicans have taken a beating. It is equally true that they have failed to answer the question of how their plans will help the average American. Failure invites the kind worry evinced by Mr. Olsen. But Mr. Olsen’s criticism is aimed at the wrong target. Senator Portman correctly identified the nation’s fiscal challenges, and identified the right avenues for approaching them. Those approaches will improve near-term growth and preclude a future fiscal crisis. That helps every out-of-work Ohioan. It raises the income growth of every employed middle-class Ohioan. It promises greater prosperity to every future Ohioan. It does not constitute the entirety of a successful, conservative pro-growth policy. But it is an essential element.