Magazine July 31, 2017, Issue

The Pocketbook Party

(Luba Myts)
Republicans should focus on the cost of living

Economic concerns are the largest issue in virtually every American election. A political party’s economic message is therefore one of its most important components. A party needs a message that connects the needs, wants, hopes, and fears of its voters, activists, and donors with its ideology, its policy proposals, and the practical effects of those proposals. Whenever one or more of these moving pieces gets out of sync, the party risks a muddled message at best, voter rebellion at worst.

Republicans have struggled to present a coherent and compelling economic message in the years since the 2008 financial crisis. A message built around job creation via supply-side tax cuts has its virtues, but in the second decade of the 21st century, it strikes many voters as outdated and disconnected from their kitchen-table concerns. Republicans should not banish pro-growth, supply-side solutions from their tool kit, but it is past time for them to recognize that the best economic message in today’s climate is that the GOP will deliver a lower cost of living than the Democrats will.

A cost-of-living message should focus on three major areas: health care, education, and energy. But it has broader implications across the policy spectrum. More competition, fewer mandates, faster approvals of regulated projects, and reduced costs of compliance and litigation can lower the costs of many things, including staples such as housing and food. While much of this agenda at the federal and state level is already conservative orthodoxy, embracing the cost of living as an organizing principle has important implications for how reforms of health care and taxes are shaped and marketed to the public.

Since 1978, Republicans have built their economic message around tax cuts and business-friendly regulation designed to stimulate economic growth. It’s a compelling message for investors, entrepreneurs, and business executives, and it has had broad appeal when stagnant job growth has been foremost in voters’ minds. But it’s a misreading of history to think that this was ever the entire message on the economy. The rise of Reagan was just as much about inflation and runaway gas prices eating into voters’ paychecks as it was about tax revolts and unemployment. A major part of Reagan’s tax message was that inflation was pushing people into higher brackets even as the extra dollars they earned were buying them less.

George W. Bush, too, ran on putting money back in the pockets of taxpayers to spend — not just on supply-side promises to use tax cuts to create more jobs and investment. Bush, elected at a time when the economy was doing well, made his share of “compassionate conservative” promises to reduce the costs of prescription drugs, housing, education, and energy.

A cost-of-living agenda dovetails well with Republican lawmakers’ increasing reliance on working-class voters, many of whom are skeptical of the indirect benefits that may someday accrue, thanks to GOP policies, when their employers hire more workers and offer higher wages and salaries. That’s especially true of the midwestern swing voters who have turned states such as Ohio, Iowa, Wisconsin, and even Michigan and Pennsylvania red in recent years. Scott Walker’s success in Wisconsin has shown that a cost-of-living focus can win over voters. His controversial push to eliminate mandatory union dues for many public employees succeeded in large part because he emphasized the immediate benefit of an increase in pay when union dues are not automatically taken out of paychecks. Workers responded, with two-thirds of affected public-sector workers opting out of the unions.

This shift in the Republican base is taking place at the same time that urban and suburban white professionals — traditionally more interested in lower taxes than in prosaic bread-and-butter issues such as the cost of filling their gas tanks and buying groceries — have been bleeding toward the Democrats. Upscale, educated voters have been disproportionately turned off by Donald Trump’s style and his approach to trade and immigration, and so long as Trump is the face of the Republican party, those voters will be hard to get back. Under Trump, the party should intensify its focus on keeping the voters it has.

Polling data suggest that voters do care about the cost of living. For example, Priorities USA, a Democratic super PAC, hired veteran Democratic pollsters earlier this year to run polls and focus groups of Obama 2012 voters in the key midwestern states who either switched to Trump or stayed home in 2016. The results are a wake-up call for Democrats: Twice as many respondents (42 percent to 21 percent) said that Democrats, rather than Trump, would pursue policies tilted to favor the wealthy. That’s partly a hangover from the stark divide between Wall Street and populists that the heated Clinton–Sanders primary fight opened, and Republicans can’t count on the Democrats to repeat in 2020 their recent error of nominating a standard-bearer strongly identified with big-money donors.

When asked specifically about the cost of living, 50 percent of Obama-Trump voters, and 43 percent of Obama 2012 voters who stayed home, said that their incomes were falling behind the cost of living, compared with 19 percent and 8 percent, respectively, who said they were getting ahead. If these voters believed in what the Democrats derisively refer to as “trickle-down economics,” it seems likely that more of them would have supported Mitt Romney. True, Trump appealed to many of them by promising better wages owing to reduced competition from immigrants and foreign trade. But those aren’t messages the GOP can easily embrace without contradicting its economic principles, its donor base, or — frankly — economic reality.

The biggest problem with promising a better standard of living due to restrictive trade policy is that it simply won’t work. Millions of American workers and farmers make products for export, and tens of millions more benefit from buying cheaper imported goods. Indeed, working-class Americans who shop at bargain stores such as Walmart and Target depend on buying low-cost clothing and other goods made in the Third World. But the economic stress these voters sense is real: As a recent analysis in Barron’s noted, “the share of national spending eaten up by three items — health care, housing, and education — has ballooned from 25 percent in 1980 to more than 36 percent by 2015.” Rather than place all their eggs in the basket of promises to raise wages and cut taxes, Republicans should emphasize that they can help families’ existing paychecks go further.

There are also longer-term political reasons to address the cost of living. Numerous opinion surveys have shown that the Millennial generation (born between 1981 and 1997) has much less faith in the free-market system and is much more receptive to economic populism than older generations. Younger voters are more likely, in particular, to think the government should mandate higher wages (by raising the mandatory minimum wage) and take over the cost of paying for health care and education. On the flip side, it’s no accident that states where the cost of living is lower have, on the whole, tended to be strongly Republican. It’s easier for working-class Texans to get by than it is for working-class Manhattanites, and that reality shapes their view of what government should provide.

When asked to explain younger voters’ loss of faith in markets, conservatives tend to identify four culprits: a lack of historical memory of the failure of Communism, the hangover from the 2008 credit crisis, an education system that leads people astray, and a lack of Reaganesque leaders to explain free-market principles to the younger generation. But while these are all contributing factors, there is no getting around a more unsettling reality: The structure of the economy has changed since the 1980s, radically altering the relationship between the income of middle-class Americans and the cost of health care and higher education.

That shift has undermined the traditional American tendency to see the cost of living as a matter of personal responsibility for managing your budget. Most people intuitively grasp the value of frugality: You have more to spend when you make more money, and you tighten your belt when times are hard. But the underlying assumption of the personal-responsibility ethic is that it’s possible for most people to earn enough money to scrape by. In the past, that faith has been shaken during economic downturns (most dramatically the Great Depression), but even then, public opinion tended to see activist government mostly as a way of getting people back to work or supporting them while they sought work.

The sea change affecting Americans’ economic confidence has been the explosion in the cost of health care and higher education, coming (not coincidentally) as more people have begun to see those things as a necessity or a right. For most of American history, a college education was a luxury that most workers didn’t need. Partly because of this, it was far less expensive than it is today; there was neither the private demand nor the stream of public subsidies to sustain endless increases in tuition. Middle-class students had to scrimp and strain to join the college-educated elite, but even when the GI Bill came along and massively expanded college attendance, the public did not immediately see the law as giving the returning GIs something that every American needed.

That’s all history now. Since 1980, the cost of college tuition has risen at twice the rate of inflation. Even so, students have not been priced out of the market, because subsidized financial aid has allowed the number of students enrolled in colleges to skyrocket. The growth in the college-educated population, in turn, has made it more necessary to have a degree to compete in the work force, which has created even more demand for degrees and more political pressure for government to subsidize them. With no brakes on demand, colleges have no incentive to slow down tuition inflation.

College is the first major expense that many young people encounter today. Its cost is now staggering and requires many of them to assume huge debt that they will spend many, many years paying off. No wonder they think the government is better situated to pay that cost than they are.

As for health care, even into the 1950s, the best care available at the best hospitals wasn’t dramatically better than what the ordinary person could get from his local doctor. The country doctor who was paid in chickens and pigs, a staple of the frontier, existed well into the 20th century. Affordability was partly a victim of scientific progress: You could still get 1950s- or 1970s-quality health care today fairly cheaply, but the advances of the past several decades involve a lot more machines and medication and hospitalization, so increasing costs were inevitable. But government policies, from Medicare and Medicaid subsidies to medical-malpractice litigation, contributed as well. As with education, as ordinary Americans saw health care become far more expensive than they could afford, they grew more susceptible to calls to have it provided for by the taxpayers.

If Republicans developed a cost-of-living agenda, what would it look like? On some issues, the answers already lie in existing GOP priorities, just waiting to be tied together thematically. Fewer regulations and fewer lawsuits reduce the cost of all manner of different products and services. Make the birth-control pill available over the counter instead of leaving it expensive and subsidized. Eliminate unnecessary state occupational-licensing schemes. Encourage services such as Uber that compete with local taxi monopolies. Encourage local zoning ordinances and state tax structures to invite more Walmarts and other low-cost retailers, instead of loading down discount retailers with mandates and obstacles.

More American energy production reduces the cost of filling your tank and heating your home. President Trump’s withdrawal from the Paris climate framework may not directly affect that many jobs — fewer than 100,000 Americans still work in the coal-mining industry — but over the long haul, the costs of heavy-handed climate regulation find their way into everyone’s budget.

In health care, Republicans have been moving in the wrong direction with legislative efforts aimed mainly at reducing government spending and taxes on the wealthy. A better approach is to reduce costs by eliminating “essential benefits” mandates, creating more space for the sale of low-premium, high-deductible plans, expanding interstate competition, and allowing insurers to charge less from consumers without preexisting health conditions (while continuing subsidized coverage for those who have such conditions). In other words, give consumers more choices rather than socializing costs through premiums paid by most consumers.

As to tax reforms, promoting a cost-of-living agenda means focusing high-end tax relief more on corporate and investment taxes (which can be passed on to consumers) than on cuts to the top individual rates. On entitlements, it means looking harder at reducing the burden of payroll taxes.

College costs are perhaps the toughest nut to crack, because so much inflation is driven by a vicious cycle of higher demand and price-supporting government subsidies; because the non-college-educated, working-class base of the Republican party is not necessarily interested in alleviating burdens on college graduates; and because those who run universities have no incentive to reduce pressure for more government funding. But efforts to reduce the administrative costs imposed on universities by federal regulation would be a start.

Some strategies to reduce the cost of living are easier to identify and implement than others. But committing to the goal will give Republicans an organizing principle that keeps faith with their voter base. That’s good policy and good politics.

– Mr. McLaughlin is an attorney in New York City and a National Review Online columnist.

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