Killing the Stimulus Plan Key to GOP Rebound

"It's time to ask yourself what you believe" is a line from the end of Indiana Jones and the Last Crusade. It's spoken by the movie's baddie to the title character just before the hero archaeologist tries to make his way through three traps that will lead him to the chalice of Christ. Toward salvation. Without faith, he will surely fail.

Republicans find themselves in a similar position right now. Back-to-back blowouts in congressional elections. A near-landslide presidential loss. A terrible economic downturn that many (incorrectly) blame on free markets and deregulation. Overall, probably as bleak a time for conservatives, who are the GOP's life force, as any of them younger than retirement age can remember.

Yet GOPers have been presented with three challenges—opportunities, really—to save themselves. Or as a motivational speaker might put it, three chances to "rebrand, reorient, and recharge" themselves as the party of free markets, limited government, and prosperity.

Opportunity No. 1: The Paulson Plan. Joe the Plumber now says he was appalled when John McCain told him that he was going to support the $700 billion rescue plan for Wall Street. "I was angry. In fact, I wanted to get off the bus after I talked to him." So did a lot of grass-root conservatives. Opposing the bailout would have fit nicely into McCain's history as a deficit hawk and as a Bull Moose Republican skeptical of Big Business. McCain could have offered a pro-growth alternative such as suspending mark-to-market rules, cutting or eliminating capital gains and corporate taxes. (If the spike in energy prices was McCain's first big break, the bailout was the second.)

But McCain ended up supporting the Paulson Plan. And the Emergency Economic Stabilization Act ended up passing the House 263 to 171, with 108 Republicans voting against and 91 for it, including conservative heroes like Paul Ryan, Eric Cantor, and John Shadegg. Hard to blame anyone for voting for it, given that Hank Paulson and Ben Bernanke hinted at the coming of the End Times if it failed. Yet in retrospect, it looks like the wrong plan and has undergone several transformations. (Even many economists who favor government action now think a plan that had helping homeowners as one of its key elements would have been better.) And with rising unemployment creating a negative feedback loop among the housing, credit markets and labor market, a bank-focused rescue seems the wrong approach. And for good or ill, it is tough for Republicans to make the case that they were the party dead set against it. Grade: Fail

Opportunity No. 2: The Big 3 Bailout. You would think that opposing the expensive quasi nationalization of the American automotive industry would be an easy task for Republicans, especially given how many members are from the South rather than the Midwest.(It also doesn't hurt that 60 percent or more of Americans have consistently opposed bailing out General Motors, Ford, and Chrysler.) And it pretty much was. In the House, 150 Republicans voted against the Auto Industry Financing and Restructuring Act, just 32 for it. But remember that this was just the first step in the automakers' bailout hunt. Detroit will be back in Washington early next year looking for more cash. But smart Republicans should spend the weeks between now and then talking about union costs and CAFE standards. Grade: Pass

Opportunity No. 3: The Obama Stimulus Plan. Every day there is more evidence that an economic stimulus plan based on massive infrastructure spending is the wrong path to take to boost the economy. Economists Susan Woodward of UCLA and Robert Hall of MIT say that "proposals for stimulating state and local spending ... will end up generating employment for highly specialized businesses and workers, rather than stimulating economic activity more broadly." And when Barack Obama's pick for budget chief, Peter Orszag, ran the Congressional Budget Office, it called infrastructure stimulus plans "totally impractical" for juicing growth.

So again, conservatives have an opportunity to make the case that the best way to help the economy is by restoring confidence through improving rewards for risk taking. Time to cut taxes. Payroll taxes. Income taxes. Capital gains taxes. Corporate taxes. And if you combined tax cuts with a government spending freeze and Social Security fix, confidence in the American economy would soar. None of this is likely to happen, of course, given the huge Dem majorities. But when unemployment is sitting at 8 percent or higher on Election Day 2010 despite trillion-dollar budget deficits, conservatives can argue that they had the better plan. The question: Will the GOP vote in force against Obamanomics the way it did against Bill Clinton's healthcare plan? What does the party believe? Grade: Incomplete