Republicans Must Do More Than Say "no"

The Obama strategy appears to be a blitzkrieg of policy proposals to swamp a weakened and beleaguered Republican party. This places a premium on uniting around key principles and messages to survive the onslaught. So far, they have been handed three easy opportunities, and the good news is they successfully found their voice.

In the debate surrounding the stimulus bill, Republicans found their voice effectively. Essentially, they said “stimulus, yes; waste and political payoffs in the name of stimulus, no.” In the same way, the Obama budget has provided another opportunity to make the case for pro-growth policies and small, contained government by pointing out the obvious: the Obama budget promises irresponsible, risky trillion dollar deficits as far as the eye can see with NO spending restraint whatsoever. Finally, the disgraceful, earmark-laden omnibus spending bill should be an anathema to all Republicans (and, unfortunately, is not even though the Washington Post today reported that $10 million will go to a disgraced Democratic lobbying firm that specialized in – you guessed it – earmarks) and makes hypocrisy of Obama’s promises to clean up Washington. Republicans can just say no.

But Republicans will not be successful simply saying “no” – they need a pro-active, alternative agenda. In the near-term, there are two key issues confronting the country on which the Republicans are in disarray – fixing the financial system and health care reform.

The financial crisis is the greatest threat to the U.S. economy. The right thing to do is to apply the principles of responsibility and competition, and the lessons of history to get this right. The most important lesson is that failed, insolvent banks cannot be permitted to continue to operate using taxpayer subsidies. Letting these “zombies” walk the financial system was at the heart of the savings and loan crisis and the slow Japanese recovery from its financial crisis. These institutions should be taken over, their management and shareholders made to suffer the consequences of their failure, and the assets re-sold to private sector entities as fast as is feasible. That’s good policy: discipline failure, promote real competition, and use assets effectively in the private sector. Yes, it will be costly – but not more costly than continued propping up of failed big banks. And, yes, it will raise the specter of “nationalization,” but it is really about re-allocating financial assets in the private sector. The bottom line: no more taxpayer resources without real use of discipline and effective workouts.

Going forward, the big policy issue will be health care. I write this on the day that the Obama administration holds its health care reform “summit”, highlighting the importance of having a real set of principles in this area. Here, I think the most important issue is for Republicans to be for something. Too many Americans believe that Republicans just don’t care or, even worse, actually do not want Americans to have health insurance coverage. In fact, every candidate for the most recent Republican nomination presented a health care reform during the primary season, reflecting the fact that Republican voters care about the issue and candidates have thought carefully about solutions.

Indeed, Republicans want the same thing that Democrats do – a health care system that delivers lower costs, higher quality outcomes, and covers more Americans with health insurance. The differences are on how to achieve these goals. This leads to four principles:

1. Republicans should focus on the facts: the problem is cost. Health care costs too much (especially for what we get in outcomes) and is the reason that insurance is so expensive. So, costs first.

2. A solid health care reform will generate cost savings, and these can then be plowed back into the system to expand coverage. Attempts at radical coverage expansion will outstrip these savings, especially at the beginning. To avoid a dangerous government expansion, it should be a requirement that any new resources raised from the private sector be devoted to expanding private insurance coverage.

3. Savings will be larger, the more the reform recognizes that incentives matter. Reform should generate good economic incentives by providing portable insurance that does not interfere with the labor market, keeping hidden taxes and mandates to a minimum, and providing a business model for health care that emphasized innovation, quality and cost control.

4. States have vastly different demographics, cost structures, state-level government programs, and insurance market policies. Reform should respect these state-level efforts. States understand the problems of cost and coverage, although it is very difficult for any single state to be master of its outcomes. Federal reform should support these state-level efforts wherever possible.

These are momentous times and the policies adopted will shape the economy for years to come. Republicans have the obligation and opportunity to engage vigorously in the ideas debate.