<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Josh Barro</p> <p>Texas Senator-elect Ted Cruz gave <a href="http://www.youtube.com/watch?v=PzIAFIeid1w">a speech</a> two weeks ago offering his diagnosis of the Republican Party's electoral failures and calling for a new brand of "opportunity conservatism." The speech contained a lot of bad recommendations on both policy and political marketing. But its most telling quote came at the end:</p> <p style="padding-left: 30px">You know, President Obama was fond of saying in the debates that he inherited the worst economy in the history of the universe. Apparently his historical memory wasn't all that great -- any of y'all remember 1978, 1979?</p> <p>The economic environment of the late 1970s was unambiguously better for the middle class than today's. Unemployment was 6.1 percent in 1978 and 5.9 percent in 1979. Real GDP growth was 5.6 percent and 3.1 percent, respectively. Cruz focuses on the scourge of inflation in the late 1970s, and it's true that, in part due to inflation, it was not a stellar period for median household income growth. But it was still better than the last few years have been.</p> <p>If you don't understand that 2009 was a worse year than 1979 -- because most people support themselves by working, not by investing in bonds -- then you don't understand why the Republican Party is losing touch with the middle class.</p> <p>This misunderstanding explains how Cruz came up with "opportunity conservatism," which is not a new policy agenda, but rather a new way to market conservatives' existing policy agenda. He says "we need to conceptualize, we need to articulate conservative domestic policy with a laser focus on opportunity, on easing the means of ascent up the economic ladder." In other words, he thinks tight money and a smaller safety net are good for middle-income Americans, and we just need to explain to them why.</p> <p>Cruz then outlines five planks of "opportunity conservatism." The first is "jobs and the economy," and it doesn't really have much policy content. He says Republicans should talk about the importance of small business and entrepreneurship and that they should point out that unemployment for minorities has been extremely high under President Barack Obama. He doesn't propose any new ideas to lower unemployment. Isn't this basically what Mitt Romney did in his campaign?</p> <p>Then Cruz does start talking about policy specifics. And his speech gets even worse. That's because his next four planks are old conservative hobby horses: school choice, Social Security private accounts, "Sound Money" (meaning deflationary monetary policy) and gun rights.</p> <p>In at least two of these cases, Cruz proposes to appeal to the middle class with policies that would actually harm their interests. Cruz calls for tighter money:</p> <p style="padding-left: 30px">When you see the currency debased, it is a cruel tax on everyone working and struggling and saving as we've seen. … We've seen the cost of living for those struggling to climb the economic ladder get higher and higher and higher. And every bit as problematic, the savings and investments of those people climbing the ladders have been devalued.</p> <p>As anyone with even a passing familiarity with CPI statistics knows, this is insane. Inflation is low and stable, as it has been for the last 30 years. The Federal Reserve is not even managing to hit its 2 percent inflation target. The middle class is battered by high unemployment and falling incomes, not by inflation. Yet Cruz is calling for deflationary monetary policies that would drive unemployment higher.</p> <p>He wants Social Security privatization. He says this is a great deal for poor, minority workers because their life expectancies are low; private accounts would leave them with nest eggs they can bequeath. He talks about how Republicans can appeal to low-wage workers with this message:</p> <p style="padding-left: 30px">That same janitor, that same maid, earning very very modest sums, 20 thousand a year, 25 thousand a year, can over the course of a working life accumulate 100 thousand, 150 thousand, 200 thousand dollars. They retire; they receive retirement payments; and when they die those are assets they own, they can pass on to their kids and grandkids.</p> <p>There are a lot of problems with this message. First, it's based on a math error; because Social Security's benefit formula is progressive and blacks and Hispanics tend to have lower incomes, their implicit rate of return on old-age benefits was actually <a href="http://www.treasury.gov/resource-center/economic-policy/Documents/rp9302.pdf">higher than whites'</a> when Treasury looked at the issue in the early 1990s, despite lower life expectancies. It also involves essentially saying, "You're going to die young, so it's a bad deal to give you an annuity." Might minorities be more interested in policies that aim to raise their life expectancies? (Cruz's 30-minute speech on appealing to the middle class does not mention access to health care at all.)</p> <p>But the biggest problem with this comment is that personal accounts do not provide an integral part of Social Security: security. The figures Cruz provides are based on investing Social Security savings in equities and earning returns in line with historical averages. But, as the 2008 crash amply demonstrates, some cohorts won't get the average.</p> <p>Cruz's argument is essentially the same one that we hear from public employee unions defending states' status-quo pension systems: If you invest retirement funds in risky equities, the higher return created by the risk premium creates a free lunch.</p> <p>There is no free lunch here because risk is itself costly. Cruz's argument is even worse than the unions', because he would have that risk borne not by state taxpayers as a whole but by individual, lower-income Americans in especially poor positions to bear stock market risk.</p> <p>Most bizarrely, Cruz frames gun rights as an "opportunity conservatism" issue, insisting that Democrats' support for gun control should hurt them with low-income women in high-crime neighborhoods, like Anacostia in Washington, D.C.: "If you're a single woman living in Anacostia, riding the subway and working two jobs, living next to a crackhouse, struggling to feed your kids, what [gun control advocates are] saying is that single mom cannot protect herself if someone comes through the window to harm her kids."</p> <p>I think that woman in Anacostia might be most interested in hearing about what the government will do to shut down that crackhouse, or how it will raise employment and the labor share of GDP so maybe she can work only one job, rather than that Ted Cruz will allow her to buy a gun so she can shoot some crackhead who menaces her kids. But I will admit that, like Ted Cruz, I do not spend a lot of time in Anacostia.</p> <p>Of the planks of "opportunity conservatism" that Cruz lays out, the only one with merit is school choice, and here the merit is limited. K-12 education is principally a state and local government issue, and the bedeviling problem of school reform is that few of the initiatives championed by the left or right seem to have anywhere near the effects their backers hoped.</p> <p>It's an issue that belongs on the radar screen, but it's not "the civil rights issue of our time," and it won't rebuild the Republican Party.</p> <p>Aside from school choice, "opportunity conservatism" as described by Cruz is just a synonym for "you're on your own." Concerned about crime? Buy a gun. Want to retire? Try your luck in the stock market. Need a job? Start your own business. Hoping for monetary or fiscal policies to bring down unemployment? Sorry, that's not the government's job.</p> <p>The idea that this message will save Republicans is bonkers. That doesn't mean it's not what many conservatives want to hear. <a href="http://www.politico.com/story/2012/11/ted-cruz-speech-stokes-2016-speculation-84436.html">Politico says</a> Cruz's speech will "only stoke speculation about a 2016 presidential run." And that's all you really need to know about today's Republican Party.</p> <p>(Josh Barro is lead writer for the Ticker. <a href="mailto:jbarro1@bloomberg.net">E-mail</a> him and <a href="https://twitter.com/#%21/jbarro">follow</a> him on Twitter.)</p> <p>Read more breaking commentary from Bloomberg View at <a href="http://www.bloomberg.com/view/the-ticker/">the Ticker</a>.</p> </body> </html>