Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is an FT contributing editor and executive director of American Compass

In the ongoing battle to define the future of American conservatism, the tax-cutting, free-trading, union-busting Republicans who dominated the party before Donald Trump’s rise are eager to present themselves as the authentic choice. But GOP voters have become deeply sceptical of globalisation, big business and Wall Street. They identify more closely with workers’ interests. A corporate-friendly agenda formulated more than 40 years ago holds little appeal. 

Thus the Old Right, searching for favourable ground on which to confront what it perceives as a noxiously “populist” New Right, is fervently claiming the mantle of “fiscal discipline”.

Writing recently in the Wall Street Journal, former US senator John Danforth warned that, “populists are now attempting to uproot policies deeply planted in Republican conservatism. We are the party of fiscal discipline, but the national debt rose nearly 40 per cent during Mr Trump’s presidency.”

Robert Doar, president of the business-friendly American Enterprise Institute, cited approvingly Danforth’s “case for traditional conservative principles against the caterwauling of the populist New Right” and warned that “the statist policies populists embrace have far more in common with Democrats’ progressivism than limited-government conservatism.” 

In his analysis of the GOP’s struggle to elect a Speaker of the House in January, former Speaker Paul Ryan declared Trump was “fading fast” and applauded “Republicans . . . reacquiring their moorings [as] the party of fiscal responsibility.”

On the campaign trail, Republican presidential hopeful Nikki Haley has criticised Trump on similar grounds, lamenting that he “didn’t do anything on fiscal policy and really spent a lot of money, and we’re all paying the price for it.” 

Which Republican party are they thinking of? Surely not the American one, which has reliably expanded deficits at every turn for more than four decades. Danforth is correct that the national debt rose nearly 40 per cent during Trump’s presidency, but that performance was downright miserly by the standard of his predecessors.

The national debt rose by 72 per cent during president Ronald Reagan’s first term, another 66 per cent during his second, and then 54 per cent during George H.W. Bush’s time in office. George W Bush saw increases of 31 per cent and 36 per cent in his two terms as president.

On the one hand, percentage growth may not be the right measure. A 40 per cent increase in the $20tn debt that Trump inherited is much larger in absolute terms than a 72 per cent increase in the $1tn of debt at the start of Reagan’s presidency. The increase in debt as a share of GDP tells a more useful story and, by that standard, Trump’s 22-percentage-point increase is much larger than the addition by other recent Republicans.

On the other hand, the final year of Trump’s term included the onset of an unprecedented global pandemic, which prompted large one-time expenditures and accounted for more than 90 per cent of his debt-to-GDP growth. In Trump’s first three years, the US debt-to-GDP ratio increased by 2 percentage points — less than in the early years of prior Republican presidencies.

Perhaps more importantly, the source of the Trump-era deficits bears scrutiny. In 2016, US government revenues were 17.6 per cent of GDP while expenditures were 20.8 per cent, yielding a deficit equal to 3.2 per cent of GDP. In 2019, the Trump administration’s last pre-pandemic year, the deficit had risen from 3.2 per cent to 4.6 per cent of GDP, but spending had risen by only 0.2 percentage points while revenue had fallen by six times more, thanks to the budget-busting tax cuts advanced by then-Speaker Paul Ryan and vocally supported by the Old Right caucus now demanding a return from Trump’s profligacy to fiscal discipline.

That tax cut not only failed to “pay for itself”, it failed to generate significant economic gains. Indeed, by the measure preferred by the Trump White House’s Council of Economic Advisers, business investment contributed no more to growth after the tax cuts than before. Growth itself slowed. The story should sound familiar, seeing as it repeats precisely the experience of George W Bush’s tax cuts 15 years earlier, which likewise caused tax revenue to plummet and deficits to rise.

Still the lesson has not been learnt. If conservatism is to regain its footing, the New Right will need better solutions than what Trump has offered. But a return to what came before him is no solution at all.