Charles Wheelan, Ph.D. The Naked Economist

The Democrats, having won control of both the House and the Senate, are eagerly "dancing in the end zone" and "measuring for curtains," to use President Bush's metaphors.

The excitement may be short-lived. If there's any political bunch capable of falling off the stepladder and injuring themselves while measuring for curtains, it's the Democrats.

Bumpy Road Ahead

The main thing the Democrats have going for them at the moment is that they're not Republicans. That worked for the midterm elections, but it's no strategy for governing, or for winning the White House in 2008.

Going forward, the Democrats need two things: a strategy for Iraq and an economic playbook. I have some suggestions for the latter.

But first, let's acknowledge the two gaping potholes bound to disrupt any Democratic parade:

1. The Republicans have dug the country into a large fiscal hole.

   (True, many Democrats have been eagerly complicit, but I think it's fair to hold the party in power responsible, particularly since they wield the veto.)
   

   As a nation, we're not only running large deficits, but we've made huge financial promises to ourselves, primarily in the form of Medicare and Social Security, that we can't afford to keep. Blame for that goes all the way back to Franklin Roosevelt, but the current administration violated the most important rule of public policy: When you're in a hole, stop digging.
   

   Instead, the Bush administration and Congress lowered a backhoe into the crevasse and created the new Medicare prescription drug benefit.
   

   Meanwhile, the revenue side has been starved by the Bush tax postponements. (You only get to call them tax "cuts" if you also cut enough government spending to pay for them.) We've simply borrowed money to pay the bills; at some point, that has to be paid back -- with interest.
   

   So, if the Democrats plan to show a modicum of fiscal responsibility, they're not going to have a lot of cash to play with.
   

   But, sadly, that's just a warm-up for the more serious problem.
   
   

2. The Democrats have no coherent economic philosophy.

   Let's grant the Democrats the laudable goal of making life better for working people and the disadvantaged. Here's the problem: Most of the policies they propose for doing that lie somewhere between impractical and just plain wrong.
   

   You can't claim that education is your No. 1 priority while pandering to teachers unions. Nor can you fight against international trade when the evidence is clear that it creates wealth and profoundly improves the lives of people in poor countries.
   

   (And, in the short term, trade makes possible all those cheap goods at Wal-Mart that stretch the paychecks of the people the party is supposed to represent.)
   

   Raising the minimum wage? Yes, it will make a lot of people better off -- and it will speed up the process of outsourcing and automation, which will make a lot of other people worse off. Raising the minimum wage is not an economic plan for making the nation more productive; at best, it's a transfer of wealth, and not even the most efficient way of doing that.

A Saner Roadmap

If you believe that government plays some role in making peoples' lives better, as the Democrats can reasonably argue, then here's a roadmap for policies more likely to deliver on that promise:

1. Be the party that passes out blankets in the wake of "creative destruction."
   

   Vibrant economies destroy jobs constantly -- through competition, automation, and trade. Trying to stop any of that is a fool's errand. But cushioning the blow is a noble goal.
   

   Don't fight to protect jobs; fight to prepare people for the jobs that are being created. And when someone creates a better mousetrap, offer a decent safety net to the people who manufactured the old one.
   
   

2. Embrace "environmental incentives."

   OK, I'll admit this is just a more attractive way of packaging the idea of "green taxes," which raise revenue by taxing some polluting activity -- anything from dumping trash to emitting carbon.
   

   It's fair: polluters pay more. It creates a powerful incentive to do less of whatever activity is being taxed. And it raises revenue, which can be used to cut some other tax, or to start digging out of the aforementioned fiscal hole. Given the Republicans' foot-dragging on climate change, the Democrats should own the environmental issue. This is the most sensible and elegant way to do it.
   
   

3. Offer up more school choice for low-income students in exchange for more federal money.

   The big, urban school systems are the last great monopolies; by and large, that's how they function. I'm not convinced that school choice is a panacea; the data from places where it's been tried are tepid at best. A voucher won't make all the problems that poor students bring to school with them go away.
   

   But I do strongly believe that people and institutions respond to incentives, and the incentives created by a choice system are better than the incentives created by a huge public monopoly.
   

   The Republicans have rightfully been arguing for more choice for a long time. So to give them what they want, the Democrats should exact a price: more federal money for urban school systems willing to embrace choice.
   

   To my mind, that's at least a start on our urban education problems -- more resources and better incentives.
   
   

4. Don't do anything major on health care.

   Yes, it's a huge problem, and arguably America's most significant economic challenge. But health care is so big, and so complex, that it should be the focus of the 2008 presidential campaign.
   

   When we do something on health care (I no longer believe it is an "if"), a new president is going to have to arrive in the White House with a strong and specific mandate for reform.
   

   For the record, I don't think the Democrats own this issue. They're prone to paralyzing internal warfare over whether health care reform should modify the status quo or adopt a single-payer system, like Canada or Britain.
   

   The Republicans don't have the single-payer problem. Any moderate Republican plan would attract a lot of Democratic votes -- and the support of many healthcare stakeholders scared to death (or at least to ill health) of what the Democrats might do to them instead. It's the domestic policy equivalent of Nixon going to China.

The Democrats have their heart in the right place. Now it's just a question of engaging their brains.