American conservatism--intellectually ascendant during three decades in which relatively low taxes and a stable money supply produced the greatest accumulation of national wealth in history--is now staring into an abyss. It has been voted to the edge of political irrelevance, assaulted by a European-style budget and overshadowed by a new president of colossal skills and unexpected ambition.
As conservatives warn of catastrophe--well, even greater catastrophe--as a result of Obama's new debt and taxes, they are left to contemplate three possible futures.
First, it is conceivable that conservatives are hyperventilating as they did in 1993. President Clinton's budget, which included tax hikes, was attacked by Republicans as "grossly, totally, completely irresponsible." Conservatives warned of large job losses. But whatever Clinton's eventual problems, they were not economic. When monetary policy is responsible and federal spending restraint is credible, a continental economy can roll through many obstacles, including a moderate rise in tax rates.
"It's not smart to say this economy can't recover," says economist and author David Smick. If the pipeline of credit is somehow unclogged, the Federal Reserve has provided plenty of money for there to be a quick recovery. Americans will eventually need to buy houses or cars again.
Clearly this is what President Obama hopes and expects. It would probably solidify eight years of political dominance. But there is one problem. The markets do not appear to find his economic approach remotely credible.