Fortune
 by Nina Easton

GOP candidates debate economy

Republicans had to strike a tough balance last night, acknowledging the current economic strife without appearing to critique the GOP's track record, writes Fortune's Nina Easton.

By Nina Easton, Fortune Washington bureau chief

(Fortune) -- On Wall Street yesterday, the Dow Jones industrial average and the broader S&P 500 index broke new record highs. Six hundred miles away, in Michigan, the unemployment rate stood at a painful 7.4 percent, fueled by the loss of 400,000 manufacturing jobs, and dwarfing the national rate of 4.7%.

Such was the paradox the Republican presidential candidates faced last night as they lined the stage in Dearborn for their first economic debate, bearing a political formula that delivered two parts can-do optimism about America's economic future, tempered by one part feel-your-pain concern.

"The possibilities for America in this global economy are endless if we don't put a lid on ourselves," said former New York City mayor Rudy Giuliani.

"It's inexcusable that Michigan is undergoing a one-state recession, that the rest of the country is growing and seeing low levels of unemployment,'' said former Massachusetts Governor Mitt Romney, whose father George Romney was a popular Michigan governor in the 1960s.

The Democratic presidential candidates have already cornered the market on worries -- so effectively tapping voter unease that they are beating the GOP in opinion polls asking which party they trust more to run the economy.

That leaves the Republican presidential candidates in a sticky position. They can't be naysayers: Their party has been in power for the past seven years, and besides, GOP strategists long ago decided that a confident, sunny Reagan optimism -- versus crimped Carter-style carping -- is ultimately more appealing to voters.

But neither can they ignore voter apprehension about everything from healthcare costs to foreign competition to massive CEO salaries. Short-term, the economy is sending voters a fickle message -- a spike in home foreclosures and mortgage firm bankruptcies existing side-by-side with a low unemployment rate, decent growth (so far) and a stock market that seems (for now) to be riding out the subprime mortgage debacle.

Last night, the candidates were forced to address voter concerns while still spreading all that Republican good cheer.

The debate got off to an unpromising start when the only real sparks to fly grew out of a staged argument between Romney and Giuliani over the presidential authority to use a line-item veto (Romney supports it as a budget cutting measure against big-spending Congress; Giuliani challenged it in court, and won, as New York mayor.)

The exchange made for good theater between two frontrunners, but it was hardly evidence of fresh thinking about how to maintain America's place in a fast-changing global economy.

Then the audience had to sit through repetitions of a familiar GOP mantra, summed up by Giuliani: "Keep taxes low. Keep regulations moderate. Keep spending under control."

But as the two-hour debate progressed, more meat appeared on the bones of a Republican platform on spending, taxes, and regulations.

Romney called for investments in research and technology to combat manufacturing losses in Michigan and elsewhere, and said a drive for energy independence will also help the country compete in the global marketplace.

"It's a great opportunity for America to develop technology to lead the world in energy efficiency as well as energy production," he said.

And nearly all candidates borrowed New York Times columnist Tom Friedman's prescription that green is the new red, white and blue -- that is, being energy independent is a national security issue.

"We need to approach [energy independence] the same way that a car does at the NASCAR pit stop,'" said former Arkansas Governor Mike Huckabee.

"You rush in, you get it done because you have to. We're in a race; we're in a race for our lives against people who want to kill us. And a lot of the reasons that we are entangled in the Middle East is because our money buys their oil. That money ends up coming back to us in the way of Islamo-fascist terrorists."

But on free trade, the candidates are split, with the top-tier expressing faith in the free market and the lesser-known candidates reflecting the growing protectionist sentiment inside both political parties.

"We've fractured the great industrial base of this country and we've pushed it off-shore with bad trade deals," declared California Congressman Duncan Hunter.

Hunter competed with Colorado's anti-immigration congressman, Tom Tancredo, for the title of most robust China-basher on stage. "What is missing from this economy: 1.8 million jobs that have moved to communist China from the United States, including over 54,000 jobs from Michigan," Hunter said.

Giuliani countered with a more upbeat message. "We're a country that should think about all these people that are coming out of poverty in China and India and elsewhere -- we should think of them as new customers," he said. "We cannot stop doing business with the rest of the world. If we do -- this is one of the reasons our depression became a Great Depression."

Likewise, newcomer presidential candidate Fred Thompson argued that "every country in the history of the world that's ever turned its back on free trade has suffered for it as a consequence."

"We have the second-highest corporate tax penalty in the world," he added. "We need to do better than that. We need to open up foreign markets. A lot of them are closing their markets to our people. Our people are not afraid to compete if the markets are open and the currency's not devalued."

But even Romney and Giuliani criticized President Bush's free trade agreements as insufficiently protective of American interests. "I look across the agreements we've made, I recognize we're going to have to do a better job," Romney said, citing the need to better protect intellectual property rights.

"There's economic protection," said Giuliani, "and then there's protection for safety, security and legal rights. And I don't think we've done a particularly good job on the second, and we have to improve those agreements. ''

Still, optimism was the theme most peddled throughout the night. Giuliani dismissed suggestions that London was replacing New York as the financial capital of the world.

Arizona Senator John McCain argued that all the American people needed was a little "straight-talk" leadership. And Romney declared that "there's nothing we can't overcome."

But in the race for most exuberant Republican, it was Sam Brownback -- the farm-raised senator from Kansas -- who went over the rainbow in praising America.

"I mean, this place rocks!" he declared.

Full disclosure: Nina Easton's husband is a Romney adviser. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.