But when inflation became a serious problem in the 1970s, the Keynesians really had no good explanation for it or a cure. In this intellectual vacuum, libertarian economists like Milton Friedman gained credibility and influence by arguing that tight money was needed to stop inflation.
The Keynesians also had little to offer when economic growth slowed to a crawl. It wasn't plausible to advocate deficit spending when the budget was already hemorrhaging red ink and interest rates and inflation were shooting through the roof. This opened the door for the supply-siders, who advocated tax rate reductions to stimulate growth. Skeptics of this idea were silenced when the voters of California approved Proposition 13 in 1978, which slashed property taxes in that state, triggering a national tax revolt.
By 1980, these different strands of the conservative coalition united behind Ronald Reagan, who skillfully pulled them together under the Republican tent. By 1994, the coalition was strong enough to gain control of Congress, and Republicans truly became the nation's governing party for the first time since 1932.
Sager argues that George W. Bush has effectively destroyed this extremely successful political partnership by siding with the traditionalists and ignoring the libertarians. He threw a few tax cuts at the latter, like bones to a dog, but at the same time endorsed a vast expansion of government spending that will soon lead inevitably to tax increases.
Bush's courting of the evangelicals has increased friction between them and the libertarians, who now have become deeply alienated from the Republican Party, Sager argues. They may not be ready to become Democrats, but neither can the libertarians be considered a reliable part of the Republican coalition any longer, as they were in the Reagan era.
Sager believes that this spells doom for the Republicans unless a new leader emerges around whom the libertarians can rally. He suggests that Rudy Giuliani may be the one, but that remains to be seen. In the meantime, Sager thinks the libertarians are likely to disengage from politics and just sit out the next election.
I think he is right, and it's a key reason why I think Republicans are going to do very poorly in November. When they look for ways to pick up the pieces afterward, Sager's book will be a useful guide.