Michael Gerson

WASHINGTON -- 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 pipe of credit is somehow unclogged, the Federal Reserve has provided plenty of money for 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. "What we are seeing," says Smick, "is $3 trillion in revenues for $4 trillion in spending. An honest budget? Give me a break." Even more importantly, the markets have little confidence in the administration's sketchy bank bailout plan. It has been the largest, early mistake of the Obama presidency to focus on expensive reforms of health and energy before convincing markets that the financial sector will be fixed -- the achievement on which all else depends.

The second conservative future might be vindication. Even if the banking system returns quickly to solvency, President Obama is proposing an unprecedented accumulation of debt -- just as other countries, to stimulate their economies, are doing the same. Given this glut of global debt, America will have to beg China, Japan and others to buy American bonds. There will also be a strong temptation to print money to buy the debt ourselves, leading to inflation.

Michael Gerson

Michael Gerson writes a twice-weekly column for The Post on issues that include politics, global health, development, religion and foreign policy. Michael Gerson is the author of the book "Heroic Conservatism" and a contributor to Newsweek magazine.
TOWNHALL DAILY: Be the first to read Michael Gerson's column. Sign up today and receive Townhall.com daily lineup delivered each morning to your inbox.