The latest presidential debate vividly captured how the 2008 financial crisis has reshaped the Republican Party by unleashing a potent populist strain that could further scramble an already unpredictable primary contest.
Candidates vying for the 2016 GOP nomination have grown distinctly more leery of big banks, corporations and international trade deals, and outright hostile toward the Federal Reserve.
Some of these impulses gave rise to the tea-party movement in 2009 and flared in the 2012 GOP primary contest, but they faded with the nomination of former Massachusetts Gov. Mitt Romney, a private-equity executive.
The debate in Milwaukee didn’t appear to fundamentally alter the state of the race. But with candidates heading off to Iowa and New Hampshire on Wednesday, it showed how their jockeying to carry the populist banner could intensify in the run-up to those states’ early nominating contests next February.
Candidates who have made full-on appeals for the antiestablishment mantle—businessman Donald Trump, former neurosurgeon Ben Carson and Texas Sen. Ted Cruz—are looking to consolidate that support as the field eventually narrows. Others, such as former Florida Gov. Jeb Bush, Ohio Gov. John Kasich and Florida Sen. Marco Rubio, are walking a finer balancing act to maintain broader appeal.
The populist undercurrent has upended the Democratic field as well, where Vermont Sen. Bernie Sanders, the self-described democratic socialist, has filled arenas while raising millions from small donors. Progressive party leaders have pushed front-runner Hillary Clinton to adopt more liberal proposals on everything from higher minimum wages to making Social Security benefits more generous.
“A nasty—and ignorant—anti-Wall Street climate prevails in both parties, and it’s something our industry has to worry about,” said Greg Valliere, chief global strategist at Horizon Investments, in a client note Wednesday.
The fourth GOP debate, sponsored by The Wall Street Journal and Fox Business Network, illustrated how Republicans are competing to bridge their populist message with the party’s traditional support for lower taxes and less regulation. Candidates castigated crony capitalism, questioned the value of a Pacific trade pact and bashed the Fed as a cause of the financial crisis and a tool of the Obama administration.
Carly Fiorina, the former chief executive of Hewlett-Packard, criticized President Barack Obama’s health-care overhaul for prolonging a “cozy little game between regulators and health-insurance companies.” She called on the government to require every health-care provider to publish “its costs, its prices, its outcomes, because as patients we don’t know what we’re buying.”
Mr. Cruz said his flat-tax proposal would end preferential treatment of the rich and well-connected. “No longer do you have hedge-fund billionaires paying a lower tax rate than their secretaries,” he said. “Giant corporations with armies of accountants regularly are paying little to no taxes while small businesses are getting hammered.”
Mr. Rubio found himself defending a proposal to boost child-care tax credits as a way to support low- and middle-income Americans against charges from Kentucky Sen. Rand Paul that it would run up big deficits and create a new entitlement program.
One notable exchange came when candidates were asked how they would handle failing banks during a hypothetical rerun of the 2008 financial crisis. During a back and forth with Mr. Cruz, Mr. Kasich chided candidates for issuing “philosophical” platitudes.
“When you are faced, in the last financial crisis, with banks going under and people who put their life savings in there, you got to deal with it,” Mr. Kasich said, who was booed by the audience at one point.
Mr. Cruz initially said he would “absolutely not” support bailing out big banks but later said there was a role for the Fed to serve as a “lender of last resort.”
The exchange “seemed yet one more example of how the wounds from the financial crisis have yet to heal, and those who try to talk rationally about it are disadvantaged against populists,” said Charles Gabriel, a financial-industry policy analyst at Capital Alpha Partners in Washington.
Candidates voiced concerns about the power of big banks, even as they promised to sweep away new regulations, including the Dodd-Frank financial overhaul that requires the biggest banks to raise more capital to withstand financial crises. They also heaped criticism on the Federal Reserve, which has taken unprecedented steps to spur growth in the seven years following the financial crisis—but has also consistently overestimated growth rates in its forecasts.
Mr. Paul said the Fed’s policies had hurt the poor by leading to higher prices and lower currency values. But inflation has remained under the Fed’s 2% target for more than three years with many economists concerned more recently about deflation. Also, the dollar has strengthened this year as U.S. economic growth looks comparatively better than in the rest of the world.
Mr. Cruz said the Fed had become “a series of philosopher-kings trying to guess what’s happening with the economy.” To manage inflation, he advocated a return to the gold standard, an idea widely dismissed by mainstream economists.
Milton Friedman, the late Nobel laureate who championed free-market policies, urged President Richard Nixon to abandon the system of fixed currency-exchange rates that emerged after World War II shortly before Mr. Nixon took office in 1968. Mr. Nixon scrapped the peg in 1971.
In Tuesday evening’s first debate, New Jersey Gov. Chris Christie criticized the Fed for keeping rates artificially low to support Mr. Obama. He then warned that rates were too low to revive the economy should it slide back into recession. “The Fed should stop playing politics with our money supply,” he said.
White House officials have rejected outright the idea that they would seek to influence monetary policy. Some analysts said the criticism of the Fed distracted from Republicans’ opportunities to offer more concrete pocketbook proposals.
“The most dismaying element” of Tuesday’s debate was that “none of the candidates appear to have read, much less absorbed, the innovative ideas” of “reform-minded conservative economists,” said Norm Ornstein of the American Enterprise Institute, a conservative think tank that has advocated many of those policies. “Instead, they all promoted ideas that appealed to the antediluvian base.”
Write to Nick Timiraos at firstname.lastname@example.org