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By almost any measure, American conservatives should be thoroughly depressed. The Republican Party they support has just lost control of the White House, the U.S. Senate and the House of Representatives. They are about to lose the Supreme Court, which they never really managed to control. And the Washington punditocracy has declared almost unanimously that they are just starting a long march through the wilderness of opposition.

So why are the 700 conservatives here on the National Review Post-Election Cruise enjoying themselves so much? Why do Governor Mitt Romney and Senator Fred Thompson exude such a relaxed confidence? Why is the mere mention of Sarah Palin — whom the media have pronounced definitively over — greeted by a prolonged burst of enthusiastic applause? And how come almost all 700 of them stay up into the small hours for a political cabaret starring Canada's own Mark Steyn? What right have these people to laugh so uninhibitedly?

A sense of relief is part of the explanation. Neither the Bush presidency nor the McCain candidacy was a pleasant experience for conservatives. George W. Bush was a liberal big spender in domestic policy and John McCain's "maverick" image was code for insulting conservatives in order to charm the travelling press. Having to swallow these irritations and support their authors was a trial that is now over.

Sarah Palin, by contrast, is in Margaret Thatcher's phrase "one of us." She does more than advocate — she incarnates — the practical common-sense conservatism of Middle America. The assembled right-wingers love her for the smears and condescension she has suffered on their behalf. And since they will be among the donors, precinct workers and voters in the 2012 presidential primaries, Ms. Palin clearly has a big political future. It was prudent of Mr. Romney and Mr. Thompson to join the sailing activists and lay down their markers.

In any event, conservatives can relax for the moment. Their own long discomfort with Mr. Bush and Mr. McCain is now over. They can look forward to happier days.

Or can they? A clear but modest defeat for the Grand Old Party came after a series of political failures, in the middle of a financial crisis, against an unusually attractive and polished Democrat, when all measures of public opinion showed a growing disquiet about the nation's direction.

Conservatives will have to rely in part on Barack Obama's making errors on a Jimmy Carter scale if they are to defeat him in 2012, but Republicans may well regain control of Congress in the three elections between now and 2016.

There is more to politics than politics, however. Conventional wisdom maintains that even if conservatives are well-placed electorally, they will be dragged down by broader ideological failures and cultural divisions. Does not the financial crisis show the bankruptcy of free-market economics? Are not well-educated middle-class voters now deserting the GOP for more government-friendly policies? And will not the GOP thus be kept out of power by what David Brooks of The New York Times sees as the divide between "reformers" who recognize these realities and "traditionalists" who want the old-time anti-government religion (not to mention actual religion)?

These arguments wilt under examination. Free-market financial deregulation (carried out mainly under the Clinton administration) was only one among many causes of the crisis. Much more important ones under both Republican and Democratic administrations were perverse regulation, encouraging and even compelling banks to lend to uncreditworthy customers, and an incontinent monetary policy that fuelled the tsunami of speculative lending.

If anything, the financial crisis is an illustration of the conservative law of unintended consequences — indeed, a double illustration. Regulations intended to make housing more affordable for low-income minority borrowers resulted in such people borrowing beyond their means and then having their homes repossessed. Monetary expansion initially undertaken to prevent the U.S. economy drifting into a moderate recession in 2001-2002 produced a massive collapse and recession in 2008. Regulatory bodies approved these policies. All these things together fostered the massive spread of bad debt.

That may have damaged the electoral prospects of John McCain and the Republicans. It may temporarily seem to justify more government regulation in the eyes of those who have not noticed that the crisis was fostered, if not caused, by government regulation. In reality, it more than confirmed the economic and political warnings of American conservatives from Milton Friedman to Irving Kristol on — sorry for the jargon — "regulatory capture" and "asset inflation." The more the crisis is examined, the more it will be seen that it justifies not more regulation but more transparent regulation. And if the Democratic Congress fastens tighter regulation on the U.S. economy and financial system, it will likely prolong the crisis and delay the eventual recovery — to its own disadvantage.

In the meantime, the financial crisis has had only a modest impact on partisan loyalties. What the GOP suffered in the election was a modest across-the-board fall in support from all groups, rather than the defection of particular minorities. Thirty-one per cent of Hispanics, for instance, voted Republican — which is exactly the figure you would expect in an election that the GOP lost. The exceptions were black Americans who delivered Soviet-size percentages for Mr. Obama, understandably enough, and "the rich" (i.e., those earning above $200,000 a year), who swung sharply into Mr. Obama's column. That second exception dramatically underlined trends going back 30 years, of the better-educated switching to the Democrats while blue-collar workers moved to the GOP. Both movements are the result of Ronald Reagan.

PALIN-ROMNEY IN 2012?

Back in 1977, Mr. Reagan proposed a "New Republican" party that would unite traditional "economic" conservatives who believed in small government with blue-collar workers who held traditionalist views on cultural or moral issues. He succeeded in building the Reagan coalition on this alliance. Like all such coalitions, however, it stimulated its own social tensions. Better-educated middle-class voters disliked the cultural conservatism adopted by the GOP to please its blue-collar recruits. And as several critics have pointed out — notably Ross Douthat and Reihan Salam, the authors of the book Grand New Party — the 50 per cent of voters in the working and lower middle classes never completely committed themselves to the GOP. Their economic insecurity meant that in 2008 they veered wildly between Mr. McCain and a born-again Hillary Clinton. "Reformers" see them as still up for grabs.

Actually, both sets of voters are still up for grabs. And the impossibility of designing a program that would appeal to both is exaggerated. It all depends on what is meant by limited government.

Mr. Douthat and Mr. Salam, for instance, would like to see the GOP adopt policies to soothe blue-collar economic insecurities. Such policies would offer modest government finance — e.g., tuition tax credits, health saving accounts, family-friendly tax reform — to help struggling families while requiring some effort from them. The "conservative" aim of such policies would be to help people over particular difficulties toward self-reliance. Their cost would be relatively modest. They would enable the GOP to bid for blue-collar support against a Democratic Party offering larger social programs not designed to avoid permanent dependency. Government might even end up being smaller — and citizens more independent.

Similarly, it is a mistake to see the better-educated voters solely through a cultural prism as liberal moralists. Many vote Democrat because they work for or provide services to the government. Other voters with the same education or income work in the small-business sector and are likely to resent high taxes and red-tape more than they support gay marriage. If burdensome taxes and regulations rise under Mr. Obama, even liberal entrepreneurs are likely to respond to a smaller government message. Besides, many small business owners are not particularly liberal in the first place. Dividing this vote should be more than possible.

In other words, there is still a great deal of stuffing in the Reagan coalition. Exit polls confirm that. In 2008, voters who described themselves as liberal amounted to 22 per cent of voters, moderates to 44 per cent, and conservatives to 34 per cent. That is almost uncannily similar to a poll quoted by Mr. Reagan 30 years ago: "A Harris poll released Sept. 7, 1975, showed 18 per cent identifying themselves as liberal and 31 per cent as conservative, with 41 per cent as middle of the road." This is also a coalition that can be grown. Mr. Douthat and Mr. Salam's reform argument points toward creating a tighter labour market by restricting immigration legal and illegal. Indeed, that would be the largest single way of reducing blue-collar insecurities. And the voters know it; they support it by two-thirds margins in polls.

That reform would be controversial, of course; Mr. Brooks would consider it an affront to upscale liberal sensibilities (and Republican donors). But there are also reforms with no very strong ideological colouring that would also grow the coalition, as analyst Steve Sailer underlines. Take affordable housing. Such housing makes it easier for young couples to marry. Married voters return to religion when they have children. And — presto — both married voters and religious voters are far more likely than either the single or the secular to vote Republican.

A revived Reagan coalition of the entrepreneurial middle class and blue-collar workers would be Middle America almost literally — fighting a top-and-bottom Democratic coalition of liberal corporate elites and various government client constituencies. Its natural presidential ticket would bring together Mitt Romney and Sarah Palin.

But it would be indelicate to say who would be on top.