Watching American politics from the right of center, it’s easy to get cocky. Even when your team plays poorly, the other side plays worse. Republicans may have little to crow about heading into November’s elections: government spending is soaring, entitlement programs have been expanded rather than reformed, and while Middle East turmoil may be necessary for winning the war on terror, constant news of lost life hardly lifts the spirits.

Yet Democrats not only fail to capitalize on Republican problems, they often make them look good. Liberal criticism of U.S. foreign policy often reeks of a blame America first mentality that alienates most Americans. Democrats embarrassingly lament in public over the need for their side to come up with “ideas,” as if core policy principles can be manufactured like lawn signs and bumper stickers.

Yet Republicans can’t count on Democrat incompetence forever. Just a few years ago, President Bill Clinton masterfully crafted a domestic agenda that Republicans found difficult to combat. His “Third Way” approach has been dormant since President Bush took office, as the hard left has led the opposition. But with the recent release of the Democratic Leadership Council’s “American Dream Initiative,” the Third Way is back and conservatives need to prepare to respond.

None other than Senator Hillary Clinton crafted the DLC’s latest policy platform and it shows: It’s Clintonian to its core. As the future presidential candidate described at the DLC conference in Denver: “This American Dream Initiative is a series of proposals to renew and strengthen the middle class, and to help pave the way for the poor to work their way out of poverty. It focuses on policies here at home. It reflects our belief that a strong, vibrant middle class is at the core of the American dream. Nothing speaks more to the promise of America than the idea that if you work hard, you and your children can succeed in our great country.”

The proposed policies are familiar: an array of tax incentives and government programs to encourage college attendance, home ownership, saving for retirement, and the provision of health insurance. But unlike off-putting, liberal spokesman, like Al Gore and Howard Dean, Senator Clinton keeps the class warfare to a minimum. She takes a few obligatory cheap shots at Republicans for favoring “the rich,” but focuses on painting government as a partner in helping people succeed in life.

Most of the proposals are modest, and have clear beneficiaries and hidden costs. A “strategic energy fund” would support research into new fuels and the development of fuel efficient technologies. New financial incentives would be dangled before state government to encourage them to graduate more students from their state colleges and universities. Low-income families would enjoy a series of tax breaks and subsidies for everything from buying a home to paying for children’s health insurance.

How does a supporter of limited government respond? We can argue, of course, that these feel-good programs have unintended consequences and aren’t the federal government’s proper role. Government funding of research crowds out private investment and often results in money flowing to the most politically attractive projects, not those most likely to yield results. Education policy is supposed to be left to the states and localities. The government simply isn’t supposed to be in the business of transferring money from one person to the next. Tax breaks and incentives sound attractive until you consider that someone else has to bear their cost.

Arguing against government action can be thankless. It’s much easier to point to those who would benefit from a program than to quantify a program’s cost, which tends to be small for any individual, but large in the aggregate. This has always been the challenge for conservatives.

It’s more difficulty today because many Republicans have abandoned a commitment to limit government. How do Republicans argue against a program that would give each low to middle-income child $500 at birth, a down payment on their future college or retirement costs, when they created a much larger transfer program– the trillion dollar prescription drug benefit for senior citizens? Like President Clinton before him, President Bush’s State of the Union addresses have been littered with small programs– from increasing college subsidies to government funded energy research– that could appear in the DLC’s latest handbook.

Senator Clinton’s recent speech should remind Republicans that they can’t out Santa Claus Democrats when it comes to using government subsidies to appeal to the middle class. They need to return to the argument that brought them to power– explaining why government shouldn’t be micromanaging our lives, but should trust individuals. It’s hard work, but better get started sooner than later.

Carrie Lukas is the vice president for policy and economics at the Independent Women’s Forum and author of The Politically Incorrect Guide to Women, Sex, and Feminism.