The other big reason that it's a bad idea for a party to embrace the crazy is about governing. No question, sooner or later the Republicans will be back in power. What then?
Well, as the Democrats are learning this week with regard to the public plan, the beliefs of your followers can be a powerful constraint. And while those beliefs can be affected through top-down manipulations, they can't be turned around on a dime sometimes, and that can be a problem. What's more, elected officials are prone to living in bubbles and believing what they want, and the rise of a partisan press (Fox News and the liberal parts of MSNBC, talk radio, blogs) makes it that much easier to start believing your own spin. And that's a pretty dangerous condition.
I suspect -- and this is only speculative -- that the disaster in Iraq in 2003, 2004, 2005, and 2006 was at least partially caused by that sort of thing. Republicans spent much of 2003 and 2004 successfully convincing Republican voters that everything in Iraq was going perfectly (and that the invasion was totally justified as revenge against the September 11 terrorists and prevention against a nuclear-wielding madman, and also that it was a consensus position that only a few Bush-haters objected to). Perhaps Bush could have convinced Republicans that far more troops were needed in 2004 (or any other significant course correction), but perhaps not, and perhaps not without costs.
All in all, if a party came to me and asked, I'd strongly advise on practical grounds against embracing the crazy, even though I'd have to tell them that it "works" to a large extent.
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