In the summer of 2006, as Republican fortunes dimmed, one of the party's star Senate candidates sat down with reporters for an off-the-record lunch. Dana Milbank of The Washington Post recorded the unusually frank conversation for posterity. Far from towing the party line, the candidate blasted the Bush White House for its failures in Iraq and in the aftermath of Hurricane Katrina. When asked if he'd want President Bush to campaign with him, the mystery man said, "To be honest with you, probably not." As for the Congressional GOP, the candidate was harsher still. The party's most profound failure was, in his view, a failure to recognize where it had gone wrong. The candidate, we later learned, was Michael Steele, the then lieutenant governor of Maryland who eventually lost to veteran Congressman Ben Cardin in an overwhelmingly Democratic year.

Milbank highlighted Steele's most striking remark from that lunch: The candidate called his Republican "R" a "scarlet letter." Now, as the new chairman of the Republican National Committee, Steele has taken responsibility for rebuilding the Republican brand, which now stands in opposition to a popular president who is rolling up his shirtsleeves to fight the worst economic crisis since the Great Depression. Hailing from the heavily black middle-class suburbs of Washington, D.C., Steele is used to winning over hostile audiences. Though he lost to Cardin by a significant margin, Steele ran a shrewd campaign that was tailor-made to his state. On issues like public transportation and education, he reached out to voters who'd normally never give Republicans a hearing. On Iraq, the central issue in the campaign, he opposed withdrawal while calling for a serious rethink of U.S. strategy in the region. He came across as a results-oriented pragmatist without compromising his social conservatism, an approach that has also worked for much-lauded Republican governors like Mitch Daniels of Indiana and Bobby Jindal of Louisiana.

And as an African-American from a solidly Democratic state, he presented a marked contrast to the other candidates for RNC chair. Two of his most formidable opponents, Chip Saltsman and Katon Dawson, were southern conservatives who came across as racially tone-deaf if not worse. Saltsman, who helped lead Mike Huckabee's innovative campaign for the Republican presidential nomination and who served as Bill Frist's right-hand man, will forever be remembered for having included a song titled "Barack the Magic Negro" on a CD for members of the RNC. Dawson hastily resigned from an all-white South Carolina country club before entering the race for RNC chair. Whatever the intentions of either candidate, a victory for Saltsman or Dawson would have been a black eye for the party--an indication that the GOP's Big Tent was now a Pup Tent.

Of course, Michael Steele can't transform the Republican party single-handedly. Fortunately, there are early indications that Republicans--even Congressional Republicans--are learning from their mistakes, and far sooner than beleaguered conservatives had any right to expect. House Minority Leader John Boehner, a man with all the charisma of a washed-up lounge singer, has emerged overnight as a conservative folk hero for uniting his party against President Obama's stimulus package.

As David Brooks has ably described, the stimulus package represents an awkward marriage of long-term Democratic objectives, like pouring more money into higher education and green energy and big-ticket infrastructure projects, and short-term measures that governments at all levels will have an extremely difficult time absorbing. Many of these long-term objectives are very worthy ones that Republicans should embrace as well, particularly efforts to upgrade our physical infrastructure. Yet the speed with which this measure has been pursued means that spending discipline has gone out the window. State governments that receive billions of dollars will have no way to evaluate the efficacy of spending, and so we will find, two or three years hence, that vast sums were wasted, and indeed that vast sums fell into the wrong hands.

Not only have Republicans opposed this ill-conceived free-for-all--they've actually floated a number of more attractive alternatives, including a steep payroll tax cut, a sharp increase in the child tax credit, and offering state governments loans instead of grants. The first would represent an immediate economic boon to all American workers and businesses, the second would benefit hard-hit families, and the third would force state governments to spend responsibly rather than shovel money out the door. If Republicans keep moving in this direction, by backing similarly smart policies on fighting climate change and rising health care costs, President Obama and Congressional Democrats will have a real fight on their hands.