Excerpts below. The entire article is long, but excellent, so go read the whole thing. AEI: The Way of the Whigs?
I see the current state of affairs as an intensification, perhaps even a culmination, of four interrelated 25-year political trends: a growing distrust of conservative and liberal ideologies, a growing movement away from the two parties and toward political independence, increases in the racial-minority (which usually means Democratic-voting) share of the population, and a growing inability of the Republican party to bridge the gap between its populist and elite wings.
Together, these trends raise the specter of a serious independent, populist presidential candidacy for the first time in a century. And if the GOP doesn't adapt to the shifting political terrain, there is even a remote possibility that the identity of America's two dominant parties will change for the first time since the 1850s, which saw the death of the Whigs and birth of the Republicans.
Consider the first trend, a retreat from ideology. Despite the party polarization in Congress, it's clear from polls and election results that the public has been seeking a middle ground for quite some time. ... While self-described conservatives do significantly outnumber self-described liberals, the largest group during the modern political era has always been self-described moderates.
This trend toward pragmatic centrism can perhaps be most clearly seen in the rise of something that is now almost commonplace, the independent campaign for governor or president.
The political stasis that characterized the 1992-2008 period, an era that Michael Barone famously called "50-50 nation," was in fact not 50-50 but a roughly equal three-way split between a liberal Democratic base, a conservative Republican base, and an independent third group that switched or divided its allegiance depending on which party seemed responsive to its concerns.
Republicans who see the party's underlying weakness and want to address it, however, must also address our last two trends, both of which are harmful to the GOP. The first is America's changing demography ...
That brings us to our fourth trend: the growing rift between the two major wings of the party, the populists and the elite.
If both of today's parties continue their missteps, however, it is not at all inconceivable that a serious third-party presidential candidate could arise. In this scenario, by early 2012 independents would make up a record-high 40 percent or more of the electorate. President Obama would be discredited, blamed for governing from the left and failing to improve the economy while saddling our nation with previously incomprehensible deficits. The GOP would be viewed as the party of incompetence and narrow-mindedness, simultaneously alienating elites and populists. It's easy to envision the rallying cry for this candidate: "Republicans are for the rich, Democrats are for the government, I'm for you."
One should not overestimate the odds of such a candidate's success. Independent campaigns must spend many months and millions of dollars simply qualifying for the ballot in 50 states. They lack the fundraising and volunteer infrastructures that a major party can provide, and without a primary campaign or any presence in the White House or Congress, they must fight extremely hard to receive the free media coverage that major-party campaigns command. But in a scenario where both major parties are discredited and the electorate is looking for a third way, one would be foolish to dismiss the possibility of an independent win.
It is not inconceivable that a new party arising to combat Obama's deficits could be as diverse as the original Republicans, including immigrants and anti-illegal-immigration activists, social conservatives and agnostic professionals, populist Blue Dogs and traditional Republicans.
Whether this coalition would be gathered under a new party founded by an independent president seeking a congressional base, or would be merely a reborn Republican party, is one of the political questions that would face GOP leaders.