I agree with your point about the Democrats' disastrous rightward slide but I don't think that the resulting problem is that Republicans now struggle to distinguish themselves. They're still the party of further tax cuts and deregulation, even if the Democrats have become the party of the status quo ante (or a "return to the Obama years"). I do agree, however, that economics deeply receded in importance for a decade or two.

But during that time, parties were quite content to focus their message to voters on cultural issues: patriotism vs multiculturalism, religious freedom vs tolerance, etc, and distinguish themselves that way. The problem that the Republicans had was that after decades of the conservative media stoking their voters' rage to searing intensity, Trump came along and gave the base what it wanted, which was an end to the restraint and doublespeak, and posturing / policy which produced as many "liberal tears" as possible; politics as punishment. Now in the aftermath of his presidency they have to figure out how to appeal to the mass of their voters' who are still fiercely loyal to Trump while continuing to serve the interests of their donors, who would like someone more stable.

The Democrats, for their part, are trying to figure out how to digest the left wing of their party and appeal to its voters while spending as little as possible (see the $1400 vs $2000 debacle).