After last week’s fight over Bain Capital, the Romney campaign is returning to safer ground with a renewed attack on Obama’s handling of the economy:
“President Obama has never managed anything other than his own personal narrative. He has never created a job and never run a business. President Obama not only doesn’t understand the economy - he also opposes the free-market principles that built it. His policies have prevented businesses from growing, thriving, and creating jobs, and he has no plans to change course.”
Of course, knowledge of “job creation” has almost nothing to do with experience in business—Bill Clinton spent his entire life in government and George W. Bush had an MBA, but the former presided over a period of immense job creation, while the latter led the country through a decade of stagnant job growth. Likewise, Obama’s inexperience with the private sector hasn’t stopped his administration from presiding over 4.25 million new private sector jobs, a huge improvement over his predecessor.
The same goes for “understanding the economy”; running a business doesn’t automatically lead to better macroeconomic policy, and in fact, the habits built by owning a firm might hinder those tasked with guiding the economy. Lowering costs might save a business, but it could cripple an economy, especially during times of economic distress.
The irony is that Mitt Romney understands this as well as anyone; it’s why he has promised to delay his spending cuts in favor of immediate tax cuts. As he said to Time’s Mark Halperin in an interview last week, “if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5 percent. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.”
This is textbook Keynesian logic; higher short-term deficits, to be offset later by spending cuts and fiscal stability. I’m inclined to see congressional Republicans as genuinely eager for spending cuts, but they could be more cynical than I give them credit for. If that’s the case, then you could imagine a Romney administration that begins with a large burst of stimulus, in the form of huge tax cuts. You could even argue that, compared to Obama—who still supports an agenda of phased spending cuts and higher taxes on the rich—Romney is the more Keynesian of the two candidates, and thus, actually better for the economy. Slate’s Matthew Yglesias, for example, calls Obama the “real austerity candidate,” both for his policies and the fact that Republicans are willing to pass large tax cuts without the necessary offsets.
There are a few problems here. The Obama budget contains significantly higher spending than what Romney has proposed, and a large portion of it goes towards programs—food stamps, unemployment insurance, etc.—that are far more stimulative than tax cuts. Obama’s budget might be less Keynesian, but it’s more efficient with the stimulus it provides. This isn’t austere as much as it is (potentially) less stimulative.
What’s more, all of this relies on the assumption that Republicans aren’t actually interested in implementing the Ryan plan. If that’s the case, then you would be right to see the former Massachusetts governor as a decent bet for short-term economic growth. But if the desire for immediate and massive spending cuts is real, then the Romney budget—which is a variation on the Ryan plan—would dwarf European austerity in size and scope.
Indeed, even if delayed for a year, the Romney/Ryan spending cuts would eviscerate non-defense discretionary spending, and spark a terrible economic contraction. In which case, the net result of the initial tax cuts would be to direct a huge amount of wealth to the richest Americans. This would be a success for the Republican Party, and a disaster for the rest of us.