While the rest of the world deteriorates, the U.S. remains a pillar of economic strength.And the reason for this, believe it or not, is the massive deficits that have been run by DC, replenishing the private sector with cash. Despite incredible gridlock, and a party that’s been devoted to cutting spending, the fact of the matter is that the U.S. has not embraced the austerity wave that’s gripped much of the world.
The economy is still fragile, and we need these deficits to continue, which is one reason to think that Mitt Romney would be the better candidate for the economy.
He’s pretty much given up on any pretense of balancing the budget while offering broad tax cuts. What’s more, a Romney White House would make the Congressional GOP forget about cutting spending, and revert to their old ways under Bush (austerity is purely an out-of-power concept).
But that’s not the only reason to like Romney!
Dylan Matthews at The Washington Post’s Wonkblog looks at the three frontrunners to replace Ben Bernanke as Fed chair (Romney said last week that he won’t renominate Bernanke).
One of the names is Greg Mankiw, the well-known Harvard economist who is one of Mitt Romney’s main economic advisors.
As Matthews explains, Mankiw has advocated policies that would make Bernanke blush.
You want to see the Fed stimulate spending? Check this out
In an op-ed last year, he sympathized with Fed critics calling for the bank to allow its inflation target to double from 2 to 4 per cent to spur growth, but argued that that policy was politically untenable. Instead, he proposed keeping the 2 per cent target but making it a “level” target, meaning that if one goes under 2 per cent inflation one year, the Fed will promote inflation of over 2 per cent the next year. That would imply a considerably looser Fed policy regime than the one currently in place, one that could be achieved either through additional asset buys (that is, quantitative easing) or other, less traditional policies.
And Mankiw has expressed an interest in those less-traditional policies as well. In another piece, he cheekily suggested implementing a 10 per cent negative interest rate on cash by invalidating all paper currency whose serial numbers have a certain final digit. The effect would be that 10 per cent of all money would be wiped out, spurring people to spend it or keep it in banks that offer higher, but still negative, returns. In a follow-up post, he argued that a negative interest rate of about 1 per cent is appropriate.
As economist David Beckworth has argued, Mankiw has all-but endorsed the controversial notion of targeting nominal GDP, which goes under the category of “unusual unusual” Fed actions.
So if you figure that Romney is the deficits candidate, and surmise that his Fed chair would be a man willing to go pedal to the metal to juice the economy, the case for his candidacy as the stimulus choice is pretty clear.
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