It's The Biggest Crisis Facing America, And Mitt Romney Doesn't Have A Plan For It

Mitt Romney shaking hands RNC speech

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On the matter of the national debt, you could argue that Mitt Romney and Paul Ryan (mostly Paul Ryan) have something that resembles a plan.The plan makes a lot of unfounded assumptions, and there are frighteningly few specifics about what spending would be cut, but in some vague sense, there appear to be some ideas about how the government could get shrunk.

But the biggest crisis facing America is not the national debt: It’s unemployment, which has been above 8 per cent for ages.

This is far and away the biggest threat to Americans in the short and long term (more later on this), and yet Romney really offers no idea about what the government would do to reverse the trend.

In a post at The American Conservative, Noah Millman called Romney’s RNC acceptance speech “infantilizing” due to the lack of specifics, and the tone it took with viewers/voters.

The whole post is devastating, but here’s a key chunk of Millman’s takedown:

Romney’s “plan” to create 12 million new jobs had five parts:

  • Energy independence (by 2020)
  • School choice
  • New trade agreements, and retaliation against nations that cheat on them
  • Cut the deficit
  • Cut regulations and taxes on small businesses, and repeal the ACA

Most of these things have absolutely nothing to do with job creation. Energy independence, if taken literally, would mean higher energy prices (if it was economically efficient for us to be independent, we would be). But what Romney really means is simply to roll back regulation against drilling and mining. More energy development will indeed create some jobs – it’s doing so in Western Pennsylvania, in North Dakota, for example. But it won’t make a big dent in a 12 million job goal.

School choice, whether you like it or hate it, has nothing to do with the near-term jobs picture.

New trade agreements? With what countries? Tariffs are at historic lows. “Trade agreements” these days are mostly about pushing other countries to respect our intellectual property regime. Retaliation is presumably about punishing China for being a currency manipulator. I’m still waiting to hear how exactly that particular chess game is supposed to play out after the first move.

The last two points are kind of meaningless in terms of real numbers to get jobs going, so Millman adds:

And that’s the “plan” to generate 12 million new jobs. The mismatch between the scale of the challenge and the proposed solution is almost laughable.

Mike Konczal at Next New Deal had another observation about Mitt Romney’s “plan” to create jobs. It’s the same plan proposed by John McCain in 2008, and George W. Bush before him.

Here’s Konczal:

On September 2nd, 2004, George W. Bush is at the RNC, giving his speech accepting the nomination to run for a second term as President of the United States. Unemployment is 5.4 per cent. A major housing bubble is kicking into high gear, and the country is debating the aftermath of the invasion of Iraq and the future of the War on Terror. A few months later, people will be talking about a permanent Republican majority. What are some priorities for a second George W. Bush term in creating jobs?

To create more jobs in America, America must be the best place in the world to do business.

[5] To create jobs, my plan will encourage investment and expansion by restraining federal spending, reducing regulation and making the tax relief permanent.

[1] To create jobs, we will make our country less dependent on foreign sources of energy.

[3] To create jobs, we will expand trade and level the playing field to sell American goods and services across the globe.

[5] And we must protect small-business owners and workers from the explosion of frivolous lawsuits that threaten jobs across our country. Another drag on our economy is the current tax code, which is a complicated mess…

[4]  To be fair, there are some things my opponent is for. He’s proposed more than $2 trillion in new federal spending so far, and that’s a lot, even for a senator from Massachusetts.

It’s the same agenda, mentioned back to back almost in the same order. Bush mentioned No Child Left Behind several times, though I’m not sure if that matches up with the school choice of [2] in Romney’s economic plan for school choice, so I excluded [2]. It’s always time for cutting spending, more oil drilling, free trade, and lower taxes and regulation to fix the economy.

This tripling down of the same unambitious policy is what allowed Obama to get in one of his (few) memorable lines of the night last night, when he gave his acceptance speech.

“All they have to offer is the same prescription they’ve had for the last 30 years: Have a surplus? Try a tax cut. Deficit too high? Try another. Feel a cold coming on? Take two tax cuts, roll back some regulations, and call us in the morning!”

The problem with the Mitt Romney (and the GOP right now in general) is its insistence that regardless of the economic situation, the same prescription is called for. In part this is due to the fact that there was a huge boom under Reagan, and so they think that post-crisis America is the same as post-Carter-stagflation America.

But as Mark Dow has ably pointed out in his post titled: Reagan’s gone. You’re old. Get over it., different times call for different measures. There was a reason supply-side ideas worked in the early ’80s. The conditions that made them work are gone.

Basically, supply-side policies work best when there is pent-up private sector demand. By lowering the cost of investment, you can unleash a self-reinforcing cycle. The bigger the pent-up demand, the bigger the payoff to an improvement in expectations. Without that pent-up demand, resources freed from supply-side measures and austerity get saved, not spent, and no self-reinforcing cycle is triggered.

The world of 1980 had tons of pent-up demand and gale-force tailwinds. Inflation and interest rates were coming down from high levels, household leverage was very, very low, financial innovation non-existent, consumption had been deferred, and demography was coiled as the baby boomers were just coming on line. On the government side, unions were powerful, price and wage controls were a reality, and tax rates were high. This was the ideal set up for supply side reforms.

Fast-forward to post-2008. Whatever the opposite of pent-up demand is, that’s what we have. Inflation and interest rates are already low, household leverage is a major burden, consumption was pulled forward during the boom, and demography is no longer our friend. Plus, we have globalization acting like a supply shock to our labour pool, holding down wages. In short, the tailwinds are now headwinds. On the government side, unions are far less powerful today, there are no price and wage controls, and tax rates are low. It seems next to impossible to make the case that supply-side policies can have anywhere near the effect today that they had in the ’80s.

The lack of any new ideas makes it smart for Romney to focus on the debt, which is far more abstract and misunderstood. And even people who acknowledge that deficit reduction won’t lead to job creation may well be willing to accept it on the grounds that we need to “sacrifice,” “experience some pain,” and “go on a diet” for the long-term health of the nation.

Unfortunately, the U.S. isn’t some fat person. The U.S. is starving, and there’s nothing long-term sustainable about unemployment staying above 8 per cent, causing skills loss and, more ominously, the potential for social unrest, which in the long-term would be incredibly destabilizing, accomplishing the exact opposite of what you’re going for.

Also the maths just doesn’t work out. As Richard Koo has pointed out, periods of austerity led to more borrowing during Japan’s long slump.

This is from one of his famous presentations. You can see budget deficits jump at the same time governments tried to consolidate spending.

richard koo

One possibility is that Romney really believes that the jobs problem comes down to just “mood” or “tone” of the President—that if the President is just more “pro-business” then that will get people hiring.

This doesn’t seem likely, as businesses routinely say that their main impediment to hiring is lack of demand (as opposed to regulation, and so forth).

Last note: Obama has his own deficiencies on this level. He was right to pursue a stimulus, but he’s never made a very good argument for its efficacy, or why we should do more. He did talk last night about investing domestically (when he said that money not spent on wars would be spent on nation building in the U.S.), and that’s code for fiscal stimulus, but it’s not a great pitch.

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