Election day is a week away. For an economist, this has been one of the worst campaigns I can remember, measured by the rhetoric of the candidates. Unemployment is still near 8% three years into the recovery. The Federal government is consistently spending a trillion dollars more than it takes in. We’re in the aftermath of an economy-wide disaster but there has been remarkably little discussion of how we got here. Wall Street has been living off the rest of us and what are we to do about it?
Virtually none of these issues have gotten any real attention. And some of the attention they’ve received involves the worst kind of pandering rather than thoughtful economics. I know, they’re politicians. But given the seriousness of where we’re at, the ugly rhetoric seems particularly appalling.
So I thought I’d take a quick spin through the “plans” of both candidates and see just how bad they are.
Romney speaks incessantly of his five point plan:
Get tough on China
Reduce the deficit
Cut tax rates
Champion small business
Those are from memory and I don’t pay close attention, so that’s a tribute to the Romney messaging. Some of these are bad goals. Others are misleading.
Getting tough on China is a bad idea. China sells us cheap stuff. If they really are currency manipulators, I’m grateful to them. China is bad for some Americans–those who want to make the same stuff China does. I’d rather those Americans do something else rather than expect me to pay a premium to let them do whatever they want to do. The low point of the debate was when Obama bragged he’d save 1000 jobs in tire industry by making the rest of us pay more for tires. Bad policy. Unfair. And Romney responded by saying either that he’d be even tougher or talking about labeling China a currency manipulator. (He makes it sound like “child molester.” They are not moral equivalents.) Portraying China as our economic enemy is bad economics. And if China retaliates with some kind of protectionism we’re risking a trade war as we limp out of this recession.
Reducing the deficit is a pretty good idea. But the real problem is that we spend too much. Neither candidate has talked about how government might get smaller. I understand the risks of specifying what programs might be ended. But it would be nice to lay out some principles. But this is probably the best part of the Romney plan.
Cutting taxes without cutting spending is not cutting taxes. Cutting tax rates without cutting spending is pretty close to the same thing. Romney claims he’ll cut exemptions, loopholes, etc. Lovely idea. Very hard to execute politically. So I’m all for tax reform. But I’ll believe it when I see it.
Championing small business is a bad idea. It’s not good to champion any particular group. You especially don’t want to champion small business relative to big business. Some small businesses are trying to grow into big businesses. It’s like favoring children over adults. Most of them are the same species. Putting small business at the center of the plan is a way to pander to people who think that the idea that small businesses create a lot of jobs means that subsidizing small businesses means more jobs. We shouldn’t subsidize anything. That’s the road to cronyism.
Energy independence? Another nice sounding impractical idea. And in general, self-sufficiency is the road to poverty, not prosperity. It’s not an admirable goal in and of itself. I recognize the unpleasant side-effects of buying energy from people who are not nice. But my understanding is that independence is a pipe dream.
Two other disappointments with Romney. When Obama zinged him by saying that Romney had a bigger retirement portfolio and the audience laughed, I wished Romney had said something like, “I’m not ashamed of being successful. I’m proud of it. I worked hard and earned almost every penny. That’s nothing to be ashamed of.”
Obama keeps talking about saving the auto industry and Romney says nothing. He should have said that Obama played favorites. He backed his union cronies and punished bond-holders, degrading the rule of law. He privileged GM and Chrysler at the expense of Ford and other auto makers here in the US with names like Honda that hire Americans. Obama didn’t even save any jobs with his rescue–he saved jobs at GM and Chrysler instead of at Ford and other companies that would have expanded as GM and Chrysler shrunk. Worst of all, by rescuing the cronies, he sent a signal to American companies that you can do a lousy job and instead of improving your product, you can turn to Washington for a do-over. Bad incentives. But Romney wants to win Ohio, supposedly, so he says nothing. But Honda Accords are made in Ohio. Maybe he could have won votes in Ohio by explaining how bailout incentives work.
Then there’s the President. Sometime in the last week, he decided he needed his own plan to counter Romney’s. I don’t know it by heart, just saw it for the first time the other say, so I’ll have to look it up. OK, after googling around, it turns out that the President’s plan is much more extensive than the challenger’s. I had only heard a few high points such as adding 100,000 math and science teachers. It has 27 points. The main ones appear to be:
Reviving American manufacturing
Energy made in America
Growing Small Businesses
Cutting the deficit by more than $4 trillion
Putting you in charge of your health care
Protecting retirement security
Like Romney, he wants to privilege small business and domestic energy. Worse, he wants to revive American manufacturing. There is nothing special about manufacturing that we should revive it rather than say the blacksmith industry. Actually, American manufacturing is thriving. It’s manufacturing employment that isn’t. Why should we want to bring back a particular form of employment that has seen great productivity growth making it less necessary to hire people for that industry?
Quality education is a good idea. He plans to get there by hiring 100,000 teachers, training two million workers for “real jobs” at community colleges and cutting tuition growth in half. I don’t know what the federal government has to do with those first two goals. Cutting tuition growth in half is easy if the government would stop subsidizing education. Which the President doesn’t support.
Cutting the deficit by $4 trillion? That sounds like a lot of money. Over ten years, not so much. That’s $400b a year in a $3.7 trillion budget and some of it is an increase in taxes. I want government having less control over resources.
Putting you in charge of your health care? ObamaCare is a step away from that goal. And protecting retirement security–he doesn’t really say how he’s going to get it done in a realistic way.
Of course we have Obama’s first term as data. If Romney is a panderer, Obama is the king of top-down.
The two most important issues facing the economy are shrinking the size of government and the marriage of Wall Street and Washington. Neither candidate has addressed either issue with honesty or seriousness.
So who is worse? In terms of rhetoric, it’s a toss-up. Bigger government vs. a possible trade war with China is an appalling choice. But I don’t believe Romney will really bash China once he’s in office. I think he’s just pandering. So he’ll label China a currency manipulator and do little about it, the way that Obama signed an order to close Guantanamo Bay and nothing happened. And the fact is that Obama won’t be able to expand government much and may be forced to shrink it if there is a Republican House that is a little more Tea-Party flavored and maybe a Republican Senate.
You could argue that we could get genuine budget cuts with Paul Ryan as VP but of course, that’s why Romney chose him, to convince spending hawks like me that he’s serious about cutting spending. I think cutting spending will be very hard to do.
You also could argue that Romney can play Nixon-goes-to-China and reduce the political influence of Wall Street. But I’ve seen no inclination on his part that he might do so.
So who is worse? If I had to bet, I think Romney is certainly more likely to cut spending than Obama. But I would have said the same thing about George W. Bush and his opponents and I don’t think it mattered much. Same with some of Obama’s worst actions, like the auto bailout. It’s nice to think Romney would never do that, but Bush started the auto bailout and I would have said the same thing about Bush ex ante. So I fear a lot of my intuition is just wishful thinking.