The Keynesian case for Romney
By Ezra Klein, Updated: Monday, June 4, 1:45 PM
Even if you disagree with every one of Mitt Romneys policies, theres a chance hes still the best candidate to lift the economy in 2013.
Thats not because he has business experience. For all his bluster about the lessons taught by the private sector, his agenda is indistinguishable from that of career politician Paul Ryan. Nor is it because hes demonstrated some special knowledge of what it takes to create jobs. Job growth in Massachusetts was notably slow under Romneys tenure. Its because if Romney is elected, Republicans wont choose to crash the economy in 2013.
The Congressional Budget Office estimates that if Congress gridlocks this year if it simply gets nothing done the economy will take a $607 billion hit in 2013 as the Bush tax cuts expire, the payroll tax cut expires and assorted spending cuts kick in. Falling off that fiscal cliff, they predict, will throw us back into recession.
But its worse even than that: Speaker John Boehner has said he wants another debt-ceiling showdown. Were not expected to hit the debt ceiling until February or March, and so the only scenario in which the debt ceiling matters is one in which Congress has already pushed us over the fiscal cliff. So as bad as the last debt-ceiling crisis was and Gallups polling showed it did more damage to consumer confidence than the fall of Lehman Bros this one would be worse.
Miles Nadal, CEO of the marketing and communications firm MDC Partners, says that at a recent event with executives of more than 100 companies, the business leaders, panicked about this possibility, agreed on the best outcome for the economy: a Republican landslide. Why? Because anything that breaks the logjam is positive, he says. The quality of the leader is less relevant than the ability to break gridlock.
Theres no reason to believe Romney could break gridlock. But theres reason to believe he wouldnt face it in the first place. Republicans control the House. Theyre three seats from controlling the Senate and, because this Senate election follows 2006, which was a wave election for Democrats, Republicans are defending 10 seats while Democrats are defending 23. Its difficult to imagine a scenario in which Romney wins the White House and Republicans dont control the House and Senate. On the other side, while its not impossible to imagine President Obama winning the White House and Democrats taking back the House, its unlikely.
Romney and the Republicans are not likely to reach 60 seats in the Senate, but they wont need them. The major issues on the table are budgetary. That means they can be considered using the budget reconciliation process, which cant be filibustered. So if Republicans can maintain party unity and they usually can theyll be able to govern effectively. And theres no way that theyll permit the Bush tax cuts to expire or the debt ceiling to lapse. Investors, knowing that, would likely stop worrying about the debt ceiling the moment a Romney win became clear.
Now, Republicans could still push the economy into recession if they pass an immediate austerity budget that slashed spending in 2013. And, given Republican rhetoric about how slashing the size of government will lead to more growth because the confidence fairy will come out and persuade businesses to spend more, you might think thats exactly what theyll do.
But Romney, though he often buys into that sort of nonsense while criticizing Obama, knows better. Time magazine asked him about cutting spending in 2013. If you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5 percent, Romney said. That is by definition throwing us into recession or depression. So Im not going to do that, of course. You couldnt have gotten a clearer definition of Keynesian budgeting from Obama.
Theres a good chance that a Romney administration would extend both Bush and Obamas tax cuts and delay the scheduled spending cuts. Congress would raise the debt ceiling after Romney promised congressional Republicans that hed sign some variant of Paul Ryans budget as soon as its sent to him. Somewhere along the way, Romney would pass both more short-term tax cuts and a long-term transportation bill something Republicans have been blocking under Obama that doubles as an infrastructure package and includes, to secure Republican support, the Keystone XL oil pipeline.
Nor is it clear that this will come at the cost of harsh deficit reduction in coming years. There will almost certainly be deep spending cuts if Romney is president, but both the Romney and Ryan proposals include trillions of dollars in unpaid-for tax cuts and defense spending. If Republicans clear that hurdle by simply assuming that deep tax cuts will lead, through supply-side magic, to larger revenues, their deficit-reduction plans might well end up increasing the deficit over the next few years. Remember, wrote Business Insiders Joe Weisenthal, Republicans were pro-deficit, and pro-entitlement expansion under Bush and Reagan. Deficit cutting only became part of the partys ideology under Obama.
Compared to anything Obama is likely to get from a Republican House, that is, at least in the short term, a much more expansionary, Keynesian approach. But its also an awful precedent. In a sense, Republicans are holding a gun to the economys head and saying, vote for us or the recovery gets it.
That might well prove an effective political strategy: The more they say that theyre willing to let the debt ceiling expire and the economy run over the fiscal cliff, the more businesses will pull back and households will stop spending in order to make sure they have enough cash on hand to ride out another crisis. That will further depress the economy this year, making it more likely that Romney wins, and that Republicans embrace the smooth Keynesian glide path that theyre denying Obama.
If Obama wins, its of course possible that the two sides will come to a swift agreement. Thats the presidents prediction. I believe that if were successful in this election, when were successful in this election, that the fever may break, because theres a tradition in the Republican Party of more common sense than that, Obama has said. My hope, my expectation, is that after the election, now that it turns out that the goal of beating Obama doesnt make much sense because Im not running again, that we can start getting some cooperation again.
But privately, many top Democrats admit that congressional Republicans, angry after a narrow loss and appealing to a base that is likely to blame the defeat on Romneys moderate past, might prove just as obstructionist after the election than before it. If that happens, they say, the president cant keep giving into Republican threats. Much as the government shutdowns in the 1990s discredited Newt Gingrichs hardball tactics, Obama will have to let voters see the consequences of the Tea Partys approach. But while that might be sage political advice, the economic consequences could be devastating.
This is the logical conclusion of a system biased toward gridlock: The out-party benefits when the public feels that Washington is failing and it often has the power to make Washington fail. Which, arguably, leads to another unusual reality about this election: Even if you agree with Romneys policies, it may be that voting for Obama, and delivering a landslide against the GOPs economic brinksmanship, is the only way to end the dangerous appeal of strategic gridlock going forward.
So which are you more worried about? The fiscal cliff and the debt ceiling? Or the political system?
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