For all the stiffness and the flip-flopping, what has really gotten Mitt Romney into trouble with the Republican primary electorate is when he says something that shades too close to the truth. We saw another example of that yesterday, when Romney committed the sin of explaining how austerity works in a recession:
Mitt Romney said Tuesday that cutting spending slows growth in the economy — a rhetorical slip more akin to an argument a Democrat might make than a Republican.
Speaking in Shelby Township, MI, the former Massachusetts governor took a question about the Simpson-Bowles fiscal commission empaneled by President Obama to address the nation’s deficit and debt issues. In his response, he said that addressing taxes and spending issues are essential.
“If you just cut, if all you’re thinking about doing is cutting spending, as you cut spending you’ll slow down the economy,” he said in part of his response. “So you have to, at the same time, create pro-growth tax policies.”
I love how this is described as a “rhetorical slip” rather than a partial truth. Cutting spending does, in fact, slow down the economy, especially in the midst of a recovery out of recession. Now, what Romney says at the end there is that “pro-growth tax policies,” by which he means tax cuts, need to be paired with the spending cuts to create that demand.
This is not only the orthodox position of the GOP, but it’s largely what just happened in Congress. The payroll tax cut is a “pro-growth tax policy” in this analogy, and you can view the spending cap from the debt limit deal or the trigger or any number of other spending cuts as representing the spending trims paired with it. This time the payroll tax cut wasn’t offset with spending cuts, but that’s the major difference.
As a macroeconomic matter, tax cuts add to deficits, and Modern Monetary Theory and basic Keynesian economics dictate that you need to run a high deficit out of a recession. The difference is that tax cuts are actually worse at providing economic growth than boosting spending. You can see that with the low-growth economy of the Bush years. By the same token, tax increases are a better policy in terms of austerity than spending cuts. The economic multiplier is simply higher on the spending side, and this gets more pronounced when the beneficiaries of the tax cuts are wealthy. Spending usually services the poor, who have a higher propensity to spend their benefits. The big tax plan Romney plans to announce on Friday will, almost certainly, lower taxes mostly on the rich.
So Romney, while being derided as “not a true conservative” because of this quote by the likes of the Club for Growth, is actually well within the conservative mainstream in calling for tax cuts paired with spending cuts. It’s just well outside the mainstream of demonstrable economic theory.