Ezra Klein wrote a provocative article yesterday making the case that a Romney Presidency would probably include more Keynesian spending than if Obama won a second term. It’s being pilloried by partisans, but I’m not sure why.
Klein is merely making the demonstrable point that Republicans have willingly resisted efforts to improve the economy over the past few years, but that they would not resist under a Republican President. Further, the implication is that Republicans could care less about the deficit when one of their own occupies the White House, which is also demonstrably true
It’s not even an argument about Romney per se as much as it is about John Boehner and the GOP Congress. They will be highly unlikely to force a debt limit showdown under a President Romney, even if they get some long-run concessions out of it. They would be likely to agree to extended if not deepened tax cuts, not a particularly good form of Keynesianism but a fiscal expansion nonetheless. And they would be likely to boost Pentagon spending in a kind of military Keynesianism, also a proven loser relative to other federal spending, but an expansion. A lot of this depends on the outcome of the House and Senate, which is up in the air. But presumably, a Romney victory correlates with Republican victories in Congress.
The argument on the other side says that Republicans might install these tax cut-and-military-Keynesian measures, but they would attach something like Cut, Cap and Balance to them, to force overall spending and deficits down and “make Keynesian deficit spending in a recession illegal.” But Romney has already made the Keynesian argument here that he would not take all the spending out of the economy at once, as that would throw the economy into recession.
Also, it’s worth noting that the Budget Control Act includes a ten-year spending cap that sets a ceiling for federal spending and, if you like, makes increased deficit spending in a recession illegal. That’s certainly what we’re seeing over the last two years, as a growing number of commentators have realized. And there’s no reason to believe that, even after re-election, there would be a new dynamic where the President boldly pressed for more spending measures that he could actually get. Look at the budget for basic research and development, even after President Obama touted a new “Sputnik moment.” It has basically stagnated, as all spending has trended downward (something the Administration has boasted about).
It’s worth pointing out that the so-called “fiscal cliff” is a bit of a misnomer. It’s more of a fiscal slope, with fiscal policy contracting gradually over many years. There would be time to reverse course even after the end of December. But would there be a dynamic able to reverse course without gridlock? That’s the argument that points to Romney and a Republican trifecta.
It would be easier to counteract this argument if Democrats offered an actual choice. They may not get their wishes, but they would at least start from a higher position, and as they seek to catch the falling knife with a compromise during the fiscal slope, it would at least end up in a better place. Instead, as Dean Baker writes, we’re not seeing any of that:
The basic story of this downturn remains incredibly simple. We lost close to $1.4tn in annual demand when the housing bubble collapsed. The construction boom that was fueled by the bubble went into reverse, with new construction falling to its lowest levels in more than 50 years. The consumption boom fueled by the bubble-generated equity collapsed when that equity disappeared.
We cannot return to full employment until we have something to replace the demand that had been generated by the housing bubble. This is simple arithmetic [...]
President Obama and the Democratic leadership have refused to put forward a serious alternative path. While they have been willing to argue that rich people should have to pay some taxes, they have not come to grips with the nature of this downturn, as if hoping that, somehow, the economy will just jump back to its pre-recession level of output through some magical process. There is no magic that will allow the economy to override basic arithmetic. In the short term, only the government can provide the boost necessary to support the economy. Over the longer term, we will need to get the trade deficit down through a more competitive dollar.
Millions of unemployed Americans are suffering in a period of benign neglect, and they can be forgiven for thinking they don’t have a champion at the federal level. If you want to counteract the narrative that a Romney Presidency would at least avoid gridlock, leading to a better economic situation, at least you could demand some real talk and real proposals from the Democratic leadership.
…this does amount to a case of a hostage situation, where Republicans demand the Presidency or they will continue to let the economy suffer. But again, why are partisans mad at Ezra Klein for pointing that out? They say that all the time. And incidentally, this points to a fundamental flaw in the current political system, though nobody prefers to touch that third rail.