He’s not saying, but the smart money is betting Mitt Romney favors a Maggie Thatcher approach to cutting the deficit.
Christina Romer, former chair of President Obama’s Council of Economic Advisors, and an economics professor at the University of California, Berkeley, warned recently that deficit reduction, like death and taxes, is coming. In a recent Op-Ed in the New York Times she wrote, “Deficit reduction is coming, and this election will most likely determine how it’s done.” Mitt Romney has come out with a new narrative-of-the-week that the last four years represent a run-up of big government spending. That’s not true by many measures. The run-up began with TARP on W’s watch and continued with a stimulus package that a majority of economists agree probably averted a new Great Depression. It was no joy ride, as Romney would have us believe.
Romer maintains “honest talk about the deficit is risky.” That, too, is true. What no one is telling us is that our choice is that of Greek style austerity on the one hand and broad tax increases on the other. While Romney attacks Obama without presenting his own plan, Obama has offered more concrete plans to cut the deficit when the time is right. We should understand that without a robust recovery no time is a good time. Yet, we cannot stand by waiting forever for a new economy to rescue us when the clock is ticking on our long-term debt bomb. Odds are that given two to three more years of a weak recovery, we will need to shift gears, cut spending, and start to pay back the cost of two ill-advised wars, the stimulus, and pay down the bill on underfunded entitlements. Who do you want to do that?
Romney declares the military off-limits and will instead may well increase military spending if elected. At the same time he “wants to cut taxes by $5 trillion on top of the Bush-era rates” according to New York Times reporter Jackie Calmes. The outcome? Deep, deep, cuts to social programs, education, research, and entitlements. Of course he doesn’t say a word about that last part. Calmes writes in “How candidates differ on cutting deficit” on Wednesday that Romney “has not fleshed out many of the details necessary to evaluate the long-term effects of his plan.” Yet he claims “he would balance the annual budget in eight to 10 years.”
His claim—any such claim—is nothing but vaporware unless we know how the deficit will be cut. Obama claims that he will reduce the deficit by $5.3 trillion over the next decade if his budget proposals are enacted into law. Obama has said he will do this through taxes on the wealthy and cuts to the military, savings achieved through the Affordable Care Act, and a “share-the-pain” plan of distributed, but livable cuts to a variety of other programs.
Robert Resichauer, former head of the Congressional Budget Office, quoted in the article referenced above, said of the two approaches, “The proposals by Romney are politically unachievable, and the president’s proposals, while achievable, are too modest.” Obama knows, as Romer holds, that discussing the deficit is risky. The minute you do the arithmetic, as Bill Clinton would say, you realize you can’t get there from here, if “here” is the state of the union as proposed by the two campaigns. Of course it would be madness for the Obama team to say they will increase taxes on the middle class, even if it is only on the upper reaches of the middle class. And Romney indulges in greater madness in as much as proposing that his tax giveaways to the rich will result in explosive economic growth the likes of which we have never seen before—with the possible exception of that amazing stimulus known as World War II.
Romney—if you hold him at his word and do the arithmetic—is proposing the end of government as we know it. And, along with Paul Ryan, he’s pretty cheerful about it. Glib, even. What is entirely untenable about their economic worldview is that they think they can get away with gutting the paid-for-up-front safety nets of Medicare and Social Security with upsetting their base. This is the fatal link in their logic. This is also why you may not want them cutting our deficit their way.
In the end it comes down to if you hated the Bowles-Simpson plan you will riot in the streets over the vaporous Romney-Ryan plan once you learn the details. But of course few actually have any idea at all what was in the Bowles-Simpson plan. The Reader’s Digest version is that under their plan you will work longer, save less, pay more in taxes, and live to tell about it. But if you have it their way, we will in time right the ship of state, preserve beloved benefits like Medicare, stop living in an economic LaLa Land.
Of course election season is LaLa Land on steroids. Hard truths have no place in this grand debate. My personal view is that we have become so addicted to the Bushian notion of low taxes that it will take perhaps two more election cycles of economic dislocation to allow taxes to rise to even 60 or 70 percent of where they were in the 1990s, our last, and now beloved, era of an economic Shangri-La. This is probably where taxes should be for moderately affluent households with two good jobs, two cars, two kids, two dogs, and the whole whatnot.
The simulative effect of outrageously low taxes for the rich and affluent is one of the premier myths of the age. You may notice we’ve just experienced four years of just that regimen. How many job-creator-created jobs are you all working at?
When government stimulus is no longer possible, or advisable, the worm will turn. The only way to fortify ourselves to the payback period is a plethora of good jobs that don’t seem to be on the horizon now. If you are counting on Mitt Romney to create those jobs, I feel sorry for you because he’s the same old trickle-down in a drought. And everyone knows that the president and federal government don’t create private sector jobs in the first place.
I think we need someone like Obama at the helm when it comes time to cut the deficit. He may be a few (trillion) dollars short according to Robert Reischauer, but beyond his classic (if partially bungled attempt at) Keynesian stimulation he is no big spender. The entire reason he went for health care reform is that he foresaw cost savings that would put the wind at our backs for a long-term growth trajectory. I’m no acolyte here. I believed in health care reform because it was the right thing to do for 45 million people. But Obama will steer a middle course and will cut the deficit given the opportunity. (And so will Hillary Clinton if we are lucky enough to have her follow him into the Oval Office.)
But that tax thing? It will not be solved. That means, at minimum, austerity lite for us. Sometime in the not-too-distant future. The only question is will it be austerity lite or Maggie Thatcher-style austerity. That is one of the things we will decide this fall, like it or not.