Is Romney the Keynesian choice in November?
posted at 5:43 pm on June 4, 2012 by Allahpundit
Lefty Ezra Klein wonders. The good news? The One’s dismal week is forcing liberals to come to grips with the increasingly real possibility of a Romney presidency. The bad news? The silver lining that Klein’s found for Democrats might not be as bogus as you’d wish. It hinges on two things. First, undeniably, the odds of Romney getting elected and having a Republican Congress to work with are much greater than Obama getting re-elected and having a Democratic Congress to work with. And that’s important since we are, after all, facing “Taxmageddon” when the Bush tax cuts lapse at the end of the year and the automatic spending cuts (including defense spending cuts) that were dictated by the last debt-ceiling deal go into effect. The economy’s going to get gut-punched unless Congress does something, and our best shot at getting them to do something is a big red wave in November that breaks the gridlock.
Second, if you’re a true blue Keynesian who believes in deficit spending (and tax cuts) during a recession to promote growth, then good news — Romney might agree with you. Paul Krugman’s been calling him a closet Keynesian since February:
Speaking in Michigan, Mr. Romney was asked about deficit reduction, and he absent-mindedly said something completely reasonable: “If you just cut, if all you’re thinking about doing is cutting spending, as you cut spending you’ll slow down the economy.” A-ha. So he believes that cutting government spending hurts growth, other things equal…
Almost surely, he is, in fact, a closet Keynesian.
How do we know this? Well, for one thing, Mr. Romney is not a stupid man. And while his grasp of world affairs does sometimes seem shaky, he has to be aware of the havoc austerity policies are wreaking in Greece, Ireland and elsewhere.
Romney said something similar to Mark Halperin during their interview a few weeks ago:
Halperin: You have a plan, as you said, over a number of years, to reduce spending dramatically. Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?
Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course. What you do is you make adjustments on a basis that show, in the first year, actions that over time get you to a balanced budget. So I’m not saying I’m going to come up with ideas five or ten years from now that get us to a balanced budget. Instead I’m going to take action immediately by eliminating programs like Obamacare, which become more and more expensive down the road – by eliminating them, we get to a balanced budget. And I’d do it in a way that does not have a huge reduction in the first year, but instead has an increasing reduction as time goes on, and given the growth of the economy, you don’t have a reduction in the overall scale of the GDP. I don’t want to have us go into a recession in order to balance the budget. I’d like to have us have high rates of growth at the same time we bring down federal spending, on, if you will, a ramp that’s affordable, but that does not cause us to enter into a economic decline.
There’s a good chance that a Romney administration would extend both Bush and Obama’s tax cuts and delay the scheduled spending cuts. Congress would raise the debt ceiling after Romney promised congressional Republicans that he’d sign some variant of Paul Ryan’s budget as soon as it’s 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 decide to assume 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, even if it does so in a regressive way. Remember, wrote Business Insider’s Joe Weisenthal, “Republicans were pro-deficit, and pro-entitlement expansion under Bush and Reagan. Deficit cutting only became part of the party’s ideology under Obama.”
Extending the tax cuts is a fait accompli if the GOP takes back the government in the fall but I’m honestly curious to see how Romney will sell his opposition to sudden deep spending cuts to a base that’s already suspicious of his commitment to small government. If Republicans end up controlling both chambers of Congress, what will the excuse for delaying action be? “Keynes was right”? Paul Ryan can give him some cover by virtue of the fact that his own Path to Prosperity is designed to shrink government gradually to minimize disruption to individuals’ economic planning. But even with Ryan in his corner, there’ll be some critical mass of tea-party Republican legislators — Rand Paul foremost among them, no doubt — that wants to use the GOP’s advantage to enact the same sort of sweeping change that the Democrats did with ObamaCare. How does Romney get out of that political jam when they start pounding the table? He’s not going to do something which he thinks will force a major economic contraction; does he try to build congressional majorities to delay deep cuts by replacing recalcitrant tea partiers with Democrats, knowing that the optics of that might only increase his headaches? If he thinks that conservatives will grant him a honeymoon period after he’s sworn in on issues as critical as the size of the federal budget and the speed with which meaningful cuts are made, I think he’s kidding himself. But maybe Klein’s right that this can be finessed by signing Paul Ryan’s budget — and getting to work on entitlement reform, assuming that Romney has the nerve to do so. Righties might forgive him the heresy of continuing spending in the short term if he achieves something significant to curb mandatory spending long-term. Think he can get a majority of Republicans in both chambers to go along with that? If so, you have more confidence in them than I do.