At this week’s convention, Republicans had two main goals. First was to convince voters that Barack Obama’s policies have been totally ineffectual in curing the economic recession. Second, to convince voters that they have a coherent plan for improving the economy, especially reducing unemployment. They succeeded on the first, not so much on the second.
This course is laid out clearly in polling data, which show that Obama’s handling of the economy is his greatest political weakness. A Gallup poll on August 16 is typical. It finds that a majority of Americans approve of his handling of terrorism, education, and foreign affairs, but a majority disapprove of his handling of jobs, the economy, and the budget deficit.
Throughout the Republican primaries, former Massachusetts Governor Mitt Romney, who officially accepted the Republican Party’s presidential nomination last night, has emphasized his private business experience as giving him the ability to create jobs. Most of his career was spent with Bain Capital, a private equity firm that invested in hundreds of companies.
However, it is difficult to say exactly what Mr. Romney would do to create jobs. The plan published on his campaign’s website is long on facts about joblessness and assertions that Obama’s policies did not work. But in the end, Romney merely says that voters should trust him and his 25 years of business experience to figure out some way to reduce unemployment. No detailed plan to do so is offered.
Of course, Mr. Romney has a number of specific economic proposals. He would cut tax rates sharply from levels that are already low by historical standards, he would scale-back government regulation, promote U.S. exports, increase domestic energy exploration, and scale back government spending, among other things.
But one will search Romney’s website in vain for a clear explanation for how these policies will create jobs or even raise the rate of economic growth. The report by his top economic advisers on August 2 is devoted almost exclusively to the problem of structural unemployment. There is no mention of policies to reduce cyclical unemployment—those unemployed only because of the general downturn in the economy through no fault of their own.
All Republicans in Congress have voted against every effort to enact stimulus programs to reduce unemployment, and Republican economists routinely assert that stimulus is per se ineffective and perhaps even counterproductive. This makes it very awkward for Republicans to propose plans for the cyclically unemployed.
Republicans know that standard macroeconomic theory since the 1930s has said that government spending, especially on public works, is the best means of attacking economic downturns and reducing unemployment. Since they are ideologically opposed to this idea in principle, they simply ignore the problem of business cycles and cyclical unemployment.
Mr. Romney is certainly not the first Republican presidential candidate to be skeptical of government jobs programs. But his predecessors believed that the Federal Reserve’s monetary policy is the first line of defense against economic downturns. Indeed, at the beginning of the economic crisis, Republican macroeconomists, such as the late economist Anna Schwartz, argued strenuously against government spending to counter the recession precisely because an expansive monetary policy was quite sufficient to turn the economy around.
Thus one explanation for Mr. Romney’s reluctance to put forward a jobs program may be that he thinks that monetary policy can do the job. However, it is impossible to say that this is the case because Romney’s views on monetary policy are a mystery. All we know for certain is that he plans to fire Ben Bernanke as chairman of the Federal Reserve despite the fact that he is a Republican who served as chairman of the Council of Economic Advisers under George W. Bush.
Moreover, the dominant view within the Republican Party today is that the Federal Reserve has been much, much too expansive since 2008. Republicans overwhelmingly believe that hyperinflation is right around the corner and many advocate returning to a gold standard, which the Republican platform says should be studied. Rep. Ron Paul of Texas, who challenged Mr. Romney for the presidential nomination, has long advocated abolishing the Federal Reserve altogether.
Therefore, unless he's hiding it, there really is no Romney plan to reduce cyclical unemployment. And his plan to reduce structural unemployment relies heavily on tax cuts for the rich on the theory that wealthy people are entrepreneurs who will start more companies and create jobs if their taxes are cut. Although there is virtually no empirical evidence that this will happen, Republicans seem to believe it dogmatically.
An objective review of recent U.S. economic history would note that the greatest reduction in unemployment occurred under Bill Clinton, whose first major act in office in 1993 was to raise the top individual income tax rate from 31 percent to 39.6 percent. By contrast, George W. Bush, who took office in 2001, lavished huge tax cuts on the wealthy in 2003 and saw minuscule growth in jobs afterwards.
Romney adamantly opposes raising taxes by so much as a penny no matter how large the budget deficit is and basically says we should just do more of what Bush did that didn’t work.
Basically, the Republican economic program boils down to one thing and one thing only: Obama’s policies haven’t worked, trust us to do better.