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Friday, December 2, 2016

Taking Apart ‘The Romney Program for Economic Recovery, Growth, and Jobs’

Taking Apart ‘The Romney Program for Economic Recovery, Growth, and Jobs’

A point-by-point response to Romney economic advisors Kevin Hassett, Glenn Hubbard, Gregory Mankiw, and John Taylor, authors of  “The Romney Program for Economic Recovery, Growth, and Jobs” — also known as HHMT (abridged from the blog of J. Bradford deLong, Berkeley economics professor and former Deputy Assistant Treasury Secretary for Economic Policy).


HHMT: We are presently in the most anemic economic recovery in the memory of most Americans, with significant joblessness and long-term unemployment, as well as lost income and savings.

WRONG: We are in the worst downturn, but we are not in the “most anemic” recovery–the recovery of 2001-2004 was more anemic. HHMT should know:  Three of them held high federal office in the George W. Bush administration that managed that recovery, and back then all four attempted (unconvincingly, in my humble opinion) to rebut claims from people (like me) that the early 2000s recovery was anemic and that more stimulative policies were then needed.

Why don’t HHMT make the true claim that we are in the worst downturn? Why do they make the wrong claim that we are in the most anemic recovery? Because they do not want to talk about how back when they were in office, they played their role in failing to use their leverage to argue for more expansionary fiscal and monetary policies to speed the then-recovery.

Why weren’t HHMT arguing, back in 2001-2004, either inside or outside the government, for more expansionary fiscal and monetary policies to speed the then-recovery? I don’t know.

Those of us who were so arguing would have found their help most welcome.


HHMT: The Obama administration says that the economy’s awful performance reflects the reality of the aftermath of a financial crisis and that the administration’s policies generated what little recovery we have seen from the severe 2007-2009 recession – Americans should stay the course. But the historical record is clear: Our economy usually recovers quickly from recessions, and the more severe the recession, the faster the subsequent catch-up growth…

DOES NOT FOLLOW: The argument that recovery is highly likely to be slow in the aftermath of a financial crisis is a powerful one—made by many who are not Obama administrationflunkies, including the well-respected Reinhart and Rogoff (2010) and the International Monetary Fund (2011). Their “But” sentence does not rebut this powerful argument—although HHMT mean for their readers to think that it does.


HHMT: The Romney economic program will change the direction of policy to focus on economic growth. Its pro-growth effects will work in two basic ways: It will speed up the recovery in the short run, and it will create stronger sustainable growth in the long run.

WRONG: There is no Romney program—a program is complete, coherent, and scoreable; Romney has repeatedly said that his statements are not scoreable. In order to estimate the economic effect of any program, you have to know what its pieces will do–you need to have it scored. Until Romney presents a complete and coherent program with scoreable pieces, HHMT have no basis for asserting anything about its economic impact.

One of the most annoying things here is the partisan asymmetry: the rules of the game seem to be that Democratic proposals have to be scoreable and coherent, while Republican proposals don’t.

It would have been very nice if HHMT had done what we Democratic economists do–told their political masters that they could not estimate economic impacts until they were given a coherent, complete, and scoreable plan.

Why they did not do this I do not claim to know.


HHMT: Declines in business investment and employment were particularly sharp in this recession. Far from being a lightning bolt hitting a smoothly running economy, the crisis was exacerbated by structural biases against business investment (from the tax code and regulation), financial imbalances (particularly fueled by biases against private saving and by the need to borrow abroad to finance our government deficits), and regulatory choices (excessive promotion of housing investment and inadequate attention to existing financial regulations and the rise of and consequences of shadow banking). No single party or administration is responsible for structural headwinds to growth, but the Obama administration’s errors and choices exacerbated the economy’s structural problems and weakened the recovery.

FRED Graph  St Louis Fed 1

DOES NOT FOLLOW: The argument that America has over the last two decades suffered from structural biases against business investment in categories like equipment and software simply does not follow at all. Business investment grew at a very healthy pace during the Clinton administration—and has grown twice as fast under Obama as it did in the years of what National Review used to call the “Bush Boom”.

The pieces of autonomous spending that are right now far below the values seen before the crisis and the downturn are (i) primarily residential construction, and (ii) secondarily government purchases–these are the results of a broken housing finance system and of Republican austerity programs, not of an anti-business climate.

The pieces of autonomous spending that are responsive to the business climate–the willingness of businesses to purchase equipment and the confidence of businesses that make them willing to export–are doing just fine right now. If residential construction and government purchases were doing as well, we would be out of this current mess.

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