Is Mitt Romney the last true believer in austerity?

By Nicholas Wapshott
May 24, 2012

There is something oddly retro about Mitt Romney. He appears to have sprung from a nostalgic fifties “Hairspray” world where women sported beehives and cars had fins. Nor has his economic thinking kept up with the times. Although he backed Obama’s $787 billion-dollar Keynesian stimulus, as soon as the borrowers’ remorse that sparked the Tea Party took hold, he turned on a dime and embraced austerity and paying off the national debt.

As he declares on his website: “The only recipe for fiscal health and a thriving private economy is a government that spends within its means.” He signed the “cut, cap and balance” pledge that will tie his hands if he makes it to the White House. Not trusting himself, perhaps, to remain fiscally continent, he favors an amendment to the U.S. Constitution, obliging Congress to put balancing the budget before all other measures. He would cap federal spending at 20 percent of GDP, a feat that would entail about $500 billion in cuts. On day one of his presidency, he says he would send Congress a bill that would cut non-security discretionary spending by 5 percent.

His proposed economies include (his estimates in parentheses): repealing Obama’s healthcare plan ($95 billion); privatizing Amtrak ($1.6 billion); reducing federal payments to the National Endowment for the Arts, the Corporation for Public Broadcasting and the Legal Services Corporation ($600 million); eliminating family planning subsidies ($300 million); cutting foreign aid ($100 million); capping Medicaid (more than $100 billion); replacing only half those who leave the federal workforce ($4 billion); ending the Davis-Bacon Act ($11 billion) and paying federal employees lower wages ($47 billion); and that old elusive crowd-pleaser, reducing waste and fraud ($60 billion).

For good measure, he has further manacled himself by putting his name to the Americans for Tax Reform’s pledge that would prevent him raising taxes. If you thought George H.W. Bush’s “Read my lips. No new taxes” was rash, Romney has gone one further. Not only has he solemnly promised not to raise taxes in any circumstances but he will make the George W. tax cuts permanent, end capital gains taxes for those earning less than $200,000, and abolish estate taxes. By now, even Harry Houdini might be excused for feeling a little constricted.

The problem with the draconian austerity package Romney has in mind come January is that it is likely to tip the fragile American recovery into recession, as similar measures have done in Britain and, save Germany, in the euro zone. In the past, Romney has pointed to Europe with distaste, as if it were Soviet Russia. Obama’s public spending, he said, “takes us down a path to becoming more and more like Europe. And Europe doesn’t work in Europe.”

He is right to be wary of Europe’s example, but for the wrong reasons. The fiscally conservative policy of the euro zone, the product of a conservative alliance between German Chancellor Angela Merkel and former French President Nicolas Sarkozy, insists on governments paying down deficits quickly, even though, for countries like Spain, Italy, and Greece, this means perhaps a decade of penny-pinching, high unemployment, low growth and short rations.

The result, as predicted, has been a revolt against austerity at the ballot box and a rise in extreme politics. In recent elections, the Greeks and French have seen small radical parties trounce their moderate rivals, prompting political turmoil that is frightening away investors. So far, 11 European governments have fallen thanks to austerity, the biggest shock being Sarkozy’s ouster by the Socialist François Hollande.

What is more, austerity doesn’t work. It curbs growth, raises unemployment and concomitant state spending, and diminishes tax revenue. Britain, whose conservative coalition is paying down debt the fastest, has, as expected, returned to recession and is borrowing more now than two years ago. Traditionally prudent organizations like the OECD and the IMF are now preaching that austerity should be tempered by urgent measures to promote economic growth, a euphemism for increased public spending. Instead of austerity, European Union leaders have just agreed to promote growth and job creation.

Perhaps it’s time Romney did one of his famous flip-flops, wipe the Etch-a-Sketch slate clean of austerity and come up with a policy for boosting American growth. Now that could prove an election winner.

25 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Please, whenever reporting on Obama’s 787 billion stimulus, which barely passed with the support of 3 “traitorous” Republicans during a time of economic crisis unseen since 1929, please remember to inform your readers that fully 1/3 of the stimulus consisted of tax cuts (which do not perform the function for which fiscal stimulus is intended). Furthermore, it was estimated by the best economists at the time that the amount of stimulus needed to actually rescue the economy, rather than simply provide a floor to halt the massive losses, should have been closer to 3 trillion dollars.

There are those who will protest such a large amount being added to the deficit. And indeed, these people were the reason the larger amount was impossible to get approval for. What they don’t understand is that such an investment would have not only halted our free falling economy, but quickly turned it around. Tens of millions of jobs would not have been lost. Growth in productivity would have left us in a much better place than we are now. In other words, if we’d spent 3 trillion in stimulus then, our trillions of lost GDP today would not only not have been lost, but we’d have had trillions more. Tax receipts would have been fatter, and the need for higher taxes less urgent. Finally, growth instead of recession would have resulted in less overall national debt.

The primary problem with folks not being able to understand how this works lies in the differences between personal finances and government finances. It should be obvious that they don’t function the same. Yet very many people are too simple to grasp this idea. Instead of using their mind and logic, they think with their gut.

And we all know what our guts produce at the end.

Posted by BajaArizona | Report as abusive

The actual amount of bailout money is far far above the number you are quoting. Another site’s bailout tracker has the current real total of bailout funds at $11 trillion with only $3 trillion paid back. I can appreciate the professional opinion of economists at the time of the crisis, and I don’t dispute that, but there are many, as a matter of principle, would rather suffer now than leave their children with debt that is ultimately unsustainable.

Posted by cccoll3 | Report as abusive

The whole idea of a “stimulus” is a fraud. It’s based on a manufacturing/energy/mining/smelting economy that has long ago ceased to exist. The “economy” that Mr. Wapshott proposes we “stimulate” by spending billions of borrowed and printed money is a hollowed out shell, primarily based on the consumption of foreign-made goods. Continued “stimulus” perpetuates this parasitical system, one where we consume goods made by foreigners in exchange for worthless government debt. Thus, we delude ourselves into thinking we are “prosperous” even though we make very little and consume way too much. The cost is simply handed to the next generation. That’s the Keynesian system Mr. Wapshott adores. Of course, no one dare admit that the ruinous cost of todays’ spending spree will never be paid back. Instead, we are supposed to pretend that lenders (suckers?) will continue to exchange their savings for worthless bonds, rolling and rolling over the massive debt that finances our extravagant and wasteful government.

Posted by mstamper | Report as abusive

One wonders how the anti-stimulus crowd felt when the Bush Administration stimulated the economy out of recession with tax-cuts, massive borrowing, a military buildup and unfunded entitlement spending. Of course, given that they never mention these stimuli, we can assume they were the beneficiaries, and as such, see them as their earnings.

Posted by Sarasota | Report as abusive

“One wonders how the anti-stimulus crowd felt when the Bush Administration…” I was opposed to it, as were many others. Both parties are equally guilty. Neither are worthy of our trust.

Posted by mstamper | Report as abusive

This is a good attempt at painting Romney as unfit for the presidency on the grounds his economic thinking is unsophisticated. You know, that sophistication that got us where we are. The ‘you’ve got to spend your way to growth’ approach, even if you have to borrow to do so. Economics that work are simple. I’ll presume to be such a rube as to quote homilies. Don’t spend more than you take in. Don’t count your chickens before they’re hatched. Save for a rainy day. None of which Congress has taken notice of in my lifetime. But the author, intentionally or otherwise, misses the issue. Mr. Obama has chosen policies that have not worked and promises to continue them if re-elected. It’s time for a change.

Posted by wildbiker | Report as abusive

mstamper said: “Mr. Wapshott proposes we “stimulate” by spending billions of borrowed and printed money is a hollowed out shell, primarily based on the consumption of foreign-made goods.”

I don’t know what Mr Wapshott would propose, but we should invest in infrastructure here in the US. Let’s fix our decaying bridges, highways, roads and sanitation systems in local communities as well as the state and Federal roadways. This would address the growing problems in these areas and put our own people back to work. Let’s invest in renewable energy; solar on every roof, big wind, geothermal systems, etc. Let’s invest in public education.
Stimulus in not a fraud. It is how we will recover from the damage of the Bush war of choice in Iraq that he had no way to pay for.
Austerity does not work. That is being proven yet again.

Posted by danovtroy | Report as abusive

Excellent article.

To the naysayers…I’m with you, in spirit, but on paper, although I hate debt as much as anyone, austerity measures simply do not work. Cutting spending to the point where it slows the economy is the opposite of what needs to happen. Yes, it’s arguable that we spend too much, but even if that’s the case, a radical decrease in that spending will result in a far worse scenario, for all Americans, than simply continuing to spend, or (gasp?!) slowly ratcheting down our spending over a period of years (by which I mean more than 2-3).

It took us years to get into this mess, and only a fool believes we can get ourselves out in half, nay, a fourth of the time it took us to get to where we are now.

Posted by Adam_S | Report as abusive

Why does nearly every article and comment about the deficit, austerity, and stimulus ignore the elephant in the room?
The Fed!

Why ignore it? A private bank is masquerading as part of the U.S. government. It issues dollars (promissory notes)out of thin air and then charges the United States of America interest to pay it back.

These thieves – owners of the Fed (again, a privately owned bank) – are making a killing! That, my friends is why we have a huge deficit.

The United States Of America could just as easily issue and print its own money. Then it wouldn’t owe it to a private bank. It would have to be careful to issue the right amount of money to assure prosperity and not devalue the dollar, but compared to what is happening now, it would be a breeze.

I know the owners of the Fed have our country by the short hairs. It is bad enough we let them keep doing it, but why does everyone pretend it’s not happening?

Posted by lichtentunes | Report as abusive

Romney and Austerity is the funniest dichotomy I have ever heard! Europe is falling apart b/c they spent too much money and now they are printing like crazy to no avail! We are going down after them so I hope you all are prepared. Max out the credit cards and eventually you won’t “qualify” for another. Very simple concepts here but if government and the America people understood these simple concepts we would not be having this discussion right now. Thanks for squandering the riches previous generations worked so hard to create. I know sobriety is difficult for the alcoholic so keep drinking and eventually rock bottom is going to hurt bad!

Posted by Thomaspaine76 | Report as abusive

I think our problem is that we believe and swallow this whole debate of austerity versus spending has any relevance whatsoever. US did not cut, many EU countries such as Greece were forced to cut. The evolution of debt to gdp ratio since the start of the crissis in 2008 is remarkably similar however. Greece went from 120% to 165%, while US went from 80% to 105%. US is thought to be doing better economically, but the true test would be if the 8% deficits were to be reigned in.
Folks, it is time to wake up. this debate is old, stale and unhelpfull. Our economic problems are deeper than what ideologically driven ideas can handle.
http://zoltansustainableecon.blogspot.co m/2012/05/austerity-versus-stimulus-prom inent-but.html

Posted by ZBan | Report as abusive

All of the above make something apparent that should be obvious – we simply do not know the answer. We have endless ideas and opinions, but we do not really KNOW. Anyone who thinks global economic policy is simple is living in a dream world. Any solution that is applied is subject to endless, unknowable fluctuations and variations. And anything we did in the past, whether it worked or not, was subject to different conditions and circumstances. All ideologues fall into the same trap, regardless of persuasion. The always think a standard solution applies to every circumstance, that somehow there are basics that are invariably true. If that were the case, then any politician would simply apply these truisms and reap his reward as a hero (first class). We have dearly held beliefs,BUT WE DO NOT KNOW. The true art of effective politics lies in gathering the best brains we have and reaching a consensus set of policies that applies everything we we think we know and hoping for the best. And then applying corrections when things go wrong. Ideologies and labels rely on simple minds for effectiveness. Unfortunately most politicians and their consultants gear themselves to courting these ‘squeaky wheels’. Then, if elected, find themselves confronted with a reality which does not respond to simplicity. We find ourselves in continuous difficulties, economically and politically. Why can’t we grasp that there is something fundamentally flawed in the way we do things?

Posted by steve778936 | Report as abusive

Debt is not bad when it buys us things we want and need. Debt bought me by house, via a mortgage. That is not a sin or moral turpitude. Debt can buy us needed improvements in schools, roads, and internal and external security to name just a few areas. The money goes for labor and materials, the two basic ingredients that drive any economy forward. It’s just silly to think that is bad. If you do, just stop. You’ll feel better. Really!

Posted by simplefarmgirl | Report as abusive

Let’s be clear: When Romney says he will “privatize” Amtrak, he really means he intends to eliminate our long distance trains, for that will absolutely be the certain result. Only the Northeast Corridor (Boston-New York-Washington) will be left, and while it’s true that those trains could possibly be run at break even by a private owner, what about the the hundreds of miles of track and all the electrical infrastructure which cost mega-billions to build and still costs millions to maintain? Either Romney wants to simply give it away to whoever is selected to run the trains or the government will continue to own it all, in which case the cost of maintaining it becomes — horrors! — a subsidy.
The point is, anyone who advocates privatizing Amtrak either doesn’t know what he’s talking about or is pandering to the crazies. Either way, he’s treating all the rest of us with contempt.

Posted by JimLoomis | Report as abusive

It’s impossible to balance the budget without first restoring a balance of trade. Deficit spending and the issuance of debt are essential in order to attract and plow back into the economy those dollars shipped across the border to pay for imports. Otherwise, the U.S. faces a severe and growing recession.

Pete Murphy
Author, “Five Short Blasts”

Posted by Pete_Murphy | Report as abusive

Well, certainly it is almost impossible to know the answer to what is right and what is wrong about this matter. Even after the facts analysis is difficult to asses since there is no way to know what would have happened in case the opposite had been done. Anyway what I think creates most of these problems is the reckless usage of the economical resources by the politicians. And they have to do it that way because what drives everybody’s decisions is how you make your living, so their decisions are not really based on what is the best for the economy or the country, but what is that would give them the best chances of being re-elected. Something has to be done in the system to avoid these nonsense and reward good sound decisions. This is some sort of political greed.

Posted by Willfer65 | Report as abusive

I bet dollars to donuts the author is a (covert) card carrying Democrat really – despite all the rhetoric – doing a plain hit job on Romney.

One feels like getting a megaphone and shouting into his ear, “KEYNESIAN REMEDIES FOR WHAT AILS THE US ARE NOT WORKING”. For heaven’s sake Whapshott. the stimulus although almost bankrupting the US. is not working.

But, of course, he wouldn’t listen. His prescription is do more of the same. A bumper sticker summarizes his position completely: The definition of insanity is doing the same thing over and over and expecting the results to be different.

Posted by eleno | Report as abusive

Sounds like a good thing if he can follow through.

Just listen to all the whining and crying from the spoiled freeloaders. More, more, give us more.

Freeloaders, start working or start dying. Hard working Americans are tired of these losers destroying the nation.

As for the stimulus packages, just workfare – welfare and phoney jobs for the freeloaders that did nothing for the economy.

Censorship is evil.

Posted by ALLSOLUTIONS | Report as abusive

“Austerity” means not as many political appointments to bureaucratic agencies – who work without pressure of accountability or productivity. Government – is the new welfare state. Only the military performs up to their capability because it is life or death. Don’t get me wrong there are many good government workers but even they are discouraged by the cronyism within their departments. Remember if you couldn’t make it in the private sector you went to the refuge of the government. Now – austerity means no automatic raises in spending – which is ridiculously labeled a cut. We need true and real spending cuts – we must pull the politics out of the normal functions of operating our government. I would like a smaller smarter government – that has the intelligence to govern, keep markets competitive, and does not cripple us with the politics of confusion and division. We want more freedom – even if it is the freedom to fail.- which this article does. It fails to see that there is another side to just letting the government stuff peoples pockets with money it doesn’t have. Let the free market provide work not the government.

Posted by xit007 | Report as abusive

No he does not believe in austerity. He said that Ron Paul’s plan to cut 1 trillion dollars would “REMOVE” money from the economy. That’s pretty much what Krugman would say. Mitt Romney does not understand how capitalism works. Ron Paul is the only hope.

Posted by Skid | Report as abusive

a simple comment on this article would be President Obama for President of the United States

Posted by running | Report as abusive

another simple comment would be if you like “stimulus” so much, move to Greece. Years of spending more than they could afford is why they are where they are today. Really, if you like it so much, please go there.

Posted by USA4 | Report as abusive

I didn’t read your article because I couldn’t even get past the egregious title.

If Romney is a “true believer in austerity”, he certainly doesn’t “practice what he preaches”.

We don’t need a man like him for president to force the US economy to live as he refuses to live himself.

I certainly don’t expect the US to elect a hermit living in a cave as our next president, but to equate Romney with “austerity” is both ludicrous and offensive.

We need a president that can understand the American people are hurting economically, mainly because of the exportation/importation of jobs for cheaper labor costs for the wealthy, resulting in greater profits for them at our expense.

THAT is the kind of man Romney really is, and would increase that kind of “austerity” the US has been suffering from for the past 30 years or more.

IF we want to elect a man as president who will efficiently put an end to this country as we know it right now, then Romney’s your man.

Unfortunately, Obama is not much better.

I suggest we reelect Obama for four more years, and hope the country can manage another four years of his gross ineptitude as president.

Maybe in four more years the American people will have an opportunity to elect a better president than either choice we have now.

Going with Romney at this point is guaranteeing we won’t have four more years.

Posted by PseudoTurtle | Report as abusive

I do say I do tilt more to the Democrats position on the issues of economics much in the same way the author does.The policy that has been a failure has been this theory of trickle down economics the Republicans have been pushing since the 80′s. The result of those policies with no government accountability and the refusal to bring us back to the tax rates we had when we were a prosperous, growing and expanding country. The growing gap between rich and poor is evidence that the trickle down ideology put us on this trajectory. When Bush came into the White House with a Republican Congress and a surplus this country was on the path to be debt free nation. Two unfunded wars, Medicare Advantage and the Bush tax cuts make up something like 90% of the debt and yet Republicans have signed the Norquist pledge which supersedes their pledge to the United States. These are the same Republicans that idolize Reagan but fail to admit he raised taxes at least 11 times and bought us EMTALA which pretty much promised free health care but offers no way to pay for it. Even previous Republican stalwarts like Bartlett, Stockman, Buckley Jr. and notable writers like Thomas Mann and Norman Ornstein have written extensively on the current economics and don’t see going back to the Bush years as Romney wants to do as the best course for this country. Years of neglect are not going to change our economy overnight and despite some comments Obama’s policies haven’t failed. They are slowly and surely working despite a confrontational idealogical partisan opposition. Austerity alone is not the way and for those that pledge allegiance to Norquist over their pledge to the country is definitely not the answer. Those are the same forces that when they were in power claimed the deficit didn’t matter and spent more and spent more and cut taxes but primarily for the top 1%.

Posted by Saywhaaaaa | Report as abusive

I hope the government of the USA studies the case of UK’s “Railtrack” privatization and subsequent market failure/ safety fiasco, before going down this road themselves with Amtrak…

Posted by matthewslyman | Report as abusive