Is Mitt Romney the last true believer in austerity?
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.