Saturday, May 26, 2012

Romney’s Big Fat Wet Kiss to Keynesian Economics

New York Magazine's Jonathan Chait spots (vis Charles Pierce) Romney outing himself as a Keynesian.

In a post titled, Romney’s Big Fat Wet Kiss to Keynesian Economics, Chait writes:
The real news in Mitt Romney’s interview with Mark Halperin, as Charles Pierce points out, is that Romney openly repudiated the central argument his party has been making against President Obama for the last three years: that he spent too much money and therefore deepened the economic crisis. Indeed Romney himself had been making this very case as recently as a week ago (“he bailed out the public sector, gave billions of dollars to the companies of his friends, and added almost as much debt as all the prior presidents combined. The consequence is that we are enduring the most tepid recovery in modern history.”) But in his Halperin interview, Romney frankly admits that reducing the budget deficit in the midst of an economic crisis would be a horrible idea:
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.
Chait nails it. This is a totally Keynesian view of government as big spending savior of the economy. It's complete hogwash and another very good reason Paulites should stay away from Romney. The Keynes government big spending theory was demolished by Henry Hazlitt in his very important book, The Failure of the New Economics.

14 comments:

  1. Yup. This is why Rand's meeting that he's supposedly having with Romney should be one simple line:

    "Shove it up your ass Obomney."

    Sorry, but I have absolutely no love for statists and moronic Keynesians. I simply cannot tolerate that kind of stupidity and evil anymore.

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  2. I don't like Romney, but this makes no sense - facts are not dependent on one's economic orientation, they just ARE.

    The measure of GDP includes government spending. If you cut government spending by 1 trillion, GDP will go down by more than 5% that year. That's a fact.

    Where keynesians differ from sane people is in the interpretation - keynesians think GDP going down is a catastrophe, while sane people think any number that includes government spending is irrelevant and only productive activity should be considered.

    Nevertheless, Romney is factually correct in this interview, and even more surprisingly - he's honest! Most republicans would never admit that cutting spending will lower GDP, because they still LIKE the GDP figure (it's so easy to manipulate, what politician wouldn't like it?). Admitting that big cuts => recession might later require Romney to admit that recessions aren't necessarily bad either.. I don't think he'll ever take that next step (focus groups, internal polls and all) but who knows.

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    1. I do not know of a single person advocating cutting spending by a trillon dollars in one year. You are not taking into account the boost balancing our budget will give to the private sector. I do not think a 5% growth in the private sector is unrealistic. If people cannot invest in government bonds they will invest in business. There is a finite amount of investment money in the world. There are no other alternatives to spending cuts. I know the liberals are cheering for increasing taxes for individuals making more than $200K per year but all data shows this will do little to reduce our deficits. The only way to reduce deficits is to cut spending. Cutting back a little on social security, medicare, energy subsides, aid to foriegn governments and other similar items will not greatly affect GDP. It took 30 years to create this mess so I suggest we start slowing cutting over the next 20 years until our budget is balanced. There should be no argument against this becauses it's common sense and slow cuts will have no affect on our economy.

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    2. Yeah, that's always bothered me... why the (heck) is government spending counted into GDP at all?! So if the government spends less, all that Tax Money they would have spend doesn't get spent by THEM...

      So, what happens to it? We keep it and spend it on US or the "unspent money" stops increasing the National Debt?

      What are THEY missing here?

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  3. Romney sounds just like another Meg Whitman in California. She was all over the immigration issue; saying one thing to Republicans and another thing in her Spanish commercials. Romney is apparently doing the same thing with Republicans and then with broader outlets.

    I think it's about time we start tracking Rothbard's PPR. By no means is it perfect, but at least it points out the flaw in counting government spending as just as efficient as private spending. I think that people would be very interested in seeing just how much the government allows them to have. Additionally, tracking the burden of government would also be very enlightening.

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  4. The measure of GDP includes government AND private sector spending. So cutting government spending (along with taxes) does not mean private sector spending will not make up the difference. More money in private hands will lead to better spending. Didn't we see this after WWII? Shutting down overseas American bases and returning the troops to American soil will mean US dollars spent in the US economy.

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    1. Only if you also cut taxes, not just spending.

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    2. "....So cutting government spending (along with taxes)...."

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    3. Right, but why would they cut taxes?

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    4. And why would they cut spending either?

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  5. Well, remember that not all government spending comes from taxes (and thus out of people's hands). A large part (~45%) of current government spending is deficit spending, much of which is printed up by the banking system. Cutting spending would definitely cause a temporary (but probably quite painful) economic downturn as people make adjustments throughout the economy to align purchasing/spending/saving decisions based upon the new and currently less manipulated economy.

    Following the readjustment everyone except for the cronies would be much better off.

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  6. Once a Keynesian always a Keynesian. That's the reason that we must NOT elect either of the two Establishment lackey's, OurBumma Dark or OurBumma Light. The Austrian-school Conservative, Honest Champion of Our Constitution aka Ron Paul or No One A All 2012 IMO

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  7. Even those Mad Monetary Theory guys picked up Romney's contradiction of saying that deficits were immoral AND necessary.

    http://mikenormaneconomics.blogspot.com/2012/05/democrats-operate-under-gop-coercion.html

    I pointed out that deficits were both immoral AND catastrophic. They love hearing that.

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  8. The calculation of GDP is nonsensical. Not only is it a mishmash of investment and spending, it makes no distinction between administrative overhead (both private and public) and production of goods and services.

    I would love to see a standardized GAAP Balance Sheet and Revenue Statement for a country, which would be by definition an integrated statement both public and private. I would fully expect that USA would line up with comparatively high overhead to other countries; massively inefficient.

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