Would President Romney Contract the Economy?

Paul Krugman quotes Mitt Romney as saying, “It’s time for us to cut back on government,” despite what Krugman describes as “an unprecedented fall in public employment, which is now about 1.4 million jobs less than it would be if it had grown as fast as it did under President George W. Bush.” He summarizes: “this bodes ill if Mr. Romney wins in November. For all indications are that his idea of smart policy is to double down on the very spending cuts that have hobbled recovery here and sent Europe into an economic and political tailspin.”

I don’t know about this. I’m not arguing with Krugman on the economics, I just doubt that a newly-elected President Romney would contract the economy.

Here’s my guess. Romney, like Obama before him, would like to emulate the economic trajectory of Ronald Reagan, not Jimmy Carter. During Carter’s (single) term as president, the economy grew at a healthy pace during years 1 and 2, then contracted during the next two years, just in time for the president to be tossed out by a disgusted electorate. Reagan, in contrast, oversaw a terrible recession during his first two years—enough for his party to be trashed in the midterm elections—but then oversaw a bouncing back, with booming growth in year 4 and a resounding “Morning in America” reelection.

My guess is that Obama and his economic team did their best to replicate the Reagan pattern, giving enough stimulus to push the economy to growth by year 4 without overheating too soon.

What about the Romney team? They’re talking tough now, but if they come to power I don’t think they’ll gonna want to send the economy into a further recession. We might hear a a lot of words about budget cuts but I suspect they’ll find a way to inject some cash into the economy. Maybe they’ll zero out PBS but add a few zillions more in farm subsidies, whatever.

My impression is that, ideology aside, the economic advisors on both sides are pretty centrist. Sure, Obama’s team wanted a bigger stimulus but I think that deep down they held the traditional conservative view that recession is good medicine and the business cycle would rebound on its own. Conversely, I’m guessing that Romney’s economists, for all their free-market talk, believe in deficit spending to expand the economy during a recession. (Given the experience of the first Bush term, I don’t know that they support the idea of running a surplus during a boom, but maybe they’ve changed their mind and believe in that too.)

My point here is not to slam either side for hypocrisy; I just wonder if Krugman is making a mistake by believing that Romney and advisors would really cut spending during a recession. It’s easy for them to use the deficit as a club with which to hit the Democrats, but if they’re in power that’s another story. And that’s not even accounting for Congress.

[Cross-posted at The Monkey Cage]

Andrew Gelman

Andrew Gelman is a professor of statistics and political science and director of the Applied Statistics Center at Columbia University.