By all accounts, Mitt Romney is a smart businessman with a sophisticated understanding of how economies work. So why is he so tied up in knots over basic questions of government spending in a recession and the limits of the free market?
Because he’s running for president in a party that has lost its economic common sense, its political bearings and probably Michigan’s electoral votes.
Here’s the Republican candidate off-script (the best way to find out what’s in his head) at a town hall meeting Tuesday in Shelby Township, Michigan: “If you just cut, if all you’re thinking about doing is cutting spending, why, as you cut spending you’ll slow down the economy, so you have to at the same time create pro-growth tax policies.”
This is a classic example of a “Kinsley gaffe” (named for my Bloomberg View colleague Michael Kinsley), which is when a politician accidentally says something that’s true but politically inconvenient.
Sure enough, Andy Roth, vice president for government affairs at the fiscally conservative Club for Growth, called Romney’s comments “hogwash.” Roth said the statement “confirms yet again that Romney is not a limited government conservative. The idea that balancing the budget would not help the economy is crazy. If we balanced the budget tomorrow on spending cuts alone, it would be fantastic for the economy.”
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Oh, really? If we balanced the budget by immediately cutting $1.3 trillion in spending, as some Tea Party adherents advocate, unemployment would surge. Spending cuts (mostly through entitlement reform) are critical in the medium and long term, but they’re harmful when the economy is weak. If you don’t believe Romney or me on this point, ask any economics professor who isn’t a crackpot.
After Romney’s gaffe, a campaign spokesman undertook damage control with a tortured statement that amounted to saying that Romney supports the House Republican “Cut and Grow” economic policy. This is the one that shuns all “investment” as a Democratic codeword for spending (thereby repudiating 150 years of Republican support for infrastructure investments) and says that the route to economic growth is through tax cuts.
A preview of Romney’s tax plan making its debut Friday in a speech in Detroit suggests that “Romneynomics” would in effect transfer wealth from the poor and the future old (through draconian cuts in Medicaid and Medicare) to the wealthy (through more tax cuts at the upper end). You may recall that President George W. Bush tried a variant of this with his 2001 tax cuts and the result was the weakest decade of job growth since the 1930s.
Romney is trapped in a “theology” (to use Rick Santorum’s word in a different context) that he knows is completely inadequate for addressing our economic problems.
We first glimpsed that trap during the 2008-09 economic crisis. Like many in his party, Romney supported the Troubled Asset Relief Program for banks but opposed the portion of TARP devoted to the auto industry. He was sure the auto bailouts would fail and thus he was safe in writing his now famous “Let Detroit Go Bankrupt” op-ed article in the New York Times.
In fairness to Romney, that piece was written in November 2008, when clueless automakers were asking for money from the outgoing Bush administration with no strings attached. (They got $17.4 billion and flushed it down the same old rat holes.) Romney wrote that government guarantees for warranties and post- bankruptcy financing would be acceptable and these eventually became part of the Obama deal.
Even so, the premise of that piece, which endorsed a “managed bankruptcy” without direct federal money, was itself intellectually bankrupt. It assumed that the car companies would find new investors after reorganization. But the firm Romney co- founded, Bain Capital LLC, was among many potential creditors that refused to touch any deal involving auto companies. The billions necessary to keep General Motors Co. (GM) and Chrysler alive weren’t available from any place but the government. When CNN moderator John King made this point during Wednesday’s debate among Republican candidates, Romney tried to ignore it.
Romney’s approach was popular among many Republicans, who hypocritically argued that the rules of free market capitalism could be suspended to bail out bankers but not workers. Sure, hundreds of thousands of people working for auto companies or their suppliers would lose their jobs, but that was just part of capitalism’s “creative destruction.”
This selective approach to conservative principles — not Romney’s opposition to the auto bailouts — is what put Romney in trouble with primary voters in Michigan, where Santorum’s consistency in opposing all bailouts has won him conservative support.
Santorum tried to use that consistency to his advantage in Wednesday’s debate. Like so much else about his performance, he failed. Could it be that free market fundamentalists have been consistently wrong for three years? They are the “little minds” Ralph Waldo Emerson had in mind when he savaged the “hobgoblin” of “foolish consistency.”
Every so often, history renders a clear verdict. However noxious and debatable the particulars, the TARP bank bailouts averted a global run on American banks and a depression. They helped to stabilize the global economy. Almost all of the money has been paid back.
The auto bailouts? The reduction in Michigan’s unemployment rate from 14.1 percent in 2009 to 9.3 percent today isn’t a matter of opinion or differing economic philosophy. It’s a happy reality that should make any open-minded conservative acknowledge that dogmatic adherence to abstract principles usually ends badly.
Romney’s core problem is that he doesn’t have the courage of his pragmatic impulses. If he did, he’d stick with his view that cutting spending sharply in the short term is a bad idea, and that in extremely rare circumstances we must hold our noses, put principles aside and let Washington prop up vital industries.
Of course he can’t say that, which means that winning Michigan is all but out of reach for him or any other Republican candidate this fall.