Mitt Romney’s economic plan

Mitt Romney’s economic plan

Paul Mirengoff


Some critics of Mitt Romney complain that he has no plan to turn around our faltering economy. Others, like President Obama, claim that Romney’s economic policies have been tried and found wanting. Neither contention withstands scrutiny.

Glenn Hubbard, the Romney campaign’s economic adviser, explained the basic contours of Romney’s economic plan in today’s Wall Street Journal. The program, which will not come as a surprise to those who have been paying attention, has four main components:

• Stop runaway federal spending and debt. The governor’s plan would reduce federal spending as a share of GDP to 20%—its pre-crisis average—by 2016. This would dramatically reduce policy uncertainty over the need for future tax increases, thus increasing business and consumer confidence.
• Reform the nation’s tax code to increase growth and job creation. The Romney plan would reduce individual marginal income tax rates across the board by 20%, while keeping current low tax rates on dividends and capital gains. The governor would also reduce the corporate income tax rate—the highest in the world—to 25%. In addition, he would broaden the tax base to ensure that tax reform is revenue-neutral.
• Reform entitlement programs to ensure their viability. The Romney plan would gradually reduce growth in Social Security and Medicare benefits for more affluent seniors and give more choice in Medicare programs and benefits to improve value in health-care spending. It would also block grant the Medicaid program to states to enable experimentation that might better serve recipients.
• Make growth and cost-benefit analysis important features of regulation. The governor’s plan would remove regulatory impediments to energy production and innovation that raise costs to consumers and limit new job creation. He would also work with Congress toward repealing and replacing the costly and burdensome Dodd–Frank legislation and the Patient Protection and Affordable Care Act. The Romney alternatives will emphasize better financial regulation and market-oriented, patient-centered health-care reform.

Contrary to Obama’s assertion, this program has not been tried and found wanting. President Bush did not reduce federal spending as a portion of GDP. On the tax side, he did not reform the tax code to broaden the tax base. He did lower rates, and this stimulated the economy, just as occurred when Presidents Kennedy and Reagan did the same thing.

Bush wanted to reform social security, but was unable to do so. On the Medicare side, he attempted no reform.

Finally, until Obama, there was no Dodd-Frank or Obamacare legislation to repeal. Nor, to my knowledge, did previous presidents remove the regulatory impediments to energy production and innovation that Romney has mind.

Hubbard concludes:

In contrast to the sclerosis and joblessness of the past three years, the Romney plan offers an economic U-turn in ideas and choices. When bolstered by sound trade, education, energy and monetary policy, the Romney reform program is expected by the governor’s economic advisers to increase GDP growth by between 0.5% and 1% per year over the next decade. It should also speed up the current recovery, enabling the private sector to create 200,000 to 300,000 jobs per month, or about 12 million new jobs in a Romney first term, and millions more after that due to the plan’s long-run growth effects.
But these gains aren’t just about numbers, as important as those numbers are. The Romney approach will restore confidence in America’s economic future and make America once again a place to invest and grow.




“Bread and peace” model predicts sizeable defeat for Obama


In my view, presidential elections are usually pretty easy to predict. You just look at how the economy is doing. When we’re at war or in a major foreign policy crisis, you factor that in. But an incumbent president has to be judged very harshly over his handling of the war or foreign crisis before he will lose in a good economy.

It turns out that there’s a predictive model that formulizes these intuitions. It’s called the Bread and Peace Model. Douglas Hibbs, a retired economics and politics professor, developed it. According to Hibbs, the model nicely explains nearly every post-World War II presidential elections. Only 1996 (when Clinton overperformed) and 2000 (when Gore underperformed) are problematic.

For the Peace side, Hibbs basically counts American fatalities, subject to a proviso discussed below. For the Bread side, he relies on growth of per capita real disposable personal income.

Under Hibbs’ model, President Obama will likely receive only 47.2 to 47.8 of the popular vote. In other words, Romney’s margin will approach the margin that Obama won by four years ago.

In my view, the “Peace” component of Hibbs’ model is working against Obama more strongly than it should. Hibbs stiplulates that he does not count deaths caused in a president’s first term by a war initiated in a previous administration. Thus, Hibbs doesn’t count American fatalities in Iraq against Obama. He does, however, count those in Afghanistan, since Obama implemented a new stepped-up campaign there.

I doubt, though, that Americans will hold Afghanistan fatalities against Obama. For one thing, he’s pulling out. For another, Mitt Romeny is slightly more hawkish on Afghanistan than the president.

I wouldn’t be surprised if the Bread side of Hibbs’ formula standing alone, correctly predicts this year’s race. If so, the election will be closer than Hibbs’ model predicts, but with Romney still winning the popular vote   

MORE