Thursday, October 6, 2011

Is Mitt Romney really a Keynesian?

Perhaps we've found yet another reason to like Romney. Jon Chait rounds up the evidence:

It’s not just that Mitt Romney intended to quote conservative hero-figure Winston Churchill but instead quoted conservative hate-figure John Maynard Keynes. Evidence is popping out all over that Romney is, at heart, a Keynesian. As the Republican Party has given itself over completely to fervent anti-Keynesianism, this is no small matter.

Keynesian economic theory, for those of you nodding your heads at the phrase but secretly unsure of what it means, holds that business cycle downturns are generally the result of a lack of consumer demand. Bad economic times cause a vicious cycle in which people spend less money, thus causing other people to lose their jobs or make less money, and spend less themselves. The Keynesian answer is for the government to reduce interest rates and to increase deficits, pumping up demand until the economy can recover.

That remains the mainstream economic belief. (See Bloomberg’s recent survey of macroeconomic forecasters, which almost unanimously predicted the American Jobs Act would boost growth and employment.) And until not long ago, both parties accepted this theory. In 2001, even the most right-wing Republicans, like Paul Ryan, argued for Keynesian tax cuts to boost demand during a shortfall. In December of 2008, Romney penned a column for National Review Online, laying out his economic prescription. It was pure Keynes. “This is surely the time for economic stimulus,” he wrote, calling for the Federal Reserve to “expand the money supply,” dismissing fears of inflation, and urging temporary tax cuts and new infrastructure spending.

As seems to happen to Romney, no sooner had he spoken up for a solid Republican position than the rest of the Party decided all at once that the thing they all believed now amounted to dangerous socialist nonsense. By early 2009, anything resembling Keynesian analysis had become Republican heresy. Republicans have begun loudly hectoring (or even threatening) the Federal Reserve to stop expanding the money supply, warning that inflation looms. They have insisted that temporary tax cuts don’t work (they only provide a “sugar high,” Republican leaders now say) and that deficits deepen, rather than alleviate, the economic crisis. Rather than respond to the crisis by easing credit and raising short-term deficits, Republicans now demand the opposite.

Do read the whole thing. A Romney vs Obama election cycle would be very interesting indeed.

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