Tuesday, September 25, 2012

Teams with Plans, not Men with Cred

As with any presidential election, the decision between President Obama and Mitt Romney ultimately comes down not to which man is more suited to the office but to what team they will bring in to conduct policy. And the spoils of the general election go to the candidate who convinces the American electorate that their team will deliver them the goods. Obama's message in 2008 that he would make Americans richer with infastructure spending, education support and more progressive taxation trumped John McCain's attempt to run on his military and service credentials. In 2000, Bush's calls to redistribute the budget surplus in the form of tax cuts overcame Gore's message of... okay, bad example.

Americans in 2012 must evaluate the different promises made by the Obama and Romney team, not just the personal gravitas or experience each man may or may not have. We have a rather clear idea of what Obama's plan will entail; thats the benefit of being the incumbant. We can expect continued investments in public infrastructure, an open but cautious stance toward international trade, and perhaps increased spending on scientific research and subsidies for new engery industries. If Obama moves on taxes at all, we can expect him to allow the Bush tax cuts to expire, which would boost top marginal rates slightly. As far as the Federal Reserve, Bernanke and Co. are likely to stay in place, and that crowd seems to be moving in the direction of NGDP targeting, or at least likely to remain sympathetic to accomodative monetary policy as labor and capital markets stay slack. 

We have to distill Team Romney's plan from what he has claimed on the campaign trail, the history of his running mate's plans, and the opinions of his closest economic advisors. From that, we can predict reduced spending on infrastructure, reduced spending on scientific research and alternative energy subsidies, and a combative stance on international trade. In tandem, Romney would slash taxes by reducing capital taxes and marginal tax rates across the spectrum. As far as monetary policy, its widley expected that Romney would replace Bernanke with advisor John Taylor at the first chance. This would mean a change in the stance of monetary policy away from NGDP targeting and expansion and toward a tightening intended to raise the Fed funds rate to the level determined by Taylor's own Taylor Rule. 

As a caveat applied to both teams, I highly doubt either approach will be successful in closing the long-term budget deficit. I say that because despite the posturing, neither side has given a comprehensive or coherent plan for dealing with the driver of those deficits, Medicare.

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