The final full week of the US presidential campaign will see both candidates intensely debate the future of economic policy. But despite the rhetoric about its means, most experts agree on its ends. First, re-establishing economic growth at a rate that makes real reduction in unemployment possible; second, placing the nation’s finances on a stable foundation by putting in place measures to ensure that the nation’s sovereign debt is declining relative to its wealth; and third, renewing the economy’s foundation in a way that can support steady growth in middle-class incomes over the next generation as well as work for all those who want it.
Where are the candidates on these three issues? Barack Obama has recognised the inadequacy of demand as the main barrier to growth and sought to bolster public and private demand since becoming president. Recent work by the International Monetary Fund has confirmed the premise of his policies, namely that at a time when short-term interest rates are at zero, fiscal policies are especially potent as multipliers are larger than normal. The president has also respected the independence of the Federal Reserve as it has sought to respond creatively to the challenge of increasing demand. And he has put the economy on track to almost doubling exports over five years through measures such as increasing support for exporters. He has made clear his commitment to taking advantage of low interest rates to finance public investment and protect public sector jobs, to respect the independence of the Fed and to continue to promote exports.
Mitt Romney, in contrast, supports immediate efforts to sharply reduce government spending even as economic slack remains and Congress at the president’s behest has already legislated the most draconian cuts ever in domestic discretionary spending. Through intellectual gymnastics he concludes that spending on new weapons systems by the government, or on luxury goods by the recipients of tax cuts, will create jobs but spending on fixing schools and highways do not. He is also involving himself in monetary policy discussion on the side of reducing the supply of credit relative to current Fed policy. And his insistence that he will name China a currency manipulator on day one of his term even before his appointees have moved into their offices surely increases uncertainty by making a trade war possible.
