The Romney economic plan

I have seen a couple of articles recently where supporters of Mitt Romney's economic plan have argued that the Romney plan follows President Reagan's plan for dealing with the recession in 1981-82, and that that is a good thing. (See side comment in footnote)


The articles generally compare that 1981-82 recession with the current recession, throw in some similar arguments how the Bush tax cuts last decade were great for the economy and conclude the Romney plan is the cure for our economic woes.  


To me these comparisons are either woefully ignorant or a cynical effort to sell the Romney plan to get their guy elected regardless of the consequences.


1.  They seem to be either unaware, or unwilling to face the fact the two recessions were caused by completely different events.  The 1981-82 recession, which was pretty mild, followed a decade long period of high inflation as the Government tried to inflate away the deficit from the Viet-Nam war rather than imposing taxes to pay the cost of the war.  The current recession was caused by a private sector meltdown and the continuing malaise in the economy is rooted in deep seated problems in the private sector.


2.  The article assumes if you put more money in the pocket of rich folks, they will create jobs.  It ignores the fact big corporations have been making record profits, and stockpiling money for years.  There is no shortage of investment capital, the shortage is on the demand side of the equation - there are few opportunities for investment because ordinary folks don't have much money to spend.

3.   As a country we are in a completely different place than in 1981.  The Baby boomer generation was then just beginning to flood the labor market with energetic young workers.  Now they (we) are just beginning to leave the job market in droves to retirement and the percentage of the population in their prime working years is much smaller in comparison.


4.  Their arguments ignore the deficit.  They tout the Reagan and Bush tax cuts as curing the recession, but ignore the fact both the Reagan and Bush tax cuts caused a huge spike in our National Debt.  In effect the Reagan and Bush plans were sort of like if you or I stopped  paying our bills.  Heck yes, we would have more money to spend - for awhile.

5.  Perhaps most damning is the fact they ignore empirical economic studies that have looked at what happens when a country cuts government spending and found that, in a low interest rate environment, there is virtually a 100% correlation between cutting government spending and a rise in unemployment and a drop in GDP. 


Basically, if the Romney plan is implemented we face one of two options.  If we chop government spending dramatically, we will sink into another recession or perhaps a depression. If we cut taxes without cutting government spending we put the deficit back onto its skyward trajectory, and since our problem isn't a lack of investment capital, we will see very little economic improvement in return.


We can't get out of our current economic problems by handing out more candy to rich folks, which is what the Romney plan is all about.


Footnote - Romney's plan has much in common with the Herbert Hoover plans in 1930-32 that turned a stock market crash into the great depression.  Ironically, the most recent article I read pushing the Romney plan was by a Hoover Institute Fellow in the San Francisco Chronicle Insight Section for July 15, 2012 - evidently the Hoover Institute is still unwilling to accept that the depth of the Great Depression might be related to Hoover's private sector based attempts to reinvigorate the economy.