Thoughts On Romneynomics

Carl asked that I give Romney’s economic plan the same treatment I gave Gingrich.  Okay.  Here is a quick summary of what I think:

1.  Romney’s 59 point plan isn’t that bad or good. It doesn’t include huge new programs or include tax cuts that will blow a hole in the budget.  Romney proposes to cut taxes on capital gains, interest and savings for the middle-class.  That isn’t very likely to much reduce government revenues but also probably isn’t going to give most people much of a tax cut.  It will sound good in debate during the general election for about two minutes before the conversation turns to something else.  Romney’s proposal to lower the corporate income tax to 25% and switch to a territorial tax system is a genuinely good idea in itself, but there is a problem.  I was watching Douglas Holtz-Eakin(one of my go to right-of-center smart guys) on C-SPAN a while back and he was saying that it was good idea to switch to the kind of system Romney was proposing.  He also said that such a move would likely reduce federal revenues.  Don’t get me wrong.  Romney’s tax plan is worlds saner than Cain’s middle-class tax increase or Gingrich’s far larger tax cuts on high earners.  

2.  I think I like Romney’s Medicare reform plan.   It is similar to the Capretta-Miller proposal which I think is better politics and better policy than the Ryan budget’s Medicare reform proposal.  The problem is that it is also likely to cost more money than Ryan’s proposal which is going to mean somewhat higher taxes.  That isn’t the worst possible policy outcome.  The realistic alternative to something like what Romney is proposing is some combination of far higher taxes and centralized health care rationing (basically what Obama wants.)

3.  I like Romney’s instincts on Social Security reform.  Social Security reform can basically be a deal.  Higher earners will get taxed less (compared with what the Democrats would want) during their working lives and (if they are lifetime high earners) will get somewhat less back in Social Security when they retire.  The alternatives are growth dampening tax increases (on top of other tax increases Democrats would want for other reasons) in return for somewhat more Social Security benefits upon retirement.  

4.  Romney hasn’t demagogued monetary policy.  He hasn’t pulled a Gingrich and said that Bernanke was the ”most inflationary” Federal Reserve Chairman in history.  I’d call that statement stupid, but I don’t think Gingrich made the statement out of stupidity.  He was making a play for people who are getting freaked out by those buy gold commercials.  It was easy, cynical and dishonest.  Romney is running to be elected President rather than to sell books after the election so he has mostly avoided making statements that would rule out an expansionary monetary policy if that is what is needed.

5.  I’m glad that Greg Mankiw is advising Romney, but I don’t like the idea of evaluating a candidate more on their advisors than their record and rhetoric.  I was glad that Douglas Holtz-Eakin was advising McCain in 2008, but it didn’t really matter in the end who advised McCain.  McCain was more interested in culture war nonsense (hey, Obama sorta called Palin a pig!) and cheap gimmicks (Andrew Cuomo for SEC chair!) than reformist economic policy.  That was just who McCain was - or one relevant part of who he was.  I think Romney’s entitlement reform plans point to a realistic politics where right-leaning structural reform combines with modest tax increases (he doesn’t mention the second - it would be negotiating with himself.)  But at the end of the day, no matter what Romney says now or what names are on his campaign letterhead, there are still going to be reasonable questions about Romney the statesman.  Conservative have good reason to be uneasy about whether Romney will still be proposing and sticking by serious reforms when the going gets tough.  And the going is guaranteed to get very tough.

Update: One more thought:

6.  The Romney plan suggests capping federal spending at 20% of GDP.  Taking it as a given that Romney’s Medicare approach, even if adopted, would cost more money than Ryan’s, and that the Ryan budget doesn’t bring federal spending to under 20% of GDP until sometime after 2030, I don’t see how Romney’s 20% GDP cap is  achievable absent very large defense cuts.  To be honest I don’t think Romney thinks that a 20% of GDP cap is going to happen.  The most charitable interpretation is that this represents an opening bid in a process in which the right and the reasonable fraction of the left-of-center (basically Alice Rivlin, some Blue Dogs, and Erskine Bowles) work out a deal.  There are less charitable and yet plausible explanations.