With a Hands-Off Economic Philosophy, No Mitt, Nor Glove, Nor Experience Is Required
(this piece appeared in the Huffington Post on August 28, 2012)
Something’s not quite right with this year’s presidential contest. Former Massachusetts Governor Mitt Romney has been doing violence to traditional conservative ideology as well as to textbook economic theory, so much so that I’m not sure what to tell my students any more. Romney contends that if he were to head our Federal government, he would be well-placed to fix our economy thanks to his business experience. That’s a pretty odd claim for someone calling himself a conservative to be making given that both philosophical conservatism and traditional economics textbooks hold that in a market economy, the government’s only roles are to provide a stable currency, assure the rule of law, and raise tax revenues to pay for public goods like defense, sanitation, and policing. Apart from those limited roles, “that government which governs least governs best.”
Its liberals and Keynesians, not conservative Republicans, who argue that government needs to be an active player in the economy to obtain good results. Keynesians in particular contend that, contrary to free market ideology, the economy does not regulate itself, so the government often has to step in to fix problems of excessive or inadequate aggregate demand. It makes sense for liberals, not conservatives, to judge a president’s performance by the performance of the economy. To conservatives, the market is self-regulating and the government’s only job is to “get out of the way.” For a Republican to depict the role of president as a sort of CEO of the economy seems intellectually incoherent, if not dishonest.
Consider, also, the awkward public relations dance around what Romney did or didn’t do as CEO of Bain Capital. (Yes, Bain is a company, so it has a CEO—in its early years, Romney.) The intellectually honest position would be the one taken by Milton Friedman, the Nobel Prize-winning economist and proponent of free markets, who argued that a business has no social responsibility apart from generating as much financial return as possible for its shareholders. On countless occasions, markets have rewarded companies for laying-off workers because investors judged this to be what was needed to raise profits and share value. So the companies were fulfilling their social responsibilities by laying-off the workers in question, Friedman would have said.
If Romney, as head of Bain Capital, oversaw episodes of corporate downsizing or outsourcing, that would provide no reason at all for calling into question his claim of having been a talented manager and a good agent of his shareholders. But just as it would be silly for us to hold Romney responsible for creating jobs during his years as a venture capitalist, it would be equally silly to imagine that his business experience will help him to bring millions of new jobs into being if we were to put him at the helm of our government.
As things turn out, while he’s happy to encourage the notion of the president as the manager of our economy, Romney’s economic proposals are in fact non-activist, just as one might expect from a true conservative. He proposes to return to the agenda of reducing government involvement in the economy that’s been pursued by Republic presidents since Ronald Reagan. Never mind that those policies brought slower economic growth than in pre-Reagan decades, never mind that they’re associated with more than a generation of stagnating living standards for the majority of Americans perhaps for the first time in U.S. history, and never mind that the return to their “deregulation first” agenda not only offers no guarantees that the financial meltdown of 2008 will not be repeated, but (say many) increases the likelihood of its repetition. What’s most incongruous, from the present vantage point, is Romney’s claim that one needs business experience and acumen to preside over such a ‘hands off the economy’ brand of government. An empty suit is all that’s needed to preside over a hands-off government and to not interfere with the marketplace. If I were a conservative, I’d be lining up right now to vote for Romney.
Now consider, in contrast, those who, like F.D.R., John Maynard Keynes, Paul Samuelson, Paul Krugman, and a substantial share of the contemporary economics profession, believe that an active government role can improve the functioning of the economy. It is members of this group, not economic and philosophical conservatives, that have reason to look for the right qualities and understanding of the economic role of government in those whom they elect to public office. Unfortunately for the liberals, it’s not clear that the present incumbent is up to the task. As Krugman argues in his 2012 book End This Depression Now, the Obama administration’s failure to fight for an adequate stimulus package when it still had a congressional majority made the job of liberal economists far harder by discrediting stimulus, much as conservatives hoped. The administration’s refusal to put real conditions on the bail-outs of giant banks and insurance companies, its failure to push for more serious reform of the financial sector, and its surrender to deficit hawks when the economy remained in its worst slump since the Great Depression, rightly gives liberals pause. So economic conservatives have a reliable candidate in Romney, despite his abuse of the ‘president runs the economy’ idea to pander to the ill-informed. Liberals, in contrast, have much less reason for confidence in the available alternative.
If Obama and his team really do believe that government isn’t always the problem but must be part of the solution, then they need to explain this clearly and forcefully, admit their past miscalculations, and at the same time put the appropriate share of the blame for our economic malaise on opponents who set political warfare ahead of national well-being. They need to insist that what’s needed is not just four more years of holding the line on the further dismantling of the mixed economy, but a chance to address the economy’s current doldrums forcefully. And this, even more dauntingly, would require electing a Congress that isn’t hell-bent on returning to the 1920s.