(Image credit: AFP/Getty Images via @daylife)
The networks have called the 2012 presidential election, and President Obama has won a second term after a grueling, wildly expensive race. This column incorrectly proclaimed over a year ago that Obama would lose, and the assertion was an economic one.
Simply put, the U.S. electorate, though seen as dim by a political class desperately pandering for its votes, is actually quite smart in total. Because it is, it seemed inevitable that the electorate would, in an election about the economy, fire a dollar-cheapening president whose policies were sapping the productive spirits of the most talented nation on earth.
Though the voting results are still coming in, and fully accounting for the power of incumbency, the election was Romney’s to lose as evidenced by the electorate’s historical inclination (Ford ’76, Carter ’80, Bush Sr. ’92) to fire individuals presiding over weak economic growth. The latter is very basic, and it’s a function of removing the tax, regulatory, trade, and monetary (cheap dollar) barriers to production.
In his first term Obama violated at least three of them, more realistically four, and the limp economy was his reward for doing so. Specifically, though regulations never work (banking is the most regulated sector of the U.S. economy, but those charged with regulating it were found asleep when banks lurched toward insolvency in 2008), Obama naively sought more federal oversight of healthcare, finance and energy with predictably negative results.
On trade, Obama slowfooted agreements with Colombia, Panama and South Korea, all the while imposing tariffs on Chinese tiremakers. As for the dollar income streams that investors buy when they provide capital to existing and future companies, Obama pursued dollar devaluation such that a greenback that bought 1/750th of an ounce of gold upon his election now buys 1/1700th.
Considering taxes, Obama got it half right in extending the 2003 tax cuts, but literally campaigned on moving tax rates up; his desire to do so a clear signal of his view that productive, wealth-enhancing work should cost more. Warren Brookes once observed that “We’re blessed by the genius of the relatively few” – think Amazon’s Jeff Bezos, FedEx’s Fred Smith and Microsoft’s Bill Gates – yet Obama campaigned on raising the cost of innovation for the “relatively few.”
In short, President Obama ignored the basics of economic growth, the economy during his first term limped along as a result, and when the electorate reached the polls unemployment was abnormally high while GDP was abnormally low. The numbers, along with history, suggest once again that the election was Romney’s to lose. Yet he still lost.
To understand why, it’s best to look at the economic plan Romney was proposing, and most notably the economic advisers who helped him craft his program. Personnel as they say, is policy, and in Glenn Hubbard, Greg Mankiw and Kevin Hassett, Romney had the wrong personnel that fed him bad policy ideas.
Regarding Hubbard, not only is he a China trade skeptic despite the fact that free trade is a voluntary act that benefits both sides, he’s also rather confused when it comes to investment versus consumption. Indeed, in December 2008 Wall Street Journal op-ed that he co-authored with Christopher Mayer, Hubbard called for policies meant to increase demand for housing as the path to renewed economic growth.
Of course, in the year leading up to his article housing had collapsed precisely because markets were calling for less investment in housing, but the vastly overrated Hubbard called for more. Missed by the Columbia Business School dean was that housing is not investment, rather it’s consumption. More to the point, the rush to housing in the 21st century was the recession for limited capital flowing into housing consumption over investment that would author real economic growth. Business suffered a capital deficit amid the cheap-dollar driven housing boom, yet Hubbard wanted to double down on that which had failed miserably.
Hubbard was also public in his admiration for our hapless Fed Chairman in Ben Bernanke, and to the media expressed his belief that he should get another term as Chairman. At least during the campaign Romney said he would replace Bernanke if elected, but considering how unpopular Bernanke is, one can only wonder how many more votes Romney would have earned had he been more vocal about replacing the walking, talking financial crisis that is Bernanke.
Speaking of sound money, Greg Mankiw was not a fan. Amid trying economic times, Mankiw called for dollar-cheapening policies that have made them even more painful. Specifically, Mankiw endorsed the growth-sapping idea of the Fed targeting higher levels of inflation; the idea there that an even weaker dollar would make consumers more eager to spend every dollar in their possession in the here and now. Apparently Mankiw missed Adam Smith’s chapter making the essential point that savers are society’s ultimate benefactors, and as such was blind to the simple truth that all that we have today – from computers to cars to cellphones – is the result of individuals saving their money, the saving morphing into investment, and the investment leading to all manner of commercial innovations that increased our health and wellbeing astronomically.
Jobs are of course the result of investment, but not according to Hassett. Writing with liberal economist Dean Baker in 2010, Hassett and Baker called for “work sharing” whereby companies would be “encouraged by government policy to spread a small amount of the pain across many workers. In a typical arrangement, a worker might see his weekly hours go down by 20%, and his salary go down by about 4%." It seems bad ideas never die, no matter basic history telling us that unemployment has nothing to do with how many or how few individuals are looking for employment.
Back in the real world, and well outside the walls housing economists who wouldn’t know the private sector from the DMV, job creation is a function of investment. Jobs aren’t finite as Hassett believes, rather their creation results from investment in productive ideas. When Bill Gates moved Microsoft to Seattle, his arrival didn’t reduce Seattle’s job count by 1, rather it expanded the number of jobs there in a massive way given the desire of investors to back a business visionary.
Personnel is once again policy, and in Romney’s case his advisers steered him in the wrong direction. It should be stressed that he didn’t exactly adapt their policies, but with all three top advisers once again confused, Romney lacked a coherent economic message in his ads, on the stump, and in the debates.
Considering taxes, this is one area they got mostly right, though one wouldn’t have known it from the debates during which Romney, afraid to embrace the very 1% whose exploits move the economy upward, essentially ran from his tax policies since they correctly would cut taxes for all earners irrespective of income. Americans think of themselves as winners destined for success, yet to hear Romney during the debates one would think the only thing waiting for the ambitious was a huge tax bill once they entered the 1%. We’ll never know, but it seems Romney lost a lot of votes due to his inability or unwillingness to explain his tax plan.
And then it went downhill from there.
Indeed, while trade is the purpose of all our work whereby we produce in order to consume, Romney promised throughout the campaign to “crack down” on China; China a country full of hard workers whose production regularly raises our standard of living stateside. Barriers to trade inevitably harm workers, and more problematically, they hurt successful companies for trade barriers being introduced to prop up the weak. The weak get a longer lease on life at the expense of the productive, and then the productive must frequently navigate smaller foreign markets thanks to retaliatory tariffs.
Worse, Romney’s China-bashing was a clear signal from him that he preferred a weak dollar. The weak dollar since 2001 has eviscerated American paychecks (gasoline has never become expensive since ’01, rather the dollar in which it’s priced was cheapened), and as investors are tautologically buying future dollar income streams when they commit capital to companies, the sagging greenback similarly reduced job opportunities for Americans. Romney’s stated China policies during the campaign would have shackled our economic advancement all the while weakening the dollar.
On regulations, Romney promised smarter business oversight, but the answer should have been that regulations quite simply don’t work. If it’s agreed that it’s a fatal conceit of politicians to presume that they can centrally plan an economy from on high, then it’s an equally absurd conceit that politicians think they can appoint regulators possessing hotlines to the future so that they can save businesses from errors. Lots of luck with that. Even the richest Wall Street traders acknowledge that they’re wrong at least 49% of the time, so for regulators to be expected to visualize looming problems for the businesses they oversee is the height of fanciful thinking.
Regarding energy, we don’t have a national computer policy, a national shoe policy, or a national breakfast cereal policy, yet we receive all three in abundance. Despite that, Romney presumed that we needed a national energy policy even though the world is awash in oil. Not against drilling in the states for even a second, the simple truth is that we only concern ourselves with energy in the present because of devaluationist dollar policies that have created the false illusion that it is dear.
In truth, oil isn’t expensive, rather the dollar is cheap. After that, the energy sector is not terribly profitable, and because it isn’t a government driven rush into mass drilling stateside would have been economically crippling for so much in the way of resources being wasted on that which is plentiful. There are quite simply better, more profitable uses of always limited funds, so Romney’s stated policy on energy should have been nothing other than a commitment to a strong dollar. Notable with the latter is how uneconomic most drilling would be if the dollar were buoyant, but as always the goal should be to remove barriers to any production that the markets will support.
To put it plainly, Romney turned what should have been a landslide election into a victory for his opponent. He did so because in an election once again about the economy, he had the wrong people whispering in his ear about economic policy.
With Romney having lost, it’s time for the GOP to rebuild, and one necessity while doing so should be the banishment of Romney’s economic advisers to hidden corners of academe so that they’re never heard from again. Specifically, to ensure better victory odds in 2016, it would be wise for GOP fixers to send Mankiw back to Harvard, Hubbard back to Columbia, and Hassett back to the world of think tanks as a way of ensuring that their mostly anti-growth ideas don’t pollute the mind of the next Republican presidential candidate.
