Economists: Romney’s ideas wouldn’t fix short-term crisis, and could make things worse - The Plum Line - The Washington Post: Mitt Romney frequently faults President Obama for not having any kind of plan to pull us out of our employment slump. But would Mitt Romney’s ideas help fix the economic crisis? I asked two economists….
Joel Prakken, the chairman of Macroeconomic Advisers… described Romney’s ideas as a
a bundle of reasonable policy proposals that could well stimulate the economy from the supply side over a number of years, but would do little to stimulate aggregate demand in the short run. The reason that unemployment is as high as it is is inadequate aggregrate demand, not inadequate supply.
“On net, all of these policies would do more harm in the short term,” added Mark Hopkins, a senior adviser at Moody’s Analytics. “If we implemented all of his policies, it would push us deeper into recession and make the recovery slower.”…
Tapping energy resources to put people to work in the energy sector: Prakken: “In May, there were 193,000 employees in the oil and gas extraction industry. So let’s say he doubles that. That’s one month’s growth in employment spread out over years. That’s not going to get rid of an eight percent unemployment rate. We have resources that we can develop and it makes sense in the long run. But the unemployment effect is modest.” Hopkins: “The reality is that you’re talking about people only in energy producing states. If you double the amount of people working in the industry over the next four years it doesn’t move the needle a whole lot.”
Repealing Obamacare: Prakken: “Easing health care regulations could make businesses more profitable, but they might not use those profits to hire more people. Firms don’t add people for the heck of it. They add people to produce additional goods and services, because they expect that there’s demand for their product out there.” Hopkins: “The central problem is not burdensome regulations. It’s that people can’t sell anything. There may be some anecdotal evidence for the argument that Obamacare is scaring people from hiring, but that’s not even a second order explanation for unemployment.”
Balancing the budget: Prakken: “In the short run, fiscal austerity slows growth. I’m all in favor of a grand bargain that stabilizes the debt to GDP ratio over ten years. But right now is not a good time to apply sharp fiscal austerity. It doesn’t seem to me that anyone thinks there’s going to be a sovereign debt crisis in the next 10 years. Investors do not see Treasury debt as a dangerous asset.” Hopkins: “If there is a crisis of confidence in your country, then what you need to do is show you’re responsible. But by tightening your belt you send the economy back into recession. You won’t see an increase in confidence. You’ll see the opposite.”
Lower tax rates on employers: Hopkins: “It’s clear that lowering corporate tax rates and the marginal tax rate on high income earners would help boost investment and long run growth. But there’s a tradeoff in terms of revenues, and it would have little impact on short term job growth. Since the recession, the cost of labor in the United States has been rising much slower than usual. Cutting these taxes won’t solve the problem of weak demand.”
Open up new markets in American trade: Prakken: “I’m all in favor of that. Trade is good. But if you consider other trade agreements, the consensus in the literature is that the employment effects are relatively modest. It’s more likely to change the kinds of jobs we have, not the number of jobs.” Hopkins: “The president has actually been pushing this himself. The burden is on Romney to say what he would do differently.”
Revamp the NLRB: Hopkins: “This is just aimed at businesses. It’s not clear to me that everything that’s good for business is good for economic growth. His suggestion is that we should remove impediments to business. But it’s not clear that impediments to hiring are the main problem.”…