Liveblogging World War II: July 27, 1942
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Matthew O'Brien: Glenn Hubbard (Tacitly) Admits Romney's Economic Plan Won't Work

Matthew O'Brien:

Romney Economic Adviser Admits Romney's Economic Plan Won't Work: Romney seems to subscribe to the doctrine of "expansionary austerity"….It's an idea that has failed rather spectacularly…. Mitt Romney's top economic adviser… Glenn Hubbard… took to the pages of the Financial Times….

Gradual fiscal consolidation may also be stimulative… [if] reducing federal spending… lower[s] future tax rates and… lower[s] interest rates to [boost] investment and net exports.

Plenty of people considered this a loud (and perhaps wise) defense of austerity. It's not. How would less government spending translate into more spending overall? The question answers itself: If the other parts of the economy subsequently spend more…. And what would make them spend more? Answer: Lower interest rates….

That leaves one big question. Why would interest rates fall when the government spends less?… [T]here's a problem. Interest rates have never been lower. Cutting spending won't lower interest rates any further…. [T]here isn't any crowding out now….

Hubbard is smart. He knows that austerity won't work without lower interest rates. And he knows that interest rates couldn't be much lower than they already are. In other words, he knows that cutting the deficit too much too soon would be a very bad idea today.

Don't let the rhetoric confuse you. Romney might say he's an austerity candidate, but his top economic advisors quietly admit that this might not be wise.

It's almost like Romney might flip flop on this if he wins.

The biggest immediate problem is that Romney has no plausible plan to restore full employment. The second biggest problem is that Romney's economic plans--big tax cuts for the rich now, and implausible promises of cuts to Medicare and Social Security in the far future--do not create a stable environment for economic growth. The Medicare Part D and Iraq War policies Hubbard helped to implement during the Bush administration are ultimately going to have to be paid for somebody, and the fact that Hubbard's old boss George W. Bush had no plans for paying for them means that those anticipated debt burdens have been discouraging enterprise for a decade now. Running up the debt is excusable--nay, desirable--in big wars and depressions. Not otherwise.

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