Although both presidential candidates are talking about creating jobs and growing the economy, their means to achieve this growth displays some of the starkest differences in economic policy in any presidential election in the past 50 years.
During the Great Depression, economists throughout the world learned what became “generally accepted economics,” and that is when consumers quit spending and businesses quit investing, and the rest of the world is not buying our goods, then our economy will spiral down into a depression that will continue into a freefall unless the government becomes the buyer of last resort. Government is the only sector that we can control and that can begin to put some demand back into the economy. This is what is known as Keynesian economic theory, and it became accepted by both political parties. Even conservative economic icon Milton Friedman declared that “we are all Keynesians now,” a phrase that was repeated by Republican President Richard M. Nixon. It was settled theory.
Today, we have one candidate, President Barack Obama, who continues to follow the basic Keynesian theory, but we have another candidate, Mitt Romney, who is following the new Republican Party line, which is the tea party line, that rejects what was learned in the Great Depression and refuses to acknowledge there’s any role for the government in helping bring the economy out of recession.
The Romney/Ryan ticket is advocating this pre-Great Depression economic theory espoused by the tea party, which might be properly labeled “Herbert Hoover economics.” This Herbert Hoover economic theory was also promoted recently by some of the European governments that tried to cut budgets when the economy was in a weakened state. Once again it resulted in what every honest economist knew would happen. Europe began to move into recession.
So going forward the choice is stark. One candidate—Barack Obama—believes that there is a role for government in the economy, especially when the economy is in recession, understanding full well that the vast majority of jobs and economic activity comes from the private sector. Although we have a predominantly private-sector economy and the vast majority of jobs are created in the private sector, government can and must create such jobs as police officers, firefighters, teachers and all of the people working in the private sector who rely on government contracts, such as those people building our aircraft carriers and making our military uniforms, for example. These are all very real jobs.
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The other candidate—Mitt Romney—believes that only the private sector creates jobs and that government jobs are somehow not real jobs. He also believes that government spending is not a way out of the recession and stimulus spending in the midst of a recession is somehow bad. Also, to generate these private-sector jobs, we must cut taxes on the wealthy and provide various additional tax breaks to the millionaires and billionaires to entice them to invest. Businesses only invest and hire people if there is demand for the good and services they provide. So you can cut taxes to zero for the millionaires and billionaires, but if the consumers are not buying, there will not be any new jobs created. Prominent conservatives in the past, like Noble Prize-winning economist Milton Friedman, certainly understood that.
So when it comes to economics, the choice is very clear. One candidate—President Barack Obama—learned from the experiences of the past recessions and Great Depression and tried these policies, albeit on a somewhat limited basis, to stop the freefall of the economy. The other candidate—Mitt Romney—wants to politicize the recession to appeal to the ideological tea-party base of the Republican Party and to use the recession as an excuse to give further tax breaks to the millionaires and billionaires. We can’t afford to keep giving tax breaks to the wealthy at the expense of the middle class and poor.
