Monday, November 05, 2012

New Atlantic column: Who will be better for the economy, Obama or Romney?


I have a new column up in the Atlantic, which tries to answer the question of "Which candidate will be better for the economy?". The short answer: We don't really know, since there are so many things we don't know about candidates, politics, and how the economy really works. But there are a few issues on which Democrats have consistently proven themselves to be more responsible and sensible than Republicans over the past thirty years, and there is no reason to think these patters will change soon. From the column:

1. The National Debt...Since the national debt began climbing in 1981, a clear partisan pattern has emerged: Republican presidents have tended to expand the deficit more than Democratic ones...Has the pattern been broken [under Obama]?...[There is] a hugely important difference between Obama and his debt-ballooning Republican counterparts - Obama's deficits have come during a historic recession, while Reagan and Bush borrowed money while the economy was expanding...So Obama's deficits at least might be a temporary phenomenon, while the Reagan and Bush deficits were clear indicators of a short-sighted, unsustainable policy...This suggests that if we care about reversing the deficit once the economy recovers (as it now seems to be doing), we should go with Obama over Romney, despite Obama's large deficits... 
2. The Full Faith and Credit of the U.S....In 2011, Congress' near-failure to raise the debt ceiling nearly precipitated a default on a portion of America's national debt....Four days after the debt ceiling deal, Standard & Poor's downgraded their rating of U.S. government debt...Why should we blame Republicans for the debt ceiling debacle, rather than President Obama?...First, congressional Republicans repeatedly rejected Obama's attempts at compromise... Second, Republicans themselves expressed a blasé lack of concern about the prospect of default...Romney's membership in a party that reduced the value of the full faith and credit of the U.S. government is a reason to vote for Obama. The off chance that the GOP would actually tolerate a sovereign default is enough to tip the scales strongly in favor of the Democrat... 
3. Public Goods...Our crumbling infrastructure received a "D" grade from the American Society of Civil Engineers in 2009. Obama's 2009 "stimulus" bill plugged some of the gap, but a more sustained effort is needed. However, Romney's budget plan includes large cuts in the part of the budget that pays for public goods, and Republicans in general have shown very little inclination to repair our aging roads, bridges, electrical grids, and ports... 
I say we focus on the areas where we have good evidence. On the issues of fiscal responsibility, debt default brinksmanship, and infrastructure spending, Democrats have come out looking better than Republicans again and again since 1980. There is no reason to think that Mitt Romney would change the Republican side of that pattern. Barack Obama is the safest bet.
Now, note that I am trying to be objective here, and wear only my economist hat. I personally have a lot more reasons to vote for Obama - social issues in particular. But even when we just talk about the economics, I think Obama comes out looking like the more rational choice.

30 comments:

  1. I view two as more structural...

    Also I think 2) will be a problem regardless of who wins at this stage.

    I think we will have an Obama electoral win with a Romney vote inside of 0.5 percent.

    Either way you'll have an obstinate House (Because they are mega trolls) or an obstinate Senate (because of REVANGE)

    ;)

    ReplyDelete
  2. The United States needs some tax increases. The only route to that is through an Obama Presidency and the fiscal cliff - and it is still going to be incredibly difficult.

    ReplyDelete
    Replies
    1. Ben Johannson5:44 PM

      Sure, if you want another recession.

      Delete
  3. If you look at the policies proposed and supported by Romney and Ryan, the economy would do ridiculously and tragically worse over the long run, with high return investment in our people, capital, and science crippled to fund trillions more in yachts and mansions for the rich. We've already dropped to 13th in the world in college educated; I shudder to think how stupid we'd become compared to the rest of the world under even more conservative policies (we've also plunged in health, life span, height,.., but the wealth of the rich keeps exploding!).

    Historically, there are certainly empirical data and studies; see here for examples:

    http://richardhserlin.blogspot.com/2008/08/its-not-just-economy-in-general-thats.html

    It's also very interesting that there was a major study in the prestigious Journal of Finance in 2003 on how well the stock market does under a Republican President versus a Democratic one. Quoting from the abstract:

    The excess return in the stock market is higher under Democratic than Republican presidencies: 9 percent for the value-weighted and 16 percent for the equal-weighted portfolio. The difference comes from higher real stock returns and lower real interest rates, is statistically significant, and is robust in subsamples. The difference in returns is not explained by business-cycle variables related to expected returns, and is not concentrated around election dates. There is no difference in the riskiness of the stock market across presidencies that could justify a risk premium.

    A gigantic difference, at:

    http://docentes.fe.unl.pt/~psc/Politics.pdf

    ReplyDelete
    Replies
    1. And note how that stock market study would be even more extreme for the Democrats if it were updated.

      Delete
  4. Anonymous5:10 PM

    Nice to see that the FED bears no responsibility.

    ReplyDelete
    Replies
    1. Who appoints the members of the Fed?

      The President.

      Who appoints the members of the Supreme Court, who can do a Citizen's United or Bush vs. Gore?

      The President.

      The Senate Could filibuster, but who could likely end the filibuster, by putting pressure on his party's senators to do it (It's legally possible with just 50 votes), and who could do recess appointments?

      The President.

      Delete
    2. For more on how to abolish the filibuster with just 50 votes, see:

      http://richardhserlin.blogspot.com/2009/08/key-reason-why-51-democratic-senators.html

      Delete
    3. Who appoints the members of agencies like the EPA and Consumer Financial Protection Bureau, which essentially make much of our law?

      The President.

      There's a ton Obama could do even with a destroy-the-country-to-take-you-down Republican House, and more importantly there's what Obama would prevent doing -- throwing tens of millions out of health care, starving high return investment to give trillions for rich people's yachts and mansions, stopping a lock on the Supreme Court for decades with antidemocratic right wingers,...

      Delete
    4. And, of course, never forget global warming; an Obama victory would prevent further playing with fire of the planet of our children and grandchildren to save a few percent of our GDP -- if that -- many of these investments will make us wealthier over the long run, and starve some of the worst terrorist supporting regimes in the world of money.

      Delete
  5. Something Cleverish5:57 PM

    Noah,

    Why did you block me from following you on twitter? Not cool yo. #Fascismliveson!

    ReplyDelete
    Replies
    1. Maya Angelou6:12 PM

      You may write me down in history
      With your bitter, twisted lies,
      You may trod me in the very dirt
      But still, like dust, I'll rise.

      Delete
    2. It's no biggie. Like most academics Noah lives in his bubble and doesn't have much relevant to say about the real world. Hence why modern macro models are so terrible. When I finish my PhD in May I'm staying far away from any university campus.

      Delete
    3. Also looking forward to an econo-troll update with folks like me

      Delete
    4. In all honesty I love this blog

      Delete
    5. Why did you block me from following you on twitter? Not cool yo.

      I did? What's your Twitter name?

      Delete
    6. It's no biggie. Like most academics Noah lives in his bubble and doesn't have much relevant to say about the real world.

      Damn straight...

      Delete
    7. Thank you. Cardslove. You're the man!

      Delete
  6. Sadly, the public's not that receptive to it, but clearly one of the biggest issues is not spending the few pennies per dollar (if that) to insure against a very substantial risk of frying the planet for our children and grandchildren. Luckily, Bloomberg finally came to grips with this. History will show the folly of voting Republican with the great danger so clear.

    ReplyDelete
    Replies
    1. See:

      http://richardhserlin.blogspot.com/2010/04/come-on-you-dont-give-same-discount.html

      Delete
  7. Anonymous8:07 PM

    "I personally have a lot more reasons to vote for Obama - social issues in particular."

    Which is interesting in that neither candidate discussed social issues in the three debates, suggesting perhaps that neither candidate plans to take any action on social issues. Personally, I'm not voting. I have no preference between the two. I would have voted for someone (perhaps anyone) who would have restored our fourth amendment rights (e.g. get rid of the TSA), ended the perpetual war machine, stop the drones program, promise to really protect free speech, admit that we need to work with the rest of the world rather than against it (for Republicans that means not an America-first foreign policy; for Democrats that means not an American workers first economic policy) and admit that the relationship between government and the private sector is broken (e.g. housing debacle, school loan debacle, soon-to-be Obamacare debacle, and further down-the-road medical research debacle).

    ReplyDelete
  8. Anonymous7:05 AM

    I don't believe that this is the best you've got.

    First, it comes across as weak to argue from previous administrations' track records and ignore what the candidates' actual declared policy proposals are.

    If you think that you can't trust a candidate's policy proposals, or that the proposals are too vague, then you should be saying that there is no objective way to make a judgement call who will be better.

    If you think that the proposals are OK, but there is just no way of evaluating them because the jury's out on the economics, then you're basically bottling it. I don't believe for a minute that you don't have opinions on this, or that you can't muster an evidence-based argument one way or the other.

    If you think that there's no point trying to predict how the individual candidates will respond to future situations, then revisiting the track records of the parties, as you then go on to do, is meaningless.

    Second, even sticking to the track record, why only talk about debt, creditworthiness and public goods? Are these really the only three areas of economic performance we have good evidence for? Do they even count as performance measures? What about jobs, growth, income inequality? Aren't these issues a little more relevant right now? Are the two parties so close together on these that you can't hold them up as reasons to vote one way or the other?

    If this is the best economic case for voting blue, no wonder the election is tight...

    ReplyDelete
    Replies
    1. First, it comes across as weak to argue from previous administrations' track records and ignore what the candidates' actual declared policy proposals are.

      Maybe that's how it comes across, but I spend the first third of the column explaining why I do this. I think it's the proper approach, given all the uncertainties we face regarding what the candidates really want, what they will be able to accomplish, etc.

      If you think that you can't trust a candidate's policy proposals, or that the proposals are too vague, then you should be saying that there is no objective way to make a judgement call who will be better.

      I don't see how this logically follows. We have 2 pieces of evidence - 1. candidates' promises, and 2. recent history of the parties. Just because (1) is essentially worthless, does that mean we should ignore (2)? That doesn't make sense to me.

      Second, even sticking to the track record, why only talk about debt, creditworthiness and public goods? Are these really the only three areas of economic performance we have good evidence for?

      AND on which we can draw a clear distinction, AND on which the president has a significant impact, AND on which there is a fairly clear "right" policy and "wrong" policy? Yes, I think so.

      What about jobs, growth, income inequality? Aren't these issues a little more relevant right now?

      Of course they are important. But it's not clear to me who would be better on these issues. It seems to me that neither candidate really has a plan for growth/jobs. As for inequality, I'm not sure there's even anything a president can do; Obama seems to be less tolerant of inequality, but what can he do about it? If his first term is any evidence, then the answer is "nothing"...and Romney seems not to care at all.

      If this is the best economic case for voting blue, no wonder the election is tight...

      Yep. Pretty much.

      Of course, there are also social issues, on which I personally come down strongly on Obama's side. And national security issues, on which both candidates dissatisfy me deeply.

      Delete
    2. If you think that you can't trust a candidate's policy proposals, or that the proposals are too vague, then you should be saying that there is no objective way to make a judgement call who will be better.

      No. Vagueness does not mean you have no objective basis for decision. Use the example of Romney who declares he has a plan for tax reform but refuses to reveal the details - under circumstances where either there must be details or he has no plan. I can conclude from Romney's statements that he undoubtedly suffers a deep moral defect and that becomes an objective basis for decision even if I do not know what he would do with taxes. (I expect that Romney would follow the Republican play book of dessert first, the instant gratification of tax cuts for the rich, with meaningless hopes of base broadening deferred indefinitely.)

      Delete
  9. Given the state of our economy, I do not think it is a wise choice to vote for a candidate who is using the debt and deficits as a tool to impose austerity measures. And by austerity measures, I mean cutting social spending while increasing defense spending, keeping taxes low (specifically for the top-marginal tax rates), and by reducing the amount of those insured by Obamacare. It is clear that the Republican party is not focused on increasing the purchasing power of the middle class. Rather, their focus is on industry and profit growth. Profit growth does not necessarily translate into economic growth, thus the "trickle down" effect. Obama is clearly the better choice, but will he deliver this time around?

    ReplyDelete
  10. kharris9:28 AM

    The upshot of Noah's analysis is that Democrats are what is traditionally meant by "conservative" while Republicans are what is traditionally meant by "feckless" and "irresponsible" and "self-serving".

    ReplyDelete
  11. Anonymous2:35 PM

    Noah! You can't respond to the comments! You more than anyone should know it just feeds the beast.

    Also, its just not done.

    Liked the article.

    [Gaussianthoughts]

    ReplyDelete
  12. Anonymous2:37 PM

    On the Atlantic site of course. Here you can.

    [Gaussianthoughts]

    ReplyDelete
  13. Anonymous2:41 AM

    You want choose on the basis of history and previous performance? Awwwww, that's so cute!

    ReplyDelete
  14. I'm not sure either would have been great (since Obama has already won--will see how he does)...

    ReplyDelete