Do not read journalist’s critiques of Mitt Romney’s economic plan by papers like the New York Times or the Huffington Post. They will only give you partial gobbledygook. Read my critique of he economics of Mitt Romney.
- In one clear, crisp concise statement ‘Romney is free market but uses economic incentives to encourage productivity and keep a safety net for the disenfranchised in our society’. If you like that view of political Economy than Romney is your man. Please read on for more interesting elaboration.
Mitt Romney’s economic plan is free market but not to the end. The purpose of this post is to look in a summary form at the pros and cons of Romney’s economic vision for the USA. Since I was a kid, I remember the neighbor fathers talk about we need a businessman to be President of the United States. Well at this juncture, it looks like it is going to happen. So it is important to get a clear understanding of his economic ideas, right from his book, not the media or political ads.
I might seem critical of Romney, but on a whole, I think he is a good man and his economic ideas would help the USA more than Obama’s. Romney is generally free market and has positioned himself as someone who can appeal to Democrats economically because he is not about ripping apart safety nets but rather encouraging jobs in the free market and yet retaining a safety net for the poor and displaced.
Endeavor t0 provide the dignity of work in every safety-net program where that is possible, evn if it costs the government more money to do so.
Mitt Romney’s economic – political ideas
Romney like Obama sincerely wants to help the lower and middle class American. I have never doubted their sincerity, just their understanding of markets. I will use Mitt Romney’s book No Apology as a guide to understanding Mitt Romney’s view of economics and quote from it. It is not economic theory but more the ideas of a politician who understand economics to some extend.
An economy is a function of the number of people in the workforce and the productivity of that workforce.
Romney’s view is focus on productivity as the central idea for generating wealth in the USA. This comes from his business background. That is if you have ever worked in an office you know a lot is about increasing efficiency and productivity. It is about showing efficiency gains on a micro unit level that gets you as a middle manager your bonus.
For example, lets imagine a micro nation, has one hundred people raising the food, while 100 built houses. Then one day, an innovation like the plow comes a long. Wow this is a breakthrough and now this micro nation only needs 50 people to raise food. Would fifty people be unemployed? Romney’s answer is not really. They would use their talents and brainpower in other ways to increase the well-being of society instead of manual labor intensive processes. Some of these displaced workers will be better off and some will be worse off, but no one would argue for the return to agriculture before the plow. Life for all would be harder. Productivity gains are almost synonymous with economic progress.
Romney is correct that productivity is an important component of economic growth.
Two books discuss similar issues if you wan to examine this in more detail and different points of view are:
- The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability – William W. Lewis
- Cities and the Wealth of Nations by Jane Jacobs
- I think it Romney needs to make his message clearer, that economic freedom accelerates innovation, not that innovation gives us prosperity and hence economic freedom. Further, not government economic plans or recovery initiative to jump-start the economy. The economy is not an engine that starts and stops, it is me and you taking individual action. Romney needs to champion this point even more if he understands it.
Innovation is the engine of productivity gains
In the 1980s it took ten hours to produce a ton of steel, today only one hour. This was because of innovation in the process of production. It is not that people are working harder, maybe they are, but it is more about technology and the process. It is not just some earth shattering breakthrough in science but also process improvement and work flow.
A key component of getting the economy to function better as well as the government sector is free markets so innovation can lead the growth. This includes outsourcing government functions to the private sector.
It has been my experience that almost always government is far less productive than enterprises in the private sector. That’s why private companies build roads for governments and make equipment for the military. It’s also the reason why FedEx and UPS can make a profit shipping and delving packages while the U.S. Postal service loses money, even with its inherent competitive advantages.
- We can conclude Mitt Romney is free market in the general sense. So where does he fail in his economic understanding?
- Increasing the military – the biggest waste in the world. This is an economic issue. We have been fighting wars since I was a kid in the 1960s and that is not going to change. Romney argues for an increase in soldiers (he says we need at least 100,000 more) in the military because the percent of GDP is not that large. I tend to disagree, I will not go in detail on this but let you do your own research. However, I personally know a lot of military and ex military guys doing nothing in the USA, nor can I see them ever integrating into the economy in a meaningful way. I think the military has a profound psychological impact on the most productive years of your life and many times hurts those young people from finding their way in a complex post industrial economy (in contrast to the post WWII economy which was easier). Remember we are not defending US soil but playing a political chess game and using brave Americans as pawns in Middle Eastern politics. Most people know this by now. I say a smaller military for home defense not micro managing the Middle East. The impact of having a bloated military is huge. For example, did you know the cost of the wars in the Middle East exceeds the revenue collected in individual income taxes. Yep, the income tax is not where the US government gets the majority of its income. We could have eliminated the income tax instead of fighting those Middle Eastern wars with the grande army. So why does Romney want to increase military spending and overseas influence?
- Quasi free market but not really – Supported the bail out of the auto industry with managing restructuring. This is better than Obama’s cash infusion method. I would say the auto industry could have fallen and restructured without the cost to US tax payers. Maybe I am wrong on this, but I have always said let the markets work or the cost is higher prices, less innovation and lower consumer satisfaction. I still think cars are expensive as anything and thanks to your tax payer dollars it looks like it will stay that way. Supported the bank bailouts. Banks now sit on a huge inventory of foreclosed homes and the prices are still high in my opinion. If you want affordable housing, let the reckless banks fall and deflation correct the market, then you would see the haves loose and have nots gain because the market would work naturally. Supported the Federal reserves anti-deflation monetization. Big mistake, we should let he markets work.
- Barack Romney or Mitt Obama – they are more similar than different, despite the political noise. Obama focuses on social programs and Romney military build up, but besides that basically the same. Ron Paul would like to eliminate the income tax and the Federal reserve and balance the budget by cutting real spending not growth like Romney’s cut the rate of increase. Now that is free market and that is different. Mitt Romney is more a bit free market and a better choice economically than Barack Obama, I guess, however, I would have to see more understanding of money and markets to be totally impressed. I think at this point I will vote for him, maybe. Obama did the opposite of what should have been done in many cases because accident economists advised him wrong and he did not have the understanding to go against them.
- Mitt still thinks in a corporate way, that the economy is a big machine
Having grown up in Detroit, I tend to think in automotive terms. If we imagine that the economy is an engine, then capital is its fuel. – Romney
The economy is not an engine. It is you and I. It is not fueled just by balance sheet capital but by intellectual capital like the people who started Microsoft or Google. They are usually innovative individuals, not large companies to start. Romney supports a decrease in corporate taxes to increase company balance sheet retained earnings for research and development and innovation. I guess, but don’t you think a lot of that will be just paid out to someone instead of allocated to R&D? It is trickle down economics. What about eliminating the income tax so people, who are the ones who often create the best innovation in the basements (I have known many people who start companies in their garage that have done brilliant things like one of my former employers SS&C, an Investment Accounting software company, it was started by Bill Stone in his garage). So Romney is good, but thinking in terms of his experience in the corporate world. In contrast, I tend to think from an ideological standpoint of maximizes individual liberties, including economic and markets in aggregate will take off. This is Adam Smith.
Romney on minor economic issues
Romney supports a moderate minimum wage (some people argue this hurts small business not large). And Romney supports unemployment insurance as a safety net (some people say this prolongs unemployment). I have no major problems with either of these ideas because they do not have a huge economic impact. I think both have a libertarian solution but this is not the source of our massive economic problems.
What is the real source of the economic problems?
The Federal reserve creates business cycles with easy credit and excess spending with Keynesian fiscal policy. This displaces productive people from the private sector to the sluggish, wasteful government sector. Not just a trade-off between one sector and another. Remember the post Keynesian model C+I+G=GDP? Wrong. Spending is a not an accounting equation, but one of crowding out and opportunity cost that is usually over looked.
For example, when someone is getting your income via taxes by being employed by the military in the desert as an artilleryman, does he have a job? Yes, but what if that young fertile brain was in the private sector using his 20s to create something innovative. A major displacement of intellectual capital.
Other economic quotes by Romney
The best way forward is not to erect trade barriers but instead to facilitate innovation and productivity that will sustain our global manufacturing competitiveness.
I agree. Trade protection will make every consumer good higher priced, I will not be afford a lot. Focus on innovation.
Our Standard of living are the highest of any other major economy
Questionable but I am glad I live in the USA.
In his capacity as chairman of the Federal Reserve, Alan Greenspan made a decision to hold down interest rates for an extended period that didn’t help either. He was motivated by a desire to avoid deflation – and in that respect it worked.
Did not help? That was the root cause not a helper in all this. And deflation, nothing wrong with it, it is the market working. To not have deflation if needed is asking for long-term slow growth and deprives the have-nots the chance to have. People point to the deflation of the great depression, but that was a symptom of a deflating bubble created by the central bank.
The fact that both parties have come to accept deficits and ever-higher levels of public debt is deeply troubling.
Agreed, Romney is much more fiscally responsible than Obama. But why not just way number one probity is a balanced budget amendment?
Increase our investment in science and basic research
Not libertarian but I like it. I was talking to a military guy at the park the other day when our kids were in the playground. He told me every new immigrant should be required to serve in the military, even in combat zones before they come to the USA. Yeah right, we would turn away brilliant minds in research and science and replace then with jarheads. We should focus on intellectual strengths not old world ideas of blood and iron like Bismark believed. We do not need more industrial factories but high-tech centers offering solutions. I think investment in science can be encouraged with government and private business, although I think the latter does a better job. US innovation is on of our saving graces, we need to make sure it stays that way.
Romney on economics and the USA
- A Strong Economy
- A strong Military
- A free and Strong people
Mark Biernat on economics and the USA
- A free economy – only way to achieve a strong economy and real stability is maximizes economic freedom like delete the Federal reserve and let the markets work. People criticize free markets, do not realize we have not tried it yet.
- Military for defending America – To illustrate the waste, what if we spend 1/3 to 1/2 of our budget on helping childhood diseases or making our cities safe instead of being the British empire of the 19th century; we would have a safer America.
- A free people – You achieve this largely by a free economy, but not just.
In summary economics and the election
Here is Mitt Romney’s economic plan in detail.
Will I vote for Romney in a Obama Vs Romney election in 2012? I have to think about it, but I suppose. Maybe I will vote libertarian as Obama and Romney are pretty similar despite all the noise. The bottom line both candidates want to cut the rate of growth, not the baseline. Both support a Federal reserve and income taxes with adjustments here and there. Both support bailouts, although Romney tends to be more free market with managed bailouts. But for me they are more similar economically, than different. He is more moderate and will appeal to cross party voters, therefore, have a good chance of winning in 2012. However, Romney does have a radically better of understanding economics than Barack Obama and can appeal to both parties.
Despite my affiliation with the Republican party, I don’t think of myself as highly partisan – Mitt Romney
Romney will get the Neo-con vote anyway, as what choice do they have, they will not vote for Obama. in the 2012 presidential election. So he would be wise to tone down the strong international military stance during the election. The election will be about a battle for the middle voters, not the extreme. What are your thoughts on Mitt Romney’s economic plan.