By David A. Robalino, Lead Economist - Labor and Youth Team Leader, the World Bank
I've been following the debate around Governor Romney's economic plan and its effects on jobs, and the news isn't good for voters hoping to make an informed decision.
"Get Out and Vote" Concert in Richmond, Virginia, October 2008 by Mike Lynaugh, 2008.
The latest report
of the Bureau of Labor indicates that the U.S. recovery continues to be sluggish with only 163,000 non-farm jobs created in July and unemployment staying at 8.3 percent. In a recent paper
three star economists (and a less-known fourth) - R. Glenn Hubbard (Columbia University), N. Gregory Mankiw (Harvard University), and John B. Taylor (Stanford University), and Kevin A. Hassett (AEI) - tell us why this is happening. They claim that the economy isn't recovering faster because the current administration has failed to introduce structural reforms to jump start economic growth and, instead, focused on implementing a wasteful stimulus plan. They argue that the administration has contributed to higher policy uncertainty, which has reduced GDP by 1.4 percent in 2011 alone. They endorse Romney's economic plan: reduce spending and debt (including by reforming social insurance programs); simplify and reduce taxes; and deregulate the energy, health, and financial sectors. And they forecast that these policies will create 12 million jobs during Romney’s first term and will increase GDP growth by 0.5 to 1 percent over the next decade.
Really? You would expect "liberal" economists to jump on this, which is exactly what they did. Paul Krugman
(while on vacation) and Brad DeLong
blasted the paper.
But ideology aside, if you read the paper, it's true that it has several factual errors and doesn't do a good job of supporting its arguments. As for some of the issues that have been raised: there's no reason to believe that the recovery is sluggish because of policy mistakes; uncertainty is a factor but it comes from things like the debate on the debt ceiling (see the cited uncertainty paper
by Scott Baker, Nicholas Bloom, and Steven J. Davis); most of the research on the stimulus shows that it has helped, not hurt; and the simulations by Alan Auerbach and colleagues cited to justify the 0.5 to 1 percent projected increase in growth over the next decade aren't applicable
to the Romney tax plan. In addition, there is no evidence that the deficit-cutting plan (as articulated by Romney's running mate, Paul Ryan) will work (see, for example, Martin Wolf's column
In response, the authors of the paper didn't offer much of a defense. Mankiw posted
the paper, Krugman's critique, and a response by co-author Taylor
, who really doesn’t address the criticisms.
The sad thing is that not many voters will have the time and energy to follow these exchanges and unearth the economic implications of the candidates' proposals. Sure, there are independent "fact checkers" out there, but they probably can do little against the constant barrage of paid political advertising in the media. Maybe the only solution is to cap or even ban paid political advertising - as is done in Belgium, France, Ireland, and the United Kingdom