[Vision2020] The Optimism Cure

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

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September 23, 2012
The Optimism Cure By PAUL KRUGMAN

Mitt Romney is optimistic about optimism. In fact, it’s pretty much all
he’s got. And that fact should make you very pessimistic about his chances
of leading an economic recovery.

As many people have noticed, Mr. Romney’s five-point “economic plan” is
very nearly substance-free. It vaguely suggests that he will pursue the
same goals Republicans always pursue — weaker environmental protection,
lower taxes on the wealthy. But it offers neither specifics nor any
indication why returning to George W. Bush’s policies would cure a slump
that began on Mr. Bush’s watch.

In his Boca Raton meeting with donors, however, Mr. Romney revealed his
real plan, which is to rely on magic. “My own view is,” he declared, “if we
win on November 6, there will be a great deal of optimism about the future
of this country. We’ll see capital come back, and we’ll see — without
actually doing anything — we’ll actually get a boost in the economy.”

Are you feeling reassured?

In fairness to Mr. Romney, his assertion that electing him would
spontaneously spark an economic boom is consistent with his party’s current
economic dogma. Republican leaders have long insisted that the main thing
holding the economy back is the “uncertainty” created by President Obama’s
statements — roughly speaking, that businesspeople aren’t investing because
Mr. Obama has hurt their feelings. If you believe that, it makes sense to
argue that changing presidents would, all by itself, cause an economic
revival.

There is, however, no evidence supporting this dogma. Our protracted
economic weakness isn’t a mystery; it’s what normally happens after a major
financial crisis. Furthermore, business investment has actually
recovered<http://research.stlouisfed.org/fred2/series/NRIPDC96?cid=112>fairly
strongly since the official recession ended. What’s holding us back
is mainly the continued weakness of housing combined with a vast overhang
of household debt, the legacy of the Bush-era housing bubble.

By the way, in saying that our prolonged slump was predictable, I’m not
saying that it was necessary. We could and should have greatly reduced the
pain by combining aggressive fiscal and monetary policies with effective
relief for highly indebted homeowners; the fact that we didn’t reflects a
combination of timidity on the part of both the Obama administration and
the Federal Reserve, and scorched-earth opposition on the part of the
G.O.P.

But Mr. Romney, as I said, isn’t offering anything substantive to fight the
slump, just a reprise of the usual slogans. And he has denounced the Fed’s
belated effort<http://www.washingtonpost.com/blogs/election-2012/wp/2012/09/13/romney-camp-fed-action-shows-obama-has-failed/>to
step up to the plate.

Back to the optimism thing: It’s true that some studies suggest a secondary
role for uncertainty in depressing the economy — and conservatives have
seized on these studies, claiming vindication. But if you actually look at
the measures of uncertainty involved, they’ve been driven not by fear of
Mr. Obama but by events like the euro crisis and the standoff over the debt
ceiling. (O.K., I guess you could argue that electing Mr. Romney might
encourage businesses by promising an end to Republican economic sabotage.)

You should also know that efforts to base policy on speculations about
business psychology have a track record — and it’s not a good one.

Back in 2010, as European nations began implementing savage austerity
programs to placate bond markets, it was common for policy makers to deny
that these programs would have a depressing effect. “The idea that
austerity measures could trigger stagnation is incorrect,” insisted
Jean-Claude Trichet, then the president of the European Central Bank. Why?
Because these measures would “increase the confidence of households, firms
and investors.”

At the time I ridiculed such claims as belief in the “confidence
fairy.<http://www.nytimes.com/2010/07/02/opinion/02krugman.html>”
And sure enough, austerity programs actually led to Depression-level
economic downturns across much of Europe.

Yet here comes Mitt Romney, declaring, in effect, “I am the confidence
fairy!”

Is he? As it happens, Mr. Romney offered a testable proposition in his Boca
remarks: “If it looks like I’m going to win, the markets will be happy. If
it looks like the president’s going to win, the markets should not be
terribly happy.” How’s that going? Not very well. Over the past month
conventional wisdom has shifted from the view that the election could
easily go either way to the view that Mr. Romney is very likely to lose;
yet markets are up, not down, with major stock indexes hitting their
highest levels since the economic downturn began.

It’s all kind of sad. Yet the truth is that it all fits together. Mr.
Romney’s whole campaign has been based on the premise that he can become
president simply by not being Barack Obama. Why shouldn’t he believe that
he can fix the economy the same way?

But will he get a chance to put that theory to the test? At the moment, I’m
not optimistic.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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