By Lawrence Summers
NEW YORK, Oct 29 (Reuters) - Even as our politicians disagree on a great deal, most experts can agree on the objectives of economic policy. The next president will not have succeeded in the economic area unless he accomplishes three things:
* Reestablishing economic growth at a rate that makes real reductions in unemployment possible.
* Placing the nation's finances on a stable foundation by putting in place measures to assure that U.S. sovereign debt is declining relative to America's wealth.
* Renewing the economy's foundation in a way that can support steady growth in middle-class incomes over the next generation, along with work for all who want it.
Where are the candidates on these three issues?
President Obama has recognized that the inadequacy of demand is the principal barrier to growth and has sought to bolster both public- and private-sector demand since becoming president. Recent work by the IMF has confirmed the premise of his policies: namely, that at a time when short-term interest rates are at zero, fiscal policies are especially potent. The president has also respected the independence of the Federal Reserve as it has sought to respond creatively to the challenge of increasing demand even with short-term interest rates zeroed out. And he has put the economy on track to nearly doubling exports over five years through a series of measures, such as increasing government support for exporters. He has made clear his commitment to taking advantage of current low interest rates to finance public investment and protect public-sector jobs, and to continue to promote US exports.
In contrast, Governor Romney supports immediate efforts to sharply reduce government spending even as economic slack remains and Congress-at the president's behest-has already legislated the most draconian domestic discretionary spending cuts in history. Through some set of intellectual gymnastics, Mitt Romney concludes that a government purchasing a new weapon systems or the recipient of a tax cut buying luxury goods creates jobs, but spending on fixing schools and highways does not. He also seems comfortable involving himself in monetary policy, favoring a reduction in the supply of credit relative to current Fed policy. And his insistence that he will name China a currency manipulator on his first day as president, even before his appointees have moved into their offices, surely increases uncertainty by making a trade war possible.
President Obama has embraced the principles, though not all the details, of the famous Simpson-Bowles commission report on budget deficits. Like the large group of CEOs who made a major statement on deficit reduction last week, he insists that achieving sustainable finance means both containing spending (especially on entitlements) and raising revenue. The budget that he has put forward has been thoroughly audited by the Congressional Budget Office, and puts the U.S. debt-GDP ratio on a declining path within this decade. And he has made clear that in negotiations with willing partners, he is prepared to go beyond his current budget proposals to assure that debt is contained.
Governor Romney, in contrast, has not suggested even a partial approach to the budget that has enough detail for independent experts to fully evaluate. He has however insisted on the need for over a trillion dollars more military spending than was recommended by George Bush's defense secretary, Robert Gates, and for 20 percent across-the-board tax cuts that independent estimates suggest would cost close to $5 trillion over the next decade. To offset these measures that have no counterparts in the president's proposals, he has spoken of "closing loopholes" without naming any specific items. And he's done so in the face of repeated demonstrations that even the elimination of every tax benefit for those with income over $200 thousand would raise far less than the totality of his proposals would cost.
From the Lewis and Clark expedition to the land-grant colleges to the transcontinental railroad to the interstate highway system to the original research and development that led to the Internet, the federal government-with leadership from both political parties-has always sought to lay a foundation for future prosperity. President Obama has continued this tradition, recognizing that in an uncertain world some investments will work out better than others.
While audits have found many fewer problems with public investments than most expected over the last few years, much has been accomplished. Major efforts to measure and act on student achievement results are now in place in most states. Medical records are being systematically computerized. Domestic fossil fuels and renewable energy sources are meeting more and more of our energy needs. New financial protections are in place for consumers even as the capital reserves required of financial institutions have been substantially increased and student lending has been streamlined. These steps illustrate the kinds of progress that a second Obama administration would strive towards.
Governor Romney has made clear a preference for using any available resource to reduce tax rates below their current level-in the hope that there are great investments that firms are not making, even in the face of sub-2 percent interest rates and the lowest effective tax rates in generations. If this represents a foundation for prosperity, it will be very different than the one America has enjoyed historically.