You over estimate the value of Romney's policies. He will likely be better than Obama, but not in a way that will create a very strong recovery. Even if Romney wins in an electoral landslide, the debt has not gone away and there are no easy answers to reforming our spending and social services programs. We will need a combination of tax increases and spending cuts to get out of our current situation, and that will be both slow in effectiveness and unpopular with the electorate.
I don’t think I’m overestimating the value of Romney’s policies. In the article, I pointed to a sharp contrast in the economy of the late 1970’s (under Carter) and the early 1980’s (under Reagan).
One of the more striking “sound bites” that came out of the first debate was Romney’s statement to the effect that the economy is growing more slowly this year than last year. And was growing more slowly last year than the year before. The most recent GDP number is growth at 1.7%. By contrast, GDP growth in 1983 was at 7% for the year.
The chart here shows the strength of the Reagan recovery in 1982 and 1983, compared with the level of growth during the Obama administration. This difference comes into sharper contrast when a comparison of Reagan’s policies is shown in contrast with Obama’s policies. It is noted that:
The Reaganites had it right: Rapid economic growth causes the deficit and debt to fall, not the other way around.
Without a sustained recovery in national output to 3% growth or more and without putting millions more Americans back to work, there is no politically feasible spending reduction or tax increase that could balance the budget even if Ron Paul ran Congress. Tax revenues have remained below 16% of GDP for the last four years because the economy is in a slow growth rut. The growth deficit, not the budget deficit, is the great issue of our time.
The authors write that “Reagan put pro-growth tax cuts and a rebuilt military ahead of his ambitions to balance the budget, and he was right. After his tax cuts fully kicked in on January 1, 1983, annual growth averaged some 4% over five years, while employment gains were swift and long-lasting. The deficit fell in half from a peak of 6% of GDP in 1983 to under 3% in 1989.”
Consider what would happen if economic growth increased today to what it would be in a normal economic expansion—about twice what Mr. Obama has delivered. That return to prosperity would raise far more revenue for Uncle Sam than the panoply of Mr. Obama's planned estate, capital gains, dividend and income tax hikes.
The Congressional Budget Office estimates that each increase of 1% in GDP means $2.78 trillion more in revenue over a decade. Nearly every problem known to man is more solvable with a larger economy—and what better gift to leave our heirs.
The chart nearby, from The Hoover Institute, shows what pro-growth policies will do to the national deficit. The U.S. is a still a large and prosperous nation, and a growing economy will outpace the debt burden. A reduced tax and regulatory burden on the small and medium-sized businesses that fuel the economy will enable increased business investment, increased hiring, and more rapid reduction of the debt-to-GDP ratio.
No, it’s not a slam-dunk. But we’ve seen it happen before. And that’s the path that Romney is promising to follow.