The 3 Economic Issues That Distinguish Obama and Romney

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The future is an uncertain place. So how can we be certain which candidate will be best for the economy? Focus your attention on national debt and public goods.

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When asking the question "Which candidate would be better for the economy?", we run smack into a huge wall of uncertainty. For all our fancy theorizing, there is plenty that even the experts just don't understand about how the macroeconomy works. That makes it hard to know exactly what problems we're going to face, or what the right policy responses will be - or even how much of an effect policy can have.

There are lots of surprises lurking in the future. Depending on which type of "shock" we encounter, different leaders could be better suited to the task of coping. Will China's economy slow? Will energy prices spike? Or will the financial system collapse again?

Next, there is a lot of uncertainty regarding what each politician actually believes or wants. As governor of Massachusetts, Mitt Romney enacted policies that look an awful lot like what Barack Obama has done as president. In the campaign season, Romney moved far right for the primaries and swerved to the middle for the debates. Obama, meanwhile, has shown surprising flashes of both conservatism and liberalism during his last four years in office; contrary to the rhetoric emanating from the right wing, Obama's ideology is remarkably hard to pin down.

And, finally, there is always uncertainty about what a president will actually be able to accomplish once in office. The world would look much different if George W. Bush's Social Security privatization plan had made it through Congress, or if his tax cuts had failed to pass.

So our uncertainty is just enormous. How can we honestly, objectively, make a decision? In my opinion, we should limit our analysis to a relatively small, simple set of things. Here are the few pieces of economic policy on which I see pretty clear and unambiguous differences between the candidates.

1) THE NATIONAL DEBT

Since the national debt began climbing in 1981, a clear partisan pattern has emerged: Republican presidents have tended to expand the deficit more than Democratic ones. Debt exploded under Reagan and Bush I, stabilized and fell under Clinton, then rose again under Bush II. Until the Obama administration, the pattern was perfect.

Has the pattern been broken? Under Obama, debt as a percentage of GDP has risen even more rapidly than under Bush II. But that fact overlooks a hugely important difference between Obama and his debt-ballooning Republican counterparts - Obama's deficits have come during a historic recession, while Reagan and Bush borrowed money while the economy was expanding. Now, there is disagreement among economists as to whether short-term deficits are an effective way of fighting recessions. But the vast majority of economists would agree that deficits can't grow faster than GDP forever. If you borrow money when the economy is in a downturn, you can always pay it back when the economy is doing better; if you borrow when the economy is booming, though, you're setting the country on an unsustainable course toward insolvency. So Obama's deficits at least might be a temporary phenomenon, while the Reagan and Bush deficits were clear indicators of a short-sighted, unsustainable policy.

Skeptics may respond: But wait, doesn't Congress figure into the picture? Yes, it does. But look closely and you'll see that the Reagan deficits were heavily pushed by the president's administration, while the Bush II deficits were enacted by a Republican congress over the loud objections of the Democratic minority. Also, the historic 1993 budget, in which Clinton temporarily stopped the flood of red ink, was almost sunk by congressional Republicans, passing by only one vote. Finally, it is clear that every major policy change that has led to an increasing deficit under a Republican president has been a tax cut - not the kind of thing that congressional Democrats usually want. So the historical record is pretty clear on the differing priorities of Republican and Democratic presidential administrations. This record is reinforced by Dick Cheney's claim that "Reagan proved that deficits don't matter." This is something that no Democrat ever say.

Now, this is not to say that Republicans intrinsically like deficit spending more than Democrats. There may be a "Nixon goes to China" effect here - Democrats, long stereotyped as the party of deficit spending, may simply be anxious to seem fiscally responsible, while Republicans, secure in their undeserved "fiscal conservative" reputation, feel free to bust the budget. But this doesn't change the basic dynamic: Republican presidents seem much more likely than Democratic presidents to borrow and spend when the economy is growing.

This suggests that if we care about reversing the deficit once the economy recovers (as it now seems to be doing), we should go with Obama over Romney, despite Obama's large deficits.

2) THE FULL FAITH AND CREDIT OF THE U.S.

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Noah Smith is an assistant professor of finance at Stony Brook University. He writes regularly at Noahpinion.

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