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.
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.
It's tempting to think that both parties are equally prone to cynical obstructionism. Tempting, but wrong. In 2011, Congress' near-failure to raise the debt ceiling nearly precipitated a default on a portion of America's national debt. This disaster was averted by a last-minute deal, which postponed the difficult budgetary issues and created the "fiscal cliff." But the near-brush with disaster was enough to shake the world's previously unshakable confidence in the solvency of the United States government. Four days after the debt ceiling deal, Standard & Poor's downgraded their rating of U.S. government debt.
How much can a country safely borrow? There is no theoretical upper limit on national debt. The limit comes only from the willingness of people to keep lending the government money; if people believe that a nation's government functions well and will not ever default, then debt can go to 250% of GDP, as it did in Britain after World War II, or even higher. But if people believe that a government will succumb to the temptation to default, then they will stop lending it money at low interest rates (ironically making a default more likely). Before 2011, U.S. government debt was considered the safest financial asset in the world, so much so that financial models all around the world considered T-bills to be "riskless." But Republican brinksmanship put the world's unalloyed faith in U.S. debt at risk.
Why should we blame Republicans for the debt ceiling debacle, rather than President Obama? Two reasons. First, congressional Republicans repeatedly rejected Obama's attempts at compromise (in which he offered Republicans essentially everything they wanted). This is a strong indicator that Republicans' motive for the brinksmanship was to cause political trouble for the president, not to attain any policy goals. That kind of political grandstanding deserves to be punished by the electorate. Second, Republicans themselves expressed a blasé lack of concern about the prospect of default. Paul Ryan, Romney's running mate, claimed that a temporary default would not trouble financial markets. And a Reuters poll during the debt-ceiling crisis found that 53% of self-identified Republicans were not concerned about the economic consequences of a temporary default. Finally, a number of members of the Republican "Tea Party" movement, including Mark Meckler and Jim Babka, explicitly suggested that a U.S. default would be preferable to a debt ceiling deal. This shows that Republicans tend to be less worried than Democrats about the prospect of a loss of confidence in the United States' fiscal responsibility.
Romney's membership in a party that reduced the value of the full faith and credit of the U.S. government is a reason to vote for Obama. The off chance that the GOP would actually tolerate a sovereign default is enough to tip the scales strongly in favor of the Democrat.
3) PUBLIC GOODS
Most of the government spending that gets attention in the press is related to "entitlements" (Social Security, Medicare, etc.) or to transfer payments (unemployment insurance). But there is another type of government spending that, while much cheaper than entitlements and transfers, is probably much more important in the long run: spending on "public goods" such as infrastructure, scientific research, and education. Many economists and journalists believe - and I agree - that the United States has been spending too little on these things in the past three decades. Our crumbling infrastructure received a "D" grade from the American Society of Civil Engineers in 2009. Obama's 2009 "stimulus" bill plugged some of the gap, but a more sustained effort is needed. However, Romney's budget plan includes large cuts in the part of the budget that pays for public goods, and Republicans in general have shown very little inclination to repair our aging roads, bridges, electrical grids, and ports.
On research and development, the contrast is less clear, since recent Republican presidents have a good record of boosting federal R&D spending, much of which is done through the military. But Obama has been especially proactive about directing federal research dollars toward developing new energy sources, which is probably our nation's most pressing technical challenge.
These are three issues on which Democrats have clearly distinguished themselves as responsible stewards of the economy in the past three decades, relative to Republicans. These are not the only economic issues facing the country, or even necessarily the most important - health care costs and monetary policy, for example, are huge. But the many sources of uncertainty I listed above make it very difficult to predict whether Romney or Obama would end up being better on those issues.
Instead, I say we focus on the areas where we have good evidence. On the issues of fiscal responsibility, debt default brinksmanship, and infrastructure spending, Democrats have come out looking better than Republicans again and again since 1980. There is no reason to think that Mitt Romney would change the Republican side of that pattern. Barack Obama is the safest bet.