September 26, 2012
At Stanford, answers to the political question: How's the economy?
With each of the two major presidential candidates touting his own distinct economic bona fides, it can be difficult to work out whose policies will actually work better. Distinguished economists Alan Auerbach and Michael Boskin disagree on nearly every point but one: there are tough decisions ahead.
By Max McClure
Stanford economist Michael Boskin, left, and UC-Berkeley economist Alan Auerbach discuss the economy and the election at an event on Monday sponsored by the Stanford Institute for Economic Policy Research. (Photo: Steve Castillo / Courtesy of Stanford University)
In a presidential race that often seems to be lived from jobs report to jobs report, the nation's economic performance could prove a decisive factor.
But how is the economy performing? More importantly, how will it perform under each of the major presidential candidates? Unsurprisingly, there are as many opinions as there are economists.
Two of them weighed in Monday at the Stanford Institute for Economic Policy Research. The event ("The Economy and the Election") featured Hoover Institution Senior Fellow and Stanford economics Professor Michael Boskin and University of California-Berkeley Professor of economics and law Alan Auerbach.
According to Auerbach, Obama's focus on taxation and government spending has helped so far and remains more promising than Romney's poorly defined policies.
But to Boskin, the first director of SIEPR and economic adviser to every Republican campaign since President Reagan, government spending has ballooned with little ameliorative effect on the recession, and Obama's policies threaten to send the nation spiraling into more debt.
As one member of the audience quipped while the speakers were fielding questions, there were "two very depressing presentations."
More governmental spending?
The recovery has been slow, Auerbach said, but not unprecedentedly so. The country has seen significant rebounds in investment and growth in the Gross Domestic Product (GDP) since the "official" end of the recession in 2009.
According to Auerbach, the current drag on most of these economic indicators is a lack, not of private sector growth, but of government spending. Government spending hasn't kept pace with GDP, and rates of government employment growth have fallen behind those of the private sector.
"The general impression is that government has grown or is out of control under the Obama administration," said Auerbach. "But what's actually holding us back is very weak growth in the government."
With government spending a rate-limiting factor in the nation's economic improvement, Auerbach "disagrees strongly" with the view that the stimulus bill has done little to help; however flawed, the Obama administration's bill was instrumental in keeping the recession from worsening further.
"I think that we could have done better, " he said. "But that's a statement about what could be done in the lab, not in February of 2009."
Auerbach was "not entirely sure what Governor Romney's proposals are," he said, including Romney's idea for across-the-board 20 percent cuts in marginal tax rates. "It's easy to be in favor of something like that if you don't focus on the details of how that would happen," he said.
Or less governmental spending?
Boskin, on the other hand, called the recovery "abysmal."
"What's really different about the last few years compared to the early '80s or late '70s is how anemic the recovery has been," he said.
Unlike Auerbach, Boskin says that Obama has overseen large governmental growth. (Auerbach looked at governmental purchases authorized by legislative changes; Boskin considered governmental spending in general.)
In particular, he cited health care reform as a poorly timed drag on the economy, and the stimulus package as a program that didn't provide "enough bang for the buck."
"If Obama is elected, I hope his immediate move would be to do a complete about-face on what he's said during the campaign," said Boskin.
While Auerbach said that nationwide demographic and economic changes make increases in public spending relative to GDP necessary and inevitable, Boskin pointed out that the United States has the largest deficit in the world and emphasized the need for spending cuts. According to the International Monetary Fund, every 10 percent increase in the debt/GDP ratio costs the country two-tenths of a percent in economic growth.
"Yes, the devil is in the details," Boskin said, "but Romney has certainly been out in front on entitlement reform."
Regardless of their views of the candidates' economic proposals, both speakers came together on a central statement. As Boskin put it, "The important thing is, we have some huge problems."
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