Romney, Obama And Europe

Jan 26 2012 @ 2:58pm

One of the more 1990s features of Romney's very 1990s campaign is his attempt to describe Obama as a European rather than an American. He means by this the notion of Europe as a beleaguered, depressed welfare state (although some moderator might ask him about Germany's 5.5 percent unemployment rate, and why that's such a dreadful model).

The irony is that in 2012, in the real world outside of Mitt's pander-world, much of Europe is being run by center-right governments, who are being dictated to by the center right government in Berlin. And what are 2012's European policies with respect to the economy? Why, they're much closer to Romney and the Republicans than Obama and the Democrats.

Germany is insisting on austerity and budget cutting even during a recession, just as the GOP wants. The result is a Europe on the very brink of a serious debt trap, in which cutting debt depresses the economy which depresses revenues which increases the debt some more. Greece and Italy are obviously the prime examples.

But perhaps the more gripping analogy is with Britain, where my Tory friends embarked on a very serious austerity program in the middle of 2010, in the hopes of liquidating the debt quickly, staying on the right side of the bond markets, and allowing new private sector investment to bring back growth. Sure, the US has an advantage of a global reserve currency, and Britain needs to prevent a collapse in the pound if the markets perceive fiscal drift. So Osborne has less lee-way than Obama. But still, the contrast is striking.

In the US – following the Keynesian model – the economy is recovering, however slowly and has been adding jobs for two years. In Britain, following Tea Party policy (with some tax increases as well) the recession is now officially longer than the Great Depression in the 1930s, and still drifting down:

Gdp chart jan 2012

Brad DeLong argues:

With a ten-year nominal interest rate in Britain of 2.098% per year, if low long-term Treasury interest rates were the key to recovery, Britain would be in a boom. If there was ever a place where expansionary austerity would work well–where private investment and exports would stand up as government purchases stood down–if its advocates’ view of the world was reality rather than fantasy, it would be Britain today.

But it is not working. And the lesson is general.

If it is not working in Britain, how well can it possibly work elsewhere in countries that are less open, that don’t have the exchange-rate channel to boost exports, that don’t have the degree of long-term confidence that investors and businesses have in Britain?

Krugman piles on. For me, the true test of conservatism is empiricism. It doesn't look as if the Ron Paul medicine is currently working very well (although some of that blame must surely lie with the massive debt that Blair and Brown, like Bush, piled up in the last decade). Nonetheless: this is the data. Britain has flatlined or declined in the last six months. The US has grown.

So here's an obvious retort to Romney and his Obama-Is-A-European schtick. Obama should simply say that it is Romney who now wants to impose European-style austerity, and it isn't working. Obama, meanwhile, has chosen an American exceptionalism strategy, which is leading to growth. By relying on that renowned British homosexual, JM Keynes.