Republican Economic Plans: Will They Follow Through?

Mitt Romney has some interesting ideas for the economy.  He proposes to cut spending severely, while also cutting taxes on high income Americans and on corporations.  Somehow this is supposed to get get the US out of the economic doldrums, while balancing the budget.  The other day I pointed out that Romney's tax plan isn't going to work, since the numbers clearly don't add up, which will leave Republicans with a choice: raise taxes on the middle class and the poor, or just increase the deficit.  As I predicted before, my money is on blowing up the deficit- that's what Republicans have always done after all.

But these plans have another dimension: sane economists generally agree that if the federal government were to suddenly pull back on spending while the economy is still suffering from insufficient demand, a recession would almost surely follow.  Will Romney really do this?  He saying in the campaign that he would.

How do we know it won't work?  Well, we have the European experience over the past few years; The United Kingdom, for example, slashed spending over the past few years (though they didn't cut taxes) and are now in recession again.  Greece, Spain, and Ireland were forced to slash spending in light of their budget problems, and have seen their economies crushed.

But I think Romney is smarter than his campaign rhetoric; I don't think he's really going to slash government spending all of a sudden.  For one thing, Americans like the spending that goes on, even if they dislike "spending" philosophically, so it will be really hard to get Congress to agree to all these little cuts.  And besides, Romeny isn't an idiot- if the economy tanks on his watch, everything will be for naught.

So that leaves Mitt and the Republican Congress with few good choices if elected.  The best one they have is to keep spending up until the economy is humming again.  Since tax cuts will be essential, this means deficits as far as the eye can see.

So for Liberals, the tough part is that we're in favor of deficits right now, with borrowing costs so low and the economy still so bad.  The aggravating thing will be that we'll kind of be in favor of this sort of policy (I say "kind of" because it would be much better to keep taxes where they are and spend more on public works or hiring teachers and cops and the like, but tax cuts are still better stimulus than no stimulus at all).

There is one other possible way out of this, though: the Federal Reserve.  Liberal economists are apoplectic about the Fed's refusal to do more quantitative easing or other creative things to get the economy going.  Each meeting of the Fed governors they seem to put out a statement that says "the economy sucks, inflation is non-existent, and so we've decided to keep watching and do nothing".  Of course the European Central Bank is of the same mindset- it seems like central bankers are so terrified of inflation that they see it lurking around every corner, even when they're constantly proven wrong.

My nightmare scenario is that the Fed will finally decide to do something right at the beginning of the Romney administration, and it will work great, and Romney will get all the credit.  Of course that would mean that monetary policy is all that we really need in any of these situations.