Mitt Romney Does Not Understand Ricardian Equivalence Either

I guess CNN felt compelled to allow Mitt Romney words to be aired because Romney was once a Presidential contender but the following is really stupid:

These are extraordinary times, and like a lot of Republicans I believe that a well-crafted stimulus plan is needed to put people back to work. But the Obama spending bill would stimulate the government, not the economy … We're on an economic tightrope. The package that passed the House is a huge increase in the amount of government borrowing. And we've borrowed so much already that if we add too much more debt, or spend foolishly, we could invite an even bigger crisis … First, there are two ways you can put money into the economy, by spending more or by taxing less. But if it's stimulus you want, taxing less works best. That's why permanent tax cuts should be the centerpiece of the economic stimulus.

Maybe Romney is thinking along the lines of the Friedman permanent income hypothesis when he calls for permanent tax cuts but he also noted we have a huge deficit. Paul Krugman understands how to put the Friedman permanent income hypothesis together with the long-run government budget constraint and apply it to increases in government spending as well as tax “cuts” which are actually only tax deferrals:

a temporary increase in government spending should have a larger impact on demand than a permanent increase, not a smaller impact. And that’s actually an important point: one way to explain why government spending is better than tax cuts as a stimulus is to say that temporary tax cuts aren’t effective at increasing demand, but temporary spending increases are. Here’s the logic (which follows directly from Milton Friedman’s permanent income hypothesis, by the way): suppose that the government introduces a new program that will cause it to spend $100 billion a year every year from now on. To pay for this, it will have to raise taxes by $100 billion a year, permanently — and if consumers take this into account, they might well cut their spending enough to offset the increase in government purchases. But suppose the government introduces a one-time, $100 billion program to repair bridges over the next year. The government will have to issue debt to pay for this, and will have to service that debt, requiring higher taxes — say, $5 billion a year. That’s a much smaller impact on consumers’ future after-tax income than the permanent program. So much less of the spending rise will be offset by a fall in consumer demand. (I’m not considering the effect of the spending in raising income, which would probably cause consumer demand to rise rather than fall.) So economic theory — Milton Friedman’s theory! — says that spending is a more effective form of stimulus than tax cuts.

The same logic falls under the heading of Ricardian Equivalence - a topic that Robert Barro understands. Yet- Mitt Romney gets this all completely backwards. I guess when he was running for President, he never quite grasped these basic topics even though Greg Mankiw was one of his economic advisors!