Romney-Ryan Fiscal Policy – a Return to Reaganomics?

Brian Beutler offers a very good discussion on whether Obama or Romney is offering more austerity with Brian correctly noting the short-term fiscal restraint would be a disaster in terms of getting our economy closer to full employment. He notes the ambiguity of Romney’s proposals (no specifics on tax offsets or spending cuts) noting:

Because we can’t know for sure what will become of the unknowns in Romney’s fiscal plan, it exists simultaneously on both ends of the Keynesian scale. If the offsetting base-broadeners never materialize, and the spending cuts don’t happen as advertised, Romney’s plan amounts to a hugely stimulative tax cut. “A large amount of stimulative tax cuts, and no contractionary spending cuts would suggest the true Keynesian in the race is Romney,” says University of Pennsylvania economist Justin Wolfers.

In other words – a return to the spend&spend and borrow&borrow policies during Reagan’s first term. But we also get this from Paul Ryan:

Paul Ryan — the GOP’s official spokesman on fiscal issues — boasted that a Republican victory in November will give his party a mandate to turn his controversial spending-slashing budget into law. “If we make the case effectively and win this November, then we will have the moral authority to enact the kind of fundamental reforms America has not seen since Ronald Reagan’s first year,” Ryan said.

Funny thing – spending as a share of GDP never declined under President Reagan. Sure we got a few domestic spending reductions but they were offset by increases in defense spending. And Mr. Romney has already said he is for more defense spending. Short-term fiscal stimulus when we are in a liquidity trap may be a good thing but the lasting effects of the Reagan fiscal stimulus was higher real interest rates, less investment demand, and slower long-term growth.