The Ramble: Which candidate would be best for the economy?

The content of this post probably doesn't matter.  As of this instant, there is a 78.5% chance that Obama's going to win the election.  Unless something really major happens between now and November 6th, I think we're going to get Obama for 4 more years.

This is where I start to get off-topic and talk about how the president can affect the economy.  You can skip this part if you don't want to read a long post, and pick up again farther down...

To that, I say, "meh."  (O-ba-"meh", to be precise).  I think that I'll probably vote for Romney, but I'm not really heavily in the Romney camp.  I think it would be really interesting to put a real business man in office and see what he can (or can't) accomplish.  Being President is a lot different from being CEO, and I really have no idea how effective Romney might have been as President.  I do know that Romney enjoyed pretty high approval ratings in Massachusetts as governor, which is impressive considering how liberal a state this is.  If I do vote for Romney, it will be a vote for the Romney who ran Bain Capital, was a center-right governor of Massachusetts, and managed the SLC Olympics.  I haven't been much of a fan of Romney the presidential candidate, to be honest.  He's had to pander so far to the right that it's kind of disturbing.

At any rate, I've stated before my belief that the President doesn't really affect the economy all that much, so what does it matter who wins?  Well, I think that I need to clarify my stand just a bit.  What I really mean to say is that the President can't effect the economy much in the short run.  In this context, I'm talking about something like 3-5 years or so.  At longer horizons, though, the president can certainly have huge effects.  In particular, the president's stance on education, immigration, trade, taxes, and subsidies all can feed through in important ways into the economy.  Why does it take so long?  Like I said in my last ramble, the U.S. economy is like a huge ship with momentum going in one direction.  Pushing it in another way takes time.  People resist change.  Wages are sticky.  Prices are sticky.  It takes time to change infrastructure to optimally adjust to new laws.  Etc. etc. etc.  To give you some reference, think about the Federal Reserve, which intervenes in capital markets to set interest rates in order to control inflation.  The Fed literally has direct access to the markets--no red tape gets in the way at all.  Further, the markets the Fed deals with are highly sophisticated and respond within fractions of a second to anything it does.  But, the best evidence that I've read suggests that anything that the Federal Reserve does takes about 6 months to start to affect inflation.  That's at the earliest.  Now think of the poor President.  He (or she, someday) gets elected, and then must begin to create some policies.  Those policies have to be negotiated with a huge set of congresspeople from multiple states and parties.  After several months, at best, those policies finally become law.  Now, other sets of people then have to figure out how to actually implement them.  And only then can the economy really start to respond, and it will only respond sluggishly at best.  With most things that a President can influence, it's going to take a couple of years at least before anything starts to react at all, and several more years after that before the full effect might be known.

So, you can't really blame Carter for the recessions of the early 1980s (it was Volcker), nor can you blame Reagan for the relatively good times we enjoyed during his tenure (that was more the natural rebound after Volcker stamped out stagflation).  Bill Clinton sometimes gets praised for the well-functioning economy of the late 1990's.  We had good growth then, but Clinton didn't really cause it.  They were more driven by quick growth in telecommunications (maybe too quick--see the dot com bust in 2000), and relatively good times worldwide.  I will give Clinton credit for instituting NAFTA and for balancing the budget, both of which helped out, but they're not the main drivers.

Anyway, you see my point, hopefully.  This is why I think it's a shame that (a) a President only gets 4 years in office and (b) we judge him heavily based on how the economy does during those four years.

This is where I get back on topic more directly....

Okay, I'm rambling a bit (but this is the Ramble, remember!).  To get to the point: would Romney or Obama be better for the economy?  This is my assessment based only on the economy.  I'm going to try to be completely amoral (not immoral, though) as I go through this--to the extent possible I'm going to try to avoid value judgments, and the only basis for judgment is what is best for the economy as a whole.  Now, I'm also going to be lazy here and not provide a ton of links to back up what I say.  If you want specific links, please let me know and I'll happily look them up for you.  I just don't have time to exhaustively gather up all of the research while I write this.  Okay, here goes:

- Education.  My pick: Romney.  Why:  Obama has criticized Romney for saying that class size doesn't matter.  Well, as it turns out, class size doesn't matter.  At least the best academic literature out there doesn't find any effect of smaller class sizes on student performance.  What does matter? Teacher quality.  If you want your kids to get a good education, hire exceptional teachers.  And to have exceptional teachers, we have to make it easier to fire the bad ones, and we have to pay the good ones more money.  This is something that Romney is more specifically for than Obama.  Also, Romney is quite supportive of voucher programs, which do have some evidence of being effective at improving education.  As for Obama, I like his "Race to the Top" idea.  I hope he keeps that program running.  But overall, I like Romney's plans better here.

- Taxes.  My pick: Romney.  Why: I think that we need lower taxes for corporations, and Romney's in favor of that.  Romney is famous for saying that "corporations are people."  That quote was taken completely out of context, but if you take it in the true sense that Romney was using it, it's quite true.  You can't tax a corporation.  You can only tax people through corporations.  If you tax a corporation, that business will have to lower the wages of its workers, increase prices on its products, reduce investment in the company, and/or reduce dividends to its shareholders.  In other words, the tax gets fed through to people one way or another.  But, by taxing firms at high rates, we encourage firms to relocate elsewhere in order to avoid those taxes, which is the last thing we want.  Much better to tax people directly (in my ideal world, via a consumption tax) than to do it through corporations.  That being said, I'm just fine with letting the Bush tax cuts expire for high-income individuals, so I'm with Obama on that one.

- Immigration.  My pick: Obama.  Why:  Immigrants want to move here because there are greater economic opportunities here.  They want to work.  They are either going to (a) do jobs that people who are already here aren't willing to do; (b) do a better job than people that are already here are doing; (c) create new jobs; or (d) go back home if they can't find work.  (a), (b), and (c) are all good for the economy.  Especially (c), and there is plenty of evidence that immigrants create lots of jobs.  I don't see why people are so intent on keeping people out of the U.S.  As long they'll keep the rules and pay taxes, why not?

- Financial Regulation.  My pick: Romney.  Why:  Despite the financial crisis, I'm still a pretty firm believer that less regulation is usually better.  I'm not convinced that the Wall Street reform that Obama passed is a good idea at all, nor am I convinced that it will actually do anything to prevent a future crisis.  I'm pretty sure that most economists agree with me on this one, by the way.

- Trade.  My pick: Romney.  Why: Barriers to trade such as tariffs, embargoes, or subsidies can only hurt the U.S. economy.  Here's an example: Guatemala is really, really good at producing sugar.  It's pretty much a greenhouse there, so sugar cane grows like crazy.  They also have lots of really cheap labor there to process the sugar cane.  For some crazy reason, we subsidize sugar beet farms in Idaho and sugar cane farms in Florida, and impose tariffs on sugar that is imported from places like Guatemala.  What does that do?  It raises sugar prices in the U.S.  It uses our tax money to pay off sugar producers in the U.S. instead of, say, paying teachers a higher salary.  It means that people in the U.S. are employed in the sugar industry when they could be working in other, more efficient industries.  It encourages candy-makers to relocate to Guatemala where the sugar is a third of the price, so we lose jobs in the U.S.  And, it kills jobs in Guatemala because they can't sell their sugar with the high tariffs we impose on them.  It's kind of a lose-lose-lose-lose-lose situation.  Obama has consistently threatened trade barriers against other countries (notably, China), and has threatened tax increases on U.S. firms that move jobs abroad (which is just a back-door trade barrier).  Romney has also threatened trade sanctions against China (a dumb idea), but other than that appears more free-trade oriented than Obama to me.

- Welfare.  My pick: Toss-up.  Why: I tend to believe that a lot of people are poor due to a combination of a lack of good education and bad luck.  True, lots of them make poor choices as well, but by and large people are poor because they haven't had the same opportunities as others have had.  That's my view, anyway.  In that respect, I believe we need to help these people, and I'm happy to pay higher taxes to do so.  So, that puts me more in Obama's camp.  That being said, I'm not a huge fan of the current system that the government has of helping poor households.  In particular, food stamps and unemployment insurance have terrible incentive structures, and I believe strongly that people respond to incentives.  So, I guess I would say that I'm in favor of income redistribution, but I'd like to see it done differently.  Neither candidate strikes me as being strong here.

I could go on to a few other points, but I'm running out of steam, and that means that you probably are, too.  At any rate, you can see that that puts me pretty squarely in the Romney camp with regards to the economy.  I'm not alone in that.  In fact, here is a list of 657 economists who are for Romney, including 6 Nobel laureates.  I don't believe there is a similar website for Obama.  By and large, what we know about economics just lines up better with Republican ideals, or, at least libertarian ideals.  Not that it matters.  Obama's got it in the bag.