Economic Blinders

Economic Blinders
By Peter G. Klein
Tuesday, September 18th, 2012

Paul Krugman isn't the only Princeton economist producing sloppy and ill-informed newspaper columns. Alan Blinder weighs in with a September 6 Wall Street Journal column on the "stark" [sic] differences between the economic programs of Obama and Romney-Ryan. Blinder starts out well enough:

The Rooseveltian consensus embodied three main elements: a modest social safety net to protect vulnerable Americans from some of the downsides of unfettered markets, Keynesian-style policies to shorten recessions, and a progressive tax-transfer system to mitigate income inequality (albeit only slightly).

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The two political parties certainly had their differences between the 1930s and the 2000s, but the broad consensus often had bipartisan support. Thus Eisenhower built public infrastructure; Nixon declared himself a Keynesian and established the Environmental Protection Agency; both Reagan and Bush II acted like Keynesians; Bush I promised a "kinder, gentler nation" and Bush II expanded Medicare­unfortunately, without a way to pay for it.

One can quibble with his characterization of the modern welfare state as a "modest social safety net," and sensible people understand that Keynesian-style policies create and prolong, not shorten, recessions. But it's true that all establishment political figures since the 1930s, Democrat or Republican, embrace FDR and Keynes. Unfortunately, Blinder then goes off the rails: "But with Messrs. Romney and Ryan, it's out with Franklin Roosevelt and in with Ayn Rand."

This attempted bon mot illustrates the vapidity of American political and economic discourse. Paul Ryan says a few nice things about Ayn Rand, F. A. Hayek, and even Mises, and this makes him a devotee of "unfettered markets"! Blinder offers few specifics to illustrate Romney and Ryan's deviations from the Rooseveltian consensus. He mentions the Ryan budget ­ that radical document proposing to slash federal spending from 22% of GDP to 20% of GDP, some $5 trillion of annual largesse, by 2040, which is practically tomorrow! A veritable John Galt, that Paul Ryan. And Blinder reminds us that Romney and Ryan have pledged to repeal Dodd-Frank, without which we would have a completely unfettered, unregulated, free-market banking sector. Get ready for dog-eat-dog! The list goes on -- Romney and Ryan want the government to provide medicare vouchers, rather than pay medicare bills directly, which certainly sounds like a total free market in medicine to me.

Blinder ends on this unfortunate note: "President Obama stands with President Eisenhower's emphasis on building infrastructure, with President Reagan's willingness to raise taxes to reduce the deficit, and with President George H.W. Bush's call for a kinder, gentler economic policy. Mitt Romney stands with Barry Goldwater and Herbert Hoover." As Murray Rothbard famously pointed out (1, 2), and most serious historians now acknowledge, Hoover was Roosevelt before Roosevelt was cool. So indeed, Romney stands with Hoover -- as does Obama -- but not in the sense that Blinder means it.

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