The final presidential debate is a week in the rear view mirror. While it is generally agreed that President Obama won the final outing on points, Governor Romney held his own. From what can be seen from the outside, I personally did not walk away from the TV screen on Monday night with a clear winner in mind. The Presidential contest is still up for grabs.
My lingering question is “Why is the Presidential election up for grabs?” To be sure, Governor Romney presents himself credibly. So does the President. But the programs put forth by the GOP challenger simply do not add up when examined by reputable authorities. Even a casual look see shows results that are at significant odds with Mr. Romney’s claims.
It can be generally agreed that two overarching goals are balancing the federal budget and paying down the federal debt. If Mr. Romney is to be believed, he will achieve this miracle by cutting tax rates and eliminating federal tax loopholes. He says claims his adjustments to the tax code are a revenue neutral activity. That is… the amount of money brought in by government would remain about stable.
This approach is understandably popular. But let’s think about it. If what Mr. Romney says is true and possible, then how does the deficit go away? His campaign would say that killing off Big Bird and FEMA are integral to making that happen. It would allege that lowering tax rates will spur job growth and gross domestic product (GDP).
The federal budget is around $4 trillion annually. We bring in about $2.1 trillion annually. The national credit account is growing by something close to $1.7 trillion each and every year. Accounting tricks can make it seem lower, but on a cash basis… that is where we are.
Romney’s argument rests on several main economic assumptions. First, with government revenue income similar to what already exists (with lower rates, and fewer regulations), the economy can grow itself out of deficit. Second, tax rates are too high. Third, Romney knows how to create jobs and has proven it before. Fourth, he knows how to balance a budget… he did it in Massachusetts as governor.
How much would the economy need to grow in order to balance the budget? If Federal Government collections stay stable at 15.1 percent of GDP, then using a little math called an inverse proportion, we can determine how big the GDP has to grow. The current GDP is $15 trillion annually. To break the budget even, the GDP needs to grow to $25 trillion almost immediately or about 67 percent. The average GDP growth since 1929 has been less than 3 percent. According to Professor L. Dean Hubbard, Dean of the Columbia Business School and introducer of the Romney Jobs plan, average GDP growth since 1962 has been 3.3 percent per year. Does anyone actually believe that the economy can grow this explosively in the short term?
Two, tax rates are too high. Certainly, my personal rate is way too high, but how do total collections compare with other, similar nations? The Organization for Economic Development and Cooperation (OECD) reported last week that all U.S. Governmental units spent about 25.1 percent of GDP for all expenditures in 2011. OECD figures include the 37 countries most like us. The OECD average national expenditure is 34 percent. Only Mexico spends less of their GDP on government than we do.
Three, Governor Romney knows how to create new jobs. He has never proven this. As a venture capitalist, he was very successful, but many more jobs were eliminated than created. The goal of venture capitalism is to improve the balance sheet and turn an investment over and collect fees and appreciation. Mr. Romney is good at that.
Romney claims he saved the Olympics in Salt Lake. He may have, but there are mixed reports on his style and actions during that period. He was accused of being arrogant and dismissive.
As Governor of Massachusetts, the state ranked 47th out of 50 in job creation. Mr. Romney proudly proclaims that he presided over balanced budgets in Massachusetts for his four year term. He neglects to tell voters that a balanced budget in the Bay state is a constitutional requirement, not a business choice made by him.
Governor Romney talks a lot about energy independence as job creation tool and implies that costs will decline when America can supply its own energy needs. In truth, oil and gas are traded on the international markets. Price is set by supply and demand. Increased energy production will create jobs, will reduce a negative international balance of payments. Other than nationalization of the energy industry, the only way to reduce energy costs is to reduce consumption. This accepts that prices will rise, but we will need fewer units of energy. President Obama has already taken this action by doubling auto café standards by 2020.
Assuming all that Mr. Romney has told us comes to pass, how does America close the deficit and reduce the long term debt? The answer has to be: eliminate programs. America borrows about 40 cents of every dollar spent. If only the military, debt service, Social Security, and Medicare were maintained, balancing the revenue coming in with current spending necessitates closing the rest of the government. And that wouldn’t begin to reduce the debt.
Last week, 80 CEOs of America’s biggest companies wrote a letter to the Wall Street Journal. In the letter they admit that a combination of tax increases and spending cuts are necessary to solve the national financial problem.
The Governor attacks the President for low economic growth. “We can’t afford four more years of Obama,” Romney says. In truth, American jobs are trending upward, unemployment is headed downward, and GDP growth remains above that in most of the developed world. The numbers on the GOP plan simply don’t add up. What we can’t afford is a President who tells us what we want to hear without regard to the facts.