I’ve been working my way through Michael Grunwald’s excellent book on Obama’s stimulus, “The New New Deal,” and here’s another choice nugget: In 2008, Mitt Romney attacked spending cuts as the wrong way to boost the economy, and made the Keynesian argument that stimulus in the form of tax cuts was the better way to do it, even if it resulted in a short term hit to the deficit.
Needless to say, this is at odds with the argument he is making today, which is that the best way to speed the recovery is to cut spending. And it again raises a question: Is Mitt Romney a closet Keynesian?
In 2008, Romney was running for president, and during a debate in January of that year, John McCain was asked what short term government fix he’d support, given that the economy looked like it was headed for a downturn. McCain said: “the first thing we need to do is stop the out-of- control spending.”
Romney, seeking to distinguish himself from McCain, rolled out his own $250 billion stimulus plan in an interview with John Harwood later that month, a plan that mostly consisted of tax cuts, some of which were targeted at low and moderate incomes. He explicitly criticized McCain’s claim that cutting spending would help the economy, claiming: “That’s not stimulative.”
When Harwood followed up by asking him whether his own stimulus plan would boost the deficit, Romney replied: “If we go into recession, the cost to our balanced budget is going to be far more severe than the cost of this program.” So it’s okay to allow the deficit to increase in the short term to help the economy?
To be sure, Romney defended his stimulus plan at the time by noting it contained no additional federal spending. But his criticism of McCain’s spending cuts, his own stimulus plan, and his justification for it were pure Keynesianism, said Jared Bernstein, a former White House adviser.
“That’s an absolutely cogent, Keynesian idea, about the impact of spending cuts on jobs in a down economy,” Bernstein told me. “And it would be great if Governor Romney would remember his former view on that.”
The broader context here is that before Obama was president, none of this stuff was really controversial. Bush passed a stimulus in 2008; Romney’s proposed stimulus was far bigger than that of the former president. Indeed, as Jonathan Cohn has written, even Paul Ryan used to agree that Keynesian fiscal policy during bad economies is not only a good idea, but should err in the direction of making it bigger.
Not long ago, Romney accidentally revealed his closet Keynesianism when he said that sharply cutting the budget during his first year would harm the economy. This was widely treated as a momentary lapse on his part, but we now see he’s said something very similar before. And it’s directly at odds with the central case about spending and deficits the GOP has made against Obama for years now.