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10-11-2012, 08:14 AM   #1
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Is Mitt Romney a closet Keynesian?


COLUMN-Is Mitt Romney a closet Keynesian? | Reuters

The WEO presented six detailed case studies, starting with Britain from 1918 to 1939, of economies that tried to reduce large public debt burdens with various policy mixes in the past 80 years.

It concluded that two conditions were essential for success: very low interest rates and adequate rates of economic growth. If fiscal austerity produces high unemployment and economic stagnation, it is doomed to failure, causing the government's debt burden to go up instead of down. After examining this historical evidence, the IMF report hinted strongly that at least two major economies were now caught in self-defeating debt spirals: Spain, where the debt trap is created by political pressures from the euro zone, and Britain, where the futile austerity is entirely self-imposed.

The British example is particularly striking. While the British government has implemented bigger tax increases and spending cuts than any other major economy apart from Spain (equivalent to 4.3 percent of GDP since 2009), it has suffered a double-dip recession, missed all its fiscal targets and seen its national debt nearly double from 46 percent to 84 percent of GDP since 2009. (edit: British austerity bashing)

Meanwhile, the U.S., which started with a bigger deficit and debt than Britain in 2009 and has made very little effort to tighten fiscal policy since then, has seen its net national debt grow considerably more slowly, from 54 percent to 84 percent of GDP. The better U.S. fiscal performance, despite far less fiscal "effort," has been due entirely to faster economic growth.

Which brings me to the presidential debate last week. Mitt Romney won the debate largely by denying that his plan for a 20 percent tax cut would increase the U.S. budget deficit. Pressed to explain where the money for his tax cut would come from, Romney spoke of eliminating "deductions and exemptions we keep taking in the same money when you also account for growth."
As I said,, don't tax but spend.. wisely..................


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