All three presidential debates are now behind us. Mitt Romney's convincing win in the first clash was a game changer, turning a possible Obama landslide into an even race. The debates provided the big boost Romney needed, but for advocates of limited government, the three debates suggested a troublesome four years ahead, no matter who wins. Just a few of the red flags:
The China Syndrome. Although Mitt Romney did make some nods to the importance of trade for the U.S. economy, he spent a large amount of debate time trying to start a trade war with China. Of course, China probably is a currency manipulator (though our hands are hardly clean in this regard — just ask Ben Bernanke). But there is no reason to believe that a more valuable yuan would erase our trade deficit with China. In fact, from 2001 to 2008, the yuan did increase in value by 21 percent relative to the dollar, yet our trade deficit with China actually increased by a third over the same period. And imposing penalties on China for currency manipulation would almost certainly invite China to retaliate on other fronts. Romney's actions will more likely than not end up costing American jobs in the long run. Moreover, the idea that low-cost imports are bad is an outdated mercantilist principle; in reality, they reduce costs for U.S. consumers and manufacturers.
In the debates, President Obama repeatedly boasted of having saved Americans from the threat of inexpensive Chinese tires. His decision to impose tariff penalties on Chinese tires may or may not have saved 1,000 jobs in the tire-manufacturing industry, as the president claims, but it also cost American consumers more than $1.1 billion in higher tire prices — Americans ended up paying more than $1 million for each tire-factory worker's job saved. Further, because Americans had to pay more for tires, they had less to spend on other goods and services, meaning fewer jobs in other industries. Studies suggest that on net, the president's tire protectionism actually resulted in a loss of more than 2,500 jobs. And if that wasn't bad enough, the Chinese retaliated by imposing penalties on U.S. chicken products, costing that industry at least $1 billion in sales. It was almost hard to believe that two reasonably intelligent candidates for president could act so utterly ignorant of basic trade economics.
Cut the Deficit ... Someday. During the final debate on Monday night, Mitt Romney correctly noted that perhaps the biggest threat to our national security is the crushing burden of government debt. He then proposed to remedy this by spending more on national defense. Defense is at least a proper constitutional imperative, though Romney's penchant for simply counting the number of ships or airplanes is not an especially convincing case for increasing spending, as Obama pointed out. But further, during the debates Romney also seemed to rule out cuts to Medicare, student loans, government-directed research and development, Pell Grants, and K–12 education spending. In the final debate, he promised to reduce domestic discretionary spending by 5 percent. Since that category amounts to less than 17 percent of total federal spending, such a cut would reduce the deficit by $30 billion per year. It is currently $1.1 trillion. Enough said.
But Romney looks like a skinflint next to President Obama, who could hardly find any government activity that didn't deserve more spending — sorry — "investment." The president made passing mention of "tough spending cuts" to come, but couldn't actually name any. He did, of course, endlessly repeat his call for the rich to pay "a little more" in taxes. He didn't mention that his proposed $1.8 trillion tax increases over the next ten years don't even pay for the increased spending he has called for, let alone begin to cut the deficit. The president's proposed budgets do reduce the deficit to $575 billion by 2018, but only because of economic growth, not spending reductions. In 2019, they promptly begin to skyrocket again with no end in sight.
The choice, then, is between drowning in an ocean of red ink, or just in a big lake of it.
I Love Bailouts More than You. One of the biggest fights on Monday night was over whether Mitt Romney supported the auto bailout. Obama said he didn't. Romney said he did. The relevant truth is that the bailout was a disaster for taxpayers, who, if the government divested now, would lose $25 billion. The bailout, which Romney correctly noted started under President Bush, probably did save some jobs in Ohio and Michigan, but those jobs likely came at the expense of jobs in automakers based in places such as Tennessee, North Carolina, and Indiana, where companies such as Toyota, Nissan, and Mercedes Benz have manufacturing plants.
Both candidates need to learn that cronyism is not capitalism. Bailouts may benefit business, lobbyists, and politicians, but their cost is borne by taxpayers, consumers, and the economy as a whole.
I Love Teachers, Too. When it came to increased-spending promises, no area could match education. Romney could hardly contain his enthusiasm for education spending, although he did at least suggest that the federal government should not be directly hiring teachers. Still, from college aid to standardized testing, Romney repeatedly embraced such a big government role in education that it's hard to believe that Republicans used to call for abolishing the Department of Education. President Obama, on the other hand, does want the federal government to spend on hiring more teachers. He seemed to react with horror at the very idea that the federal government might spend less on some education program somewhere.
Both candidates were correct to point out that improving our education system is crucial to America's economic competitiveness. But there is no evidence at all that increasing education spending or hiring more teachers will improve education outcomes. Government spending on education has increased by half over the past 15 years without any noticeable improvement in test scores or graduation rates. At the same time, the student-to-teacher ratio at public schools has declined by 11 percent, again with no improvement in outcomes. Given this track record, the bipartisan support for more education spending represents either the triumph of hope over experience, or just pure pandering. (Governor Romney, though, does get points for making a brief nod to parental choice, even if he slid by it so fast that no one noticed.)
The Dogs That Didn't Bark. As bad as our $16 trillion national debt is, it pales in comparison to the estimated $57–$111 trillion in unfunded liabilities facing our entitlement programs, primarily Medicare and Social Security. Neither candidate has put forward a serious proposal for reforming these programs. Social Security, which is $22 trillion in the red, got fewer than 300 words over three debates, and most of this was Governor Romney's pointing out the president's failure to address Social Security reform in his first term. When the candidates did get around to discussing Medicare, it was primarily to attack each other for proposing cuts to the program.
Of course, President Obama has a four-year track record that pretty clearly demonstrates his belief in virtually unlimited government. Romney's support for big government, on the other hand, may just be insincere, tacking to the middle for political reasons. But on the other hand, Romney might actually be the moderate Massachusetts governor who earned a gentleman's "C" on the Cato Institute's Governors' Report Card for taxes and spending during his time in office.
President Obama has set the bar so low that Romney can probably clear and earn the votes of most fiscal conservatives. But anyone expecting a much smaller, less costly, less intrusive government over the next four years probably shouldn't hold their breath.