This debate was mostly outside the Moneybox wheelhouse, but here were five big malign economic policy themes I saw tonight:
1. Foreign policy is all about angry Muslims: Right when the debate ended, I heard Judy Woodruff characterize it as “a vigorous debate, mostly on a few countries in the Middle East.” That’s about right and it’s a dubious picture of the world. The Middle East first came into the U.S. foreign-policy focus precisely because its oil was economically important. But these days, the various conflicts in the Middle East often seem to have eaten the entire field of vision of American foreign policy. In the real world, the internal politics of the eurozone have more of an impact on the life of a typical American than the internal politics of Northern Mali. Latin America deserves more than a tossed off reference to alleged trade opportunities.
2. Latin America has a bigger economy than China: Even more regrettable than the general neglect of Latin America was that the one substantive thing anyone said about it—Mitt Romney’s claim that Latin America has a larger economy than China—isn’t true. In nominal terms, Latin America’s GDP is $4.8 trillion to China’s $7.3 trillion and in Purchasing Power Parity terms it’s $6.8 trillion to China’s $11.3 trillion.
3. The budget deficit imperils our national security: Romney kicked this off by quoting Admiral Mullen saying the budget deficit is the biggest threat to American national security, and then Obama later chimed in to agree that “budget deficits are a national security concern.” This is totally wrong and, indeed, thinking about national security highlights the extent to which deficits are wildly overblown as a problem. If you think about a country facing a serious war, you’ll see that it faces sharp real resource constraints. You need to be able to build planes and you need trained pilots to fly them and you need oil to make jet fuel to fly the planes. Having “extra money” on hand doesn’t help at all if you don’t have the real resources to wage the war. But conversely, no country ever lost a war because it “ran out of money.” You use conscription, rationing, monetization, war bonds, whatever tactic you need to mobilize the real resources. But it’s resources—manpower, technical skills, industrial capacity—that limit what you can do, not debt or money.
4. Private businesses run balanced budgets: I’m not sure why Mitt Romney, a pioneer in the leveraged buyout industry, would say this but he did say it. Clearly, though, businesses do no such thing. Going into debt to launch a new business or finance some kind of expansion of activities is utterly routine. A business that could borrow money as cheaply as the United States can right now would probably be desperately seeking new plausible things to do with balanced money.
5. We must stanch the tide of inexpensive Chinese goods: Obama bragged, not for the first time, about his policy of taxing low-cost Chinese tires in order to discourage Americans from buying them to help save the jobs of incumbent American tire-makers. This policy saved about 1,200 jobs at a cost to consumers of about $1.1 billion—in other words almost $1 million per job. Romney, rather than respond with this free market critique, chose to complain that Obama hasn’t done enough to levy sales taxes on Chinese goods, something he promises to do to punish the Chinese for the temerity of pegging their currency at a level that makes their stuff cheap for us to buy. The whole dialogue reflects a perverse mentality, and a shocking lack of creativity about smarter ways to boost aggregate demand.
As a final thought on omissions: Given the centrality of oil to the United States’ deep involvement in the Middle East in the first place, I was surprised that all the Iran talk simply glossed over the possible economic impact of a new war in the Persian Gulf. Fracking and North Dakota are so hot right now, but Gulf oil is still a crucial element to the whole world economy.