The Economic Politics of 2012
Posted by Michael A. Kamperman on December 31, 2011
What happens in the elections will have a big impact on where the economy goes. Unfortunately, President Obama has decided to go for the one year extension of unemployment benefits and the payroll tax cut and call it a year in 2012. With the deal cut for 2 months it is highly implausible we won’t see a full year extension. So Washington plans to take 2012 off on further aiding the economy and plans to focus on fighting it out in the elections. This means nothing meaningful is possible until 2013. That is not good news for 16-29 year olds facing unemployment rates in the neighborhood of 50%. The Federal Reserve will have to pick up the ball and run with it in the first half of 2012. Bernanke has led the Fed to extend the concept of extended low rates and to alter the portfolio to extend maturities to bring down long term interest rates. Additionally, he has worked with the ECB to extend credit lines to European banks creating a de facto back door bailout of European sovereign debt. With Europe embracing austerity and the U.S. embracing no new fiscal aid the economy looks to limp forward. The only bright spot is the central banks have taken a Lehman style collapse off the table. Look for QE3 to take place as soon as the unemployment rate goes back up over 9%. They can only throw millions out of the workforce for so long before that smoke and mirror trick quits working.
So what is the best electoral outcome for the economy in 2013? Certainly not strident Austrian followers like Perry, Paul, and Bachmann. But four more years of Washington warfare will also not solve our problems and President Obama has yet to show anything else. The facts are any dream of Keynesian style stimulus is off the table. So the best option is to choose an option that can move the ball forward, and I’m looking for 50 yard passes that I prefer economically in this depression and have been thrilled to see Baylor’s Heisman Trophy winner throw over and over again on the football field. That leaves a choice between Gingrich, Huntsman, Romney, and Santorum.
Huntsman has shown no real vision, is a free trade no matter what apologist, and is so low in the polls there is no real reason to given him serious consideration. Sanrtorum has caught a spark and is focused on restoring manufacturing. While this is a positive manufacturing is less than 10% of the economy and improving this sector will not be enough to turn around the economy. So basically it is a choice between Romney and Gingrich. I can sum up Romney’s plans with a quote from the WSJ “Yet the 160 pages and 59 proposals also strike us as surprisingly timid and tactical considering our economic predicament. They’re a technocrat’s guide more than a reform manifesto.” Romney seems like a great choice to keep the trains running on time. But the economic train has derailed. President Obama focused on progressive tinkering and Romney looks to want to try conservative tinkering. That leaves Gingrich. Gingrich has wrapped himself in supply side economics focusing on creating growth by cutting taxes ala Reagan. The secret to Reagan’s success was to talk about balancing budgets, but in effect to run large deficits to grow the economy. Effectively Reagan practiced Modern Monetary Economics. Stimulus can come from either fiscal spending or tax cuts not offset with spending cuts. Gingrich seems to understand you cannot get the train back on the tracks by tinkering. We need to take a chance on someone who will be willing to throw the long ball. The only candidate willing to throw a long ball to restore economic growth is Gingrich. His passes may miss the mark, but everyone else is proposing a fumble or a run up the middle.
