Comment: Mitt Romney offers mixed messages on economy
JUST what would a President Mitt Romney do for the American economy? Romney is a bold tax cutter. He wants to cut all marginal tax rates by at least 20 per cent. He will slash US corporate taxes from 35 per cent (high by global standards) to 25 per cent.
He would also eliminate dividend and capital gains taxes for those earning below $250,000, and abolish death duties.
However, it’s wrong to label Romney as only a tax-cutter. Key advisers include Gregory Mankiw, Harvard’s top economics professor; and Glenn Hubbard, dean of the graduate business school at Columbia University. Hubbard is touted as Romney’s choice to replace Ben Bernanke at the Federal Reserve.
With his experience in management consultancy, the Republican candidate is more of a supply-side reformer than pure fiscal hawk. His policy papers are filled with the sort of anorak detail on how to improve labour productivity that bores political journalists and voters. He claims his tax cuts will be revenue neutral. Lowering marginal rates will be offset by reducing exemptions. The Obama camp say this won’t work and Romney will have to raise taxes on middle income earners. Lost in this spat is the fact that Romney is not cutting taxes for a quick fix. He wants to boost incentives in the long run. This may prove too subtle a point for a worried electorate.
Romney wants to cut federal spending from 25 per cent of GDP (which is approaching Second World War levels) to between 18 and 20 per cent. That means cutting government expenditure by fully a fifth – difficult even for Tea Party fanatics.
Many proposed cuts are cosmetic, like privatising the loss-making Amtrak railway system. Who’ll buy? Sir Richard Branson? Or slashing arts subsidies – tiny by European standards. With military spending sacrosanct, that only leaves healthcare, welfare and pensions.
Romney’s riskiest proposal is to denounce China as a supposed “currency manipulator” and demand Beijing floats the yuan immediately or face tariffs on exports to the US. As China is still America’s largest creditor, such a confrontational approach is not likely to succeed. Besides, Chinese economic growth has just dipped below 8 per cent for the first time this century. The idea that China will voluntarily increase the value of its currency is plain daft.
However, Romney does lay great store by completing the so-called “Reagan economic zone”. This refers to Reagan’s vision of a grand free trade area between America and its allies. There’s something for Alex Salmond to contemplate.
Big Ben could fall silent in run-up to US election
Speaking of “Big Ben” Bernanke, the Fed chairman used his annual speech to the world’s central bankers at Jackson Hole to say… er, not very much at all. Nervous markets had ticked up, after a depressed week, on expectations Bernanke might announce another round of quantitative easing (QE).
There was never much chance of more QE before the election, short of America heading back to recession. Instead, this week saw a raft of unexpected good news on the US economy, which gives the Fed breathing room.
True, Bernanke talked up the success of previous QE and hinted (as he’s done for months) that more could be forthcoming. But at this stage in the electoral cycle, Bernanke is reduced to shouting advice to the politicians from the sidelines.
That said, should next Friday’s US job figures prove dire, Big Ben can expect a phone call from Barack.
Bundesbank boss sparks fresh euro fears
A NEW word for your eurozone dictionary: Weixit. This refers to reports in the German tabloid press that Jens Weidmann, head of the almighty Bundesbank, has threatened to resign from the board of the European Central Bank (ECB). Weidmann opposes plans by the ECB’s boss, Mario Draghi, to buy Spanish and Italian bonds.
The German government has prevailed on Weidmann to stay at least till next Thursday’s crucial ECB meeting. With the German economy drenched in bad economic news this week, a showdown can’t be long. Best bet: Draghi seeks a compromise by restricting bond purchases to short-term maturities.
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Thursday 20 June 2013
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