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Growth or Austerity?

On the surface of it, the statement by top Romney advisor Eric Fehrnstrom is utterly ridiculous.  “[Romney’s] position on the bailout was exactly what President Obama followed. I know it infuriates them to hear that.” Romney himself made similar statements just before the Michigan Primary last February. “The president finally came around to my own view that Detroit needed to go through managed bankruptcy, the auto companies needed to go through managed bankruptcy to shed their excess costs.”

That wasn’t the way Romney’s opinion piece in the New York Times came off in November 2008, however.  At the time he was adamant that there was no role for the US government to write “a blank check” to save the US auto industry.

In the end this is a bigger story of how to manage the Depression we find ourselves in, no matter how the details are massaged for the purpose of a campaign.  It’s a choice between austerity and forgiveness, the paths taken by Europe and the US respectively.  For the campaign it’s a about a level of detail that takes far too much explanation.

The auto bailout itself has proven to be such a success that it’s only reasonable that everyone wants credit at this point.  GM has paid back what they borrowed and Chrysler nearly so.  The $80B package was first put together in the Bush administration but finalized under Obama.  It probably save millions of jobs and definitely gave GM a new start to a successful path, making them profitable again.  Chrysler is still struggling as a division of Fiat, who appears to see the arrangement as a chance to open up the US market to their cars once again.

Was this Romney’s idea in the first place?  Romney did speak of a “managed bankruptcy” in 2008, but railed against giving the automaker a lot of money.  The latest twist, that what went down is exactly what he was proposing, is very hard to square with what he said in the first place.  How on earth could there be a “soft landing” for such a large company without the US Government guaranteeing the loans, at the very least?

The answer is that Romney never intended for things to go as they did, no matter how much he or his people claim it to be so.  The “managed bankruptcy” they were proposing would have certainly resulted in a much smaller company that would have had to lay off many workers – much like the end result of what Romney did to many other companies at Bain Capital.  This new GM would have been more focused on key markets and would have shed all of its legacy obligations like pensions, health care, and so on.

The term for this money-centered approach to creating efficient businesses is “austerity”.  It is what has been applied by Tory PM David Cameron, who is facing growing criticism for the lack of economic growth.  This has intensified now that the UK has tipped into a recession for the second time since 2008.  This is also a hot topic in the French elections, now in their second round, where austerity has increased the unemployment rate to near 10%.  There simply is not any growth in Europe as insistence on currency stability, for both the Pound and the Euro, has been the central focus over growth.

There has never been any real debate on this topic in the US.  Congress did make some noise about austerity in August during the budget ceiling debate, but quietly backed off as soon as the teevee lights went down.  The chosen path of the government has been inaction, leaving absolutely everything up to the Federal Reserve to sort out.  The result has been not too bad, after all, so the wise politicians have been silent – except when they get a chance to take credit for the limited (but possibly growing) success.

The real problem that the Romney has is that his approach does not appear to be pure European-style austerity but something more nuanced.  You have to read the 2008 op-ed piece several times before you get it.  He does understand that the massive cloud of debt hanging over us will have to be forgiven through bankruptcy before we can move ahead.  But he does not have much interest in the way we’ve usually dealt with too much debt in the past, which is to grow (and inflate) our way out of it.

At least, that’s what he appears to be saying.  Once again, Romney seems to be a combination of George HW Bush’s hands-off capitalism and Mike Dukkakis’ wallowing in obscure details as he tries to explain himself.  That’s not going to win him anything.

13 thoughts on “Growth or Austerity?

  1. Romney can explain himself far better than he has. I hope he at least makes an attempt and stops relying on soundbites because he does have a lot of experience as a turn-around pro. Yes that sometimes involves bankruptcy but as you say that is going to be part of the equation. We need to move forward to make new opportunity and he has shown he can do that.

    • If that’s what his campaign is all about, I think we’ll have a great discussion on the future of the US – may the best man win. I look forward to that, I really do. These attempts at pithy one-liners are not serving anyone right now, including Romney himself. That last one really does have trouble written all over it, especially with the reputation as a flip-flopper.

  2. That is the choice we have – growth or austerity. Europe made their choice and it was clearly the wrong one. I think we all understand that some businesses will fail in a depression (yes I buy that it is one). But that has to include the ones that created the bubble too. There is very much a double standard at work here and maybe thats what Romney was getting at. If so I applaud what he says. But there has to be expanding opportunity if there is going to be growth & laying off thousands or even millions at GM would not have done that. It would have made the depression worse.
    More jobs is the only answer. There is so much work to do on roads and schools & other infrastructure that there has to be jobs in here somewhere.

    • As usual, I think you are exactly right. Creating jobs, even make-work jobs, ill get the money into the economy where it needs to be right now. Whatever the Fed can do by printing money or making rates low is not going to help anyone but those who created the credit bubble in the first place.
      The infrastructure gap is between 1 and 2 trillion bucks, according to anyone who has studied it. Granted, we’re not a nation of people used to manual labor anymore, so it may not be easy to fix it overnight even with a lot of money. But many things have to change, so the sooner we get started the better.

  3. The 2012 election will be about two political philosophies, one liberal and the other conservative. All of American life has been politicized for a very long time. This year is no different. We will either see through the eyes of President Frankilin Roosevelt or President Ronald Reagan. Liberals have been bitter about the rise of conservatism, which started in 1964. Liberalism crumbled in 1968. China was supplying North Vietnam, the US was fighting with our friends South Vietnam and liberals decided communism was okay. Liberals hated President Clinton, with his balanced budgets, NAFTA, welfare reform and crime bill. They changed their mind about him when Repubicans sought to impeach him for having sex in the oval office, a private matter.

    • I’m not sure what those terms mean to most people these days, however. For one, I’m not sure I know of any “liberals” in that mold that are less than about 50 years old now – those of us who grew up with Reagan have at least some of his free market philosophy deep in our bones. As for “conservatives”, I doubt that Barry Goldwater would see the expansion of credit as anything other than a monster that is devouring us all.
      Not that there isn’t an important “left” and “right”, but I think the terms of what is important to each side are being worked out through internal struggles among both of them.

  4. OK so ‘austerity’ is bad and we need growth. But we also have to get our house in order b/c we can’t spend like this forever. You said yourself that a major reckoning is at hand. What should we do?

    • That is my view or problem or dilemma or whatever it is. I think we have to have both in some combination. I won’t say who should fail and who should get the blessings of government bailout money however because that also seems wrong. Inaction is understandable given the choices.

    • Interesting way to look at it from both of you. What should we do? I’ve always tried to emphasize things like fair contests or paying for infrastructure we know we need as ways of goosing the economy, rather than “picking winners”. I guess that makes me pretty queasy, too.
      Getting our house in order will be tricky at best, but I still think that stimulating growth now and growing our way out of as much as we can will make it all easier later, not the other way ’round – but ONLY if we are very strategic about how we do it, which is to say have an emphasis on restructuring the economy and not just creating jobs.
      Does that make sense? I’ve been pushing this for a long time and have yet to hear anyone pick up on it, so either no one gets it or they think it’s a dumb distinction.

  5. Governor Scott Walker has a conservative philosophy. Wisconsin left liberals howled in pain as his ideas were passed. Senator Paul Wellstone was a liberal. Minnesota is chock full of unrepetant liberals–that’s what they like. They hate Republicans and are proud they never voted for any Republican except Dave Durenberger and Norm Coleman. Norm Coleman was especially attractive to limousine liberals living in Summit Hill, Ramsey Hill, Cathedral Hill, Highland Park.

    • it is all a farce – there is no real difference between the parties – its a matter of which group of old boys fleece who & the people have to pay for it no matter what

    • With you on Walker, Smithson, but most of the time I’m more likely to say it’s degrading to tribalism quickly. Neo-cons were the ultimate confusion for me, spending money like sailors on leave and making budget hawks out of many of my DFL friends.
      As for actual austerity, the way the Republicans abandoned Paul Ryan last year convinced me that none of them have a real stomach for it after all. The failure of the Super Committee (and subsequent lack of sequestration) only hardened that position.
      So I’ll go with my occupier friend here 🙂 I say there is a difference between them, but it’s not that big. We surely don’t have any Angela Merkel (or even a David Cameron) on these shores!
      I would like to have that debate, BTW, and I hope that I expressed at least some sympathy for Romney in this post. This is what we should be talking about, IMHO. And bringing it up hit some seriously interesting comments that challenge me more than usual!

  6. Pingback: Merkel, Alone | Barataria – The work of Erik Hare

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