The Limits Of Mitt Romney’s Closet Keynesianism

Jon Chait rounds up the considerable evidence that Mitt Romney is a kind of a closet Keynesian, citing both Romney’s occasional statements in favor of demand side explanations as well as the work of his key advisers Greg Mankiw and Glenn Hubbard.

The key question, of course, is how will Romney behave while in office. Generally speaking, I think the past record in office of a president doesn’t tell us a ton about what they’ll do in office. Presidents act as party leaders, and almost invariably end up supporting party positions. Where the president’s “real” views matter a lot is when the party coalition is divided, the way Democrats are on education and trade policy. Demand-side stimulus is an interesting case in this regard. It’s become conservative dogma to dismiss the demand side, but this dogma is extremely new and much of it seems insincere. What’s more, getting macroeconomic stabilization policy correct is really important to a president’s re-election prospects. So it’s incentive-compatible.

My guess, though, is that President Romney would end up doing what President Bush did in 2001, and mounting a fitfully Keynesian argument on behalf of a consensus party position. In particular, Romney will promulgate a series of tax cuts for corporations and high-income individuals that he and his party believe will have large positive supply-side impacts. But rather than directly yoke those tax cuts to unpopular gutting of the welfare state, they’ll be deficit financed. Then people who have fundamentally distributional concerns with the policy will raise deficit concerns, and the deficit arguments will be dismissed with Keynesish talking points. The reality is that permanent regressive tax cuts are about the last fiscal policy option Keynesian ideas would push you to, but this is the Path of Maximal Opportunism so I think it’s the one Romney will walk down.