Mitt Romney’s 12 Million Jobs Fantasy
09/06/2012 11:40 am EST
The GOP candidate's plan to create more jobs than any other president in his first term is long on unproven generalities and short on historical evidence, writes MoneyShow editor-at-large Howard R. Gold.
Last week at the Republican National Convention in Tampa, Republican presidential nominee Mitt Romney made a bold statement:
"I am running for president to help create a better future. A future where everyone who wants a job can find one...and unlike the president, I have a plan to create 12 million new jobs."
The plan was put together by four leading economists-Kevin Hassett, Glenn Hubbard, Greg Mankiw, and John Taylor-three of whom (not Hassett) served in the administration of George W. Bush.
So far, it has gotten the backing of more than 600 economists, including six Nobel laureates, as well as conservative luminaries like Martin Feldstein, Michael Boskin, Dick Armey, and Phil Gramm (although the statement the economists signed does not mention 12 million jobs).
The plan, as Romney laid out in his acceptance speech, includes:
- making North America energy independent
- adding more school choice to improve education and skills
- forging new trade agreements and getting tough on cheaters
- cutting the deficit and putting America back on the road to a balanced budget
- cutting the tax rate on businesses and individuals, reforming the tax code, and repealing the Dodd-Frank Act and Obamacare.
Far be it for a humble scribe like me to take issue with all that intellectual firepower, but how does that add up to 12 million new jobs in the first four years of a Romney presidency? That would top the number of private-sector jobs created during any four-year term of any president since 1939.
And if I'm reading it correctly, the four economists claim the US could create 7 million additional jobs beyond the 12 million "cyclical" employment bounce they're expecting, for a grand total of 19 million new jobs over an unspecified period.
That would put a President Romney in the company of only Bill Clinton, who saw 21 million private-sector jobs added during his two-term presidency.
God willing, but I doubt it. Here's why.
Education reform won't pay off in large numbers of better trained workers any time soon. And as Philip Levy, a resident scholar at the conservative American Enterprise Institute, wrote: "Trade agreements have no impact on overall employment. Trade substitutes better jobs for worse jobs, but leaves the job total unchanged."
Increased energy production-with natural gas production at an all-time high and domestic oil production at a 14-year high-had already added 600,000 new jobs by 2010, a study showed. Boosting production beyond what we've added already could mean hundreds of thousands of more jobs.
But 12 million?
"If we had a recovery that was just the average of past recoveries from
deep recessions, like those of 1974-1975 or 1981-1982, the economy would be
creating about 200,000 to 300,000 jobs per month," the economists
"History shows that a recovery rooted in policies contained in the Romney plan will create about 12 million jobs in the first term of a Romney presidency."
I assume they get the 12 million jobs by multiplying 250,000 by 48 months.
And what's the engine of this job creation? Tax cuts, of course.
The four economists write that "the Romney tax reform plan"-cutting marginal tax rates on personal income by 20% and business taxes to a top rate of 25%-"will increase GDP growth by between 0.5% and 1% per year over the next decade" beyond baseline projections, like those of the Congressional Budget Office, of 2.5% average annual GDP growth during that time.
I tried to get more clarification, but neither the economists nor the Romney campaign responded to my e-mailed questions.
NEXT: Where the Romney Plan Runs into Trouble|pagebreak|
The plan suggests long-run annual average GDP growth could hit 4%, tacking on seven million more jobs, for a total of 19 million, by my reading.
Maybe it will, but as I wrote here recently, supply-side cuts in marginal tax rates haven't worked in 20 years. I estimated that the Bush tax cuts spurred the creation of no more than 2 million jobs, less than the median 2.5 to 3 million estimates for the Obama stimulus plan.
- Read Howard's take on why it's time to bury supply-side economics.
Tax reform and cuts in business tax rates are good ideas that should be tried, and they're likely to clear up some of the uncertainty hanging over businesses. That would be a good thing.
But 12 million jobs? That's never happened in any four-year term of any recent president.
According to the Bureau of Labor Statistics, the most jobs created under any presidency was in Bill Clinton's first term, when employers added 10.9 million workers to payrolls. Clinton's second term was next-best, with 10.3 million new jobs, and 9.3 million new jobs were added during Ronald Reagan's second term.
President Clinton actually raised taxes in 1993 during his first term, but he and Congress cut capital-gains taxes during his second term. Both terms had phenomenal job growth.
- Read Howard's take on why the ups and downs of Bill Clinton’s presidency at The Independent Agenda.
And starting a year after his landmark $275.3 billion tax cut in 1981, President Reagan signed into law 11 tax increases, amounting to $132.7 billion in added revenue, over the next few years.
Let's be clear: I'm not saying tax increases lead to more employment-they're often counterproductive-but tax cuts don't necessarily produce much job growth, either. And during the Clinton years, shrinking government deficits improved the country's fiscal condition, creating a favorable climate for business.
That's where Romney's plan runs into trouble. His tax cuts and the elimination of the alternative minimum tax would increase debt by an estimated $3 trillion by 2022-in addition to more than $5 trillion in lost revenue over that same period from making the Bush tax cuts permanent.
Romney has said he would offset revenue losses by cutting spending and reforming the tax code, but he has repeatedly declined to specify which programs he would cut or which exemptions and deductions he would eliminate.
The Economist threw up its hands: "Romney began by saying that he wanted to bring down the deficit; now he stresses lower tax rates. Both are admirable aims, but they could well be contradictory: so which is his primary objective?"
To get elected president, of course. But beyond that, his plan-and the projections of the CBO and others-assume a blue-skies world economy in the full flush of recovery, where businesspeople are confident enough to hike payrolls month after month.
Actually, Europe is sliding into recession, China and Germany are seeing a big drop in manufacturing, and GDP growth is slowing worldwide, even in once-hot markets like Brazil. And as Carmen Reinhart and Kenneth Rogoff have shown, GDP growth is depressed by 1.5 percentage points annually following financial crises.
Given all this, how long can the US be an island of even modest GDP growth in a sinking global economy?
- Read Howard's piece on why US stocks are still the best bet.
You won't hear either Gov. Romney or the president address that.
This campaign is like a movie set on an old MGM soundstage in which the rest of the world doesn't exist. Only in this artificial environment can politicians tell voters that just finding the right policy magic bullet in Washington will make everything OK again.
But in today's real world, what happens in Vegas doesn't even stay in Vegas anymore, as Prince Harry found out. And the Romney campaign's 12-million-jobs fantasy might as well be a remake of "Singin' in the Rain."
Howard R. Gold is editor at large for MoneyShow.com and a columnist at MarketWatch. Follow him on Twitter @howardrgold and catch his coverage of the 2012 presidential campaign at www.independentagenda.com.