Romney, Obama Speeches: Keynes vs. Smith

(The incumbent and his challenger offer starkly different economic philosophies)

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If any proof were needed that November’s elections will offer a choice between two radically conflicting economic philosophies, it was provided by speeches given Thursday by President Obama and Republican nominee Mitt Romney. Mr. Obama is an unapologetic Keynesian; Romney’s ideas can be traced to the free market theories of 18th Century economist Adam Smith, although that genius must be spinning in his grave due to the principles embraced by even conservatives of the present day.

In essence, John Maynard Keynes advocated major governmental intervention in the economy through taxation, monetary manipulation by institutions like the Federal Reserve Bank and spending – or “investment”, to use the modern euphemism – on a variety of projects. The central thesis is that money put into the pockets of citizens by government would be spent on goods and services, thus boosting the overall economy. It almost sounds reasonable, except for one salient factor: the government has nowhere to get money but from the economy itself, and since it will spend a large percentage of it on the cost of government, a law of negative returns leads to an inevitable downward spiral. Plus, money provided by the government provides a disincentive for investment by the private sector, from whose pocket the government money is taken.

Adam Smith, whose basic philosophy has been championed in modern times by economists such as Milton Friedman and Ludwig von Mises, postulated that a minimum degree of governmental interference – taxes and regulations – would allow what he called “the invisible hand” of the free market to make the investments and expenditures that would lead to prosperity. Smith abhorred taxes on income, which he considered punitive and repressive, advocating only levies on sales and lands not occupied or worked by their owners. No one today, with the possible exception of radical Libertarians, would suggest such a thing. The income tax, enacted in 1913, is too entrenched. However, conservatives argue that keeping taxes as low as possible stimulates the economy and actually leads to higher tax revenue, a position that was vindicated during the 80’s.

Obviously, those are mere overviews of the dueling philosophies that characterize the fundamental dispute between Democrats and Republicans – which is to say between Barack Obama and Mitt Romney. Which brings me to the main topic: the speeches given by the respective candidates today (Thursday, 6/14).

The venue in both cases was the key battleground state of Ohio. Only once since 1944 has a candidate lost Ohio and gone on to win the presidency. That was John F. Kennedy in 1960. So it goes without saying that Ohio and its 18 electoral votes will be pivotal in November. Current polls give Mr. Obama a slight edge, well within the margins of error, despite his six visits to the Buckeye State so far this year. Romney, who enjoys a big lead over the President when the question is handling of the economy, hopes to extend that advantage and overtake Obama generally. The former Massachusetts Governor fended off a strong challenge from Rick Santorum to win the Ohio GOP Primary in March.

Speaking on the floor of a small-business factory in Cincinnati, Romney hit on the major themes that have driven his campaign so far: tax reform and fewer regulations, energy development, defeating ObamaCare and cutting deficits – and the Brobdingnagian national debt – by cutting the federal budget. He stressed the Obama Administration’s hostility toward coal mining, oil and natural gas drilling and its blocking of the Keystone XL pipeline. One of his biggest applause lines was when he said on his first day in office he’d approve the pipeline and “build it myself if I have to.”

The President, too, had nothing new to offer. Speaking in Cleveland, he engaged in the usual rhetoric about how lower taxes and fewer regulations benefited the wealthy and didn’t “trickle down” as promised. That certainly has a ring of truth when it comes to the George W. Bush Administration, but is sharply contradicted by an objective look at what happened during the Reagan years. Mr. Obama needs to catch a clue that calling for more and bigger government – policies that have led to sharp economic decline and rising unemployment during his term in office – is a political loser.

Despite the fact that Ohio is popularly viewed as heavily blue collar union state, its recent economic polices should mean that Romney’s message resonates well there. It has drastically lowered corporate and capital gains tax rates, leading to Ohio being listed as among the most business-friendly states in the nation by such entities as Forbes and The Small Business & Entrepreneurship Council. As a result, Ohio’s employment rate is projected to grow by five percent by 2016, driven by big corporations like Procter & Gamble, which have found the state’s business climate felicitous.

All things considered, Romney’s message is synonymous with the policies that have seen Ohio rise from its dismal status as a rust-belt state, and become a place businesses find attractive, bringing employment and revenue with them. Mitt Romney, for all the reasons listed above, is likely to win Ohio in November…and, judging from history, the presidency too.