For all that Barack Obama and Mitt Romney talked about the economy during Tuesday's presidential debate, it is remarkable that neither candidate offered anything like a real solution to the high unemployment and depressed wages that continue to plague America's shrinking middle class. Romney doubled down on the failed policies of the Bush years, particularly lower taxes and increased drilling. Obama spoke generally about investing in education and promoting manufacturing and green jobs.
With the exception of lower taxes, which historically do not correlate with faster growth, each proposal is a good idea in the abstract. But not one directly addresses the immediate fundamental challenge confronting the U.S. economy: weak aggregate demand. When the housing bubble collapsed, Americans lost trillions of dollars of wealth, real and imagined, and the country entered a period of debt deflation. Emergency fiscal stimulus and loose monetary policy staunched the bleeding, but funds provided by the American Recovery and Reinvestment Act were essentially spent by 2011. Without the federal government to prop up demand, subsequent economic growth has been limited by household deleveraging and public sector cutbacks. Despite recent gains, unemployment remains high.
Unfortunately, the rhetoric of both candidates during Tuesday's debate suggests neither would take the extraordinary measures required to speed the economy's return to full employment. Romney's insistence on supply-side solutions like lower taxes on high income “job creators” misses the point entirely. President Obama's proposed investments in education and manufacturing address long-term structural problems on the demand side, such as skill-biased technological change, but ignores the cyclical shortfall in demand that is keeping businesses from hiring.
Of course, there are better ways to discern each candidate's economic strategy than watching the debates. At a fundraiser in Florida last May, Mitt Romney revealed his secret plan to restore growth (emphasis mine):
If it looks like I'm going to win, the markets will be happy. If it looks like the president's going to win, the markets should not be terribly happy. It depends, of course, which markets you're talking about, which types of commodities and so forth, but my own view is, if we win on November 6th there will be a great deal of optimism about the future of this country. We'll see capital come back, and we'll see—without actually doing anything—we'll actually get a boost in the economy.
The “do nothing” strategy is not surprising, considering Romney's repeated declaration that he will create 12 million jobs in the next four years is identical to the Moody Analytics forecast for employment through 2016. It's a tacit acknowledgement that Romney plans only to preside over the expected economic recovery, without doing anything other than pursuing the same old Republican policies to redistribute income upwards.
President Obama, on the other hand, has proposed legislation that would directly address the problem of persistent weak demand. It's called the American Jobs Act, and it failed in a 50-49 cloture vote to proceed in the Senate. The $447 billion bill would have lowered payroll taxes for 98 percent of businesses and employees, extended stimulus programs like unemployment benefits, and spent over $100 billion on infrastructure, education, and aid to states. But after the stimulus portion of the bill was defeated in Congress, Obama moved on. He no longer talks specifically about renewed fiscal stimulus, and did not mention the failed bill in either presidential debate.
For the millions who remain unemployed, the message from both candidates appears to be, “keep spending and carry on; the jobs will come back eventually.” It's hardly the worst policy solution—that dishonorable distinction belongs to the European-style austerity program suggested by Paul Ryan. But if the rhetoric on the campaign trail is any indication, Americans shouldn't expect anything more from either party until Washington is able to move beyond partisan gridlock.