Barack Obama’s second-term economic policy is relatively easy to figure out, because it would mostly involve taking advantage of changes that are already scheduled to happen.
Understanding what would happen in a Mitt Romney administration is much more difficult. The starting point is to realize that Romney has been overpromising and liberals have been overworrying about it. The fact of the matter is that unless current polling is badly mistaken, even if Romney wins, Democrats are overwhelmingly likely to hold a majority in the Senate, meaning swathes of his stated agenda will be dead on arrival.
Optimistic conservatives and pessimistic liberals have largely avoided acknowledging this based on a mistaken analogy to the first year of the George W. Bush presidency. In 2001, Senate Republicans were extremely aggressive in employing the budget reconciliation process to overcome potential Democratic filibusters. Combine budget reconciliation with the fact that any 2013 Democratic Senate majority would rest on the backs of senators from red states like West Virginia, South Dakota, and North Carolina and it becomes easy to spin a story in which a handful of Democratic defectors would create the legislative majority Romney needs for major economic reform. The problem is that without a formal majority, the necessary reconciliation instructions could not pass the Senate in the first place. A Democratic-controlled Budget Committee would have no interest in writing them, Majority Leader Harry Reid wouldn’t want to bring them to the floor, and moderate Democrats wouldn’t vote for it.
In other words, the whole Romney agenda the Obama campaign’s been warning you about—the $5 trillion in tax cuts, the privatization of Medicare, the steep cuts to everything from FEMA to Medicaid—isn’t actually going to happen.
So what would happen?
While hard-right Romney isn’t going to get his way, David Brooks’ fantasy that Moderate Mitt from Massachusetts will reappear doesn’t add up either. Even if Romney wanted to govern in that way, the House GOP majority wouldn’t allow it. Indeed, in a perverse way the fact that he’ll have no way to enact his most far-reaching conservative policy commitments means he’ll have less reason than ever to back away from them and break with the party’s base.
One big difference is likely to be on the immediate post-election question of the fiscal cliff. Going over the fiscal cliff would lend a re-elected Obama a lot of useful leverage, but it would serve little purpose for Obama if Romney’s going to take office in January. If Romney wins, Democrats may be willing to basically give Republicans what they want on the Bush tax cuts and military spending in the lame-duck session as long as the GOP is willing to throw them a bone or two on domestic spending.
A Romney administration would likely give us more forceful federal measures on housing refinancing. This is a longtime pet issue of Romney adviser Glenn Hubbard and he recently reiterated his backing of the idea in an interview with Mike Konczal of the liberal Roosevelt Institute. The Obama administration has fitfully supported housing refinancing efforts, but they’ve been stymied by partisan opposition from Republicans that would likely melt away after Romney’s inauguration. Meanwhile, we can expect sweeping change on the regulatory front. A Romney administration would halt moves toward more stringent air pollution rules, open more federal land to oil and gas drilling, and withdraw rule interpretations that are friendly to union organizing. Whether or not Romney formally repeals new Obama-era financial regulations, he would certainly take an easygoing approach to actual implementation. Whatever you make of this as policy for the long-term (I don’t think much of it), the combination of lax regulations, tax cut extensions, and a housing boost are likely to brighten the growth outlook for 2013. Toss in the fact that the Federal Reserve is usually friendlier to growth and less tough on inflation when Republicans are in office, and things look even better.
One potential fly in the ointment is that Romney might try to follow through with his campaign promise to launch a trade war with China. Nobody in Washington on either side seems to think he’s actually serious about this.
Problems with Romney-era economic policy are likely to start with the scheduled beginning of Obamacare implementation in 2014. Republicans won’t have the votes to repeal Obamacare, but Democrats won’t be able to force Romney to do any of the implementation. The result will be a chaotic mess, with different states doing different things and insurance companies, hospitals, and firms with large numbers of uninsured workers all screaming for clarity. This is the issue where Romney’s leadership will be most dramatically put to the test. His official position is that he’ll achieve de facto repeal by broadly issuing waivers from the law’s requirements, but this is nonsense. Under current law the president can’t begin issuing these waivers until 2017. Had congressional Republicans done the sensible thing and passed a bipartisan proposal from Scott Brown and Ron Wyden to accelerate the waiver process back when the Obama administration announced its support in 2011, they’d be in better shape, but they didn’t.
The question for Romney will be whether he can craft a new version of this Brown-Wyden compromise. Finding something that conservatives would count as a win but Democrats don’t view as gutting the law will be very challenging, but if he makes it stick, it would be a signature achievement. If not, a huge swathe of the economy will be thrown into temporary chaos.
And then would come the midterms. The idea right now is that a Democratic Senate would allow Romney to govern pragmatically without abandoning his severely conservative policy commitments. But the 2014 Senate map is extremely friendly to Republicans, meaning the final two years of Romney’s first term might look very different. Pickups in Alaska, Arkansas, and Louisiana would suffice to give Republicans the majority and potentially unleash the radical ideas associated with Paul Ryan’s budget. Add it up, and while a Romney administration would likely start with a policy whimper, it could easily end with a bang of controversial policies the public thought had been abandoned years ago.