Economic Stereotypes Battle for the White House

If a presidential election were held between Gordon Gekko and Saul Alinsky, whom would you vote for?

No, the pending match-up between Mitt Romney and Barack Obama is not a choice between a vulture capitalist and a radical socialist, but you wouldn't know from listening to partisans tirelessly trying to demonize the opposing candidate.

That doesn't mean that the nation isn't truly facing a choice that will dictate how our government deals with money, or the lack thereof. But no matter who wins in November, the pain will not be over. At stake is how long the pain is going to last, and for whom.

The economic meltdown kicked off by the subprime mortgage crisis is not a cause but a symptom of our deeper problems. Even if the housing bubble had ended with a soft landing and the derivatives casino built upon it was unwound without collapse, we would still have to figure out how to finance a government that has made many more promises than it can fulfill. The Great Recession added urgency to this problem-perhaps accelerating the day of reckoning by a decade-but it didn't create it.

The mismatch between the government's ability to extract money from its citizens and the promises made to shovel money to various voting constituencies has been in the making for seven decades. Both political parties are responsible. Together they built a warfare/welfare state that has gotten so large that it threatens to swallow the economy, and by doing so shrinking it considerably.

Now two opposing economic visions are being offered from which Americans must choose. The details are still sketchy, but the contours are clear.

President Obama is asking us to follow the example of the European social democracies. His vision requires further enlargement of the role of government, continuing the trajectory of the last few years. His philosophy is anchored in a communitarian view of society in which we are all our brothers' keepers, empowering government to ensure that all citizens enjoy a minimum standard of living. His goal is to compress the differences between rich and poor by aggressive redistribution designed to maximize economic equality.

Promoters of this vision would have us believe that the government can both finance its existing unfunded liabilities and promise even more benefits to the average voter by extracting ever increasing amounts of money from an ever diminishing sector of the citizenry-the maligned 1%, against whom Obama is fomenting class warfare. They believe that, despite disincentives, the rich will continue producing wealth, handing larger portions over to the government, because, well, that's what capitalists do.

Economic growth will come from the wise allocation of capital not by profit-seeking private investors, but by government bureaucrats picking winners upon whom to bestow grants, loans, and subsidies. Meanwhile, the government will saddle the "wrong" industries with taxes, regulations, and mandates- raising revenue while shrinking politically incorrect businesses to satisfy an array of social, political, and environmental agendas.

Soon-to-be Republican presidential candidate Mitt Romney is asking us to return to our roots. His vision requires either reducing the role of government, or perhaps merely reducing its rate of growth. It's hard to tell, as Romney appears to be a technocrat driven by pragmatic results rather than ideology. He imagines a future in which the government learns to live within its means primarily by reducing spending. His vision appears anchored in an individualist ethos in which the government's role is to ensure equality before the law, not of economic outcome. His goal is to maximize opportunity, even if this leads to economic inequality.

Government will increase revenues not by narrowing the tax base but by broadening it, reducing marginal tax rates for both corporations and individuals while eliminating distorting exemptions and deductions. Capital would be allocated by private investors risking their own money in hopes of earning profits, with the government standing aside. Regulations, mandates, and other encumbrances on business would be reduced or eliminated.

Promoters would have us believe that the ensuing changes in incentives, a reduction in regulatory uncertainty, and a more internationally competitive tax regime will stimulate investment and growth in the private economy. Under the rosy scenario, this growth will be fast enough to outstrip the demographic tsunami threatening to bankrupt the government as Baby Boomers retire and demand to collect on promises made to them. The more likely outcome is that entitlement spending will have to be means tested and cut.

Regardless of who wins the presidency, the House of Representatives will be dominated by restive conservatives working to ensure that the U.S. never goes the way of the European social democracies. They will do their best to roll back key portions of the entitlement state, starting with Obamacare. It is extremely unlikely that either party will win a filibuster-proof 60-seat majority in the Senate, so both parties will retain the power to grind legislation to a halt.

If Romney wins, he will find it a tremendous challenge to govern. With a little luck he may be able to enact some portions of his program. If he does, the pain will be sharp for some, particularly those whose economic well-being depends on an uninterrupted flow of checks from the government. If he succeeds in rekindling significant economic growth it may buy the country some time to get its books in order.

If Obama wins, he will find governing not just hard, but impossible. The ensuing four years will be marked by ceaseless political warfare while the government is left to grow on autopilot. Tax rates will automatically go up across the board as the Bush tax rate cuts expire. The phony across-the-board spending cuts due to kick in in 2013-which were embedded in the last 11th-hour compromise-will be revealed as a fraud. If it survives a court challenge, a crabbed version of Obamacare will roil the private sector as its public components get crippled by lack of funding. Continuing resolutions and debt ceiling theatrics will continue to replace rational budgeting. Maybe the economy will enjoy a brief and anemic recovery and maybe it won't. Either way, the day of reckoning will draw nearer.

There are, of course, other clear differences between the two presidential candidates and their parties, but the one thing most rational people agree upon is that culture war conflicts are a luxury we cannot afford this election cycle. What difference will it make whether gay marriage is banned or enshrined if the federal government follows Greece, Italy, Spain and the rest of Europe into insolvency?