Romney Must Offer Americans A New Economic Contract

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President Obama's prospects for re-election have soared recently. RealClearPolitics shows Mr. Obama leading in most battleground states and in national polls by 3-4 percentage points. Further, the likelihood of his victory is affirmed by historically accurate political futures betting markets: Intrade shows an Obama victory as more than 70% probable, and Ladbroke's has the President a near sure-thing at 1:4 odds, versus 3:1 for Governor Mitt Romney.

Some pundits are already declaring Mr. Romney gone; long forgotten is the "bold" choice of Paul Ryan as running mate, implying an issues-based campaign. Instead, they say that lousy post-convention messaging and Romney "gaffes" such as speaking about unrest in Egypt and Libya "before knowing the facts," or asserting that he cannot compete for the votes of the 47% who don't pay income taxes, have doomed him. Others complain of a rudderless campaign and want new leadership, or insist the debates represent opportunities for inflection in the Republican nominee's fortunes.

Such fretting misses the mark about the real shortcomings of the Romney campaign, and hence misapprehends the remedy. The root trouble for Mr. Romney is that the electorate is deeply worried about - even fearful of - a very uncertain future, but many voters view the Republican through the lens provided them by months of Obama campaign and media definition: Mr. Romney is painted as an out-of-touch plutocrat who'll reflexively return us to "Bush policies that got us into this mess." Sadly, too, there's still a woeful lack of understanding about the variegated causes that led to such a deep recession, and Mr. Romney has not addressed these as prelude to why his specific policies and broader philosophy of government's role in the economy will bring a return to prosperity.

In contrast, for all his failings, Mr. Obama has effectively ascribed the downturn to Wall Street banditry, tax cuts for the 1%, deregulation, and a harsh, profiteering "you're on your own" governing philosophy. In response, his policies "prevented another Great Depression," are driving "investments" in health care, education, and green energy for tomorrow's economy, protect the middle class via legislation such as ObamaCare and Dodd-Frank, and "have created 4.6 million jobs in 30 months." He'll cut the deficit by "asking the rich to contribute a little more" to ensure a stable, growing economy, and he seeks another four years to extend his progress, governing with a "we're all in this together" worldview. To the uninitiated, it's a plausible-sounding thesis, and provides Mr. Obama with divorcement from a terrible economy throughout his term. It also effectively rebuts the Romney charge that we're not better off than we were four years ago. Altogether it's a story that's not factually-based, but it's given Mr. Obama a lead.

It's time for Mr. Romney to take command of the race, and control his destiny. He can win the election, but only by offering an alternative critique of our troubles and an intellectually confident and detailed vision of their remedy that's rooted in a substantive free-market paradigm. Fortunately, there is a three-pronged strategy that, if adopted, would not only guarantee him victory on November 6, but would also render him a Reaganesque margin in order to move expeditiously on urgently-needed policy shifts next year:

(1). Tell the truth about what's caused our current economic torpor, and what will cure it. The virtue in speaking plainly when the truth is on your side, and when the facts support you, is that the electorate will be predisposed to coming your way. Mr. Romney needs to evince the following argument in plain-spoken terms:

· The Great Recession that began in the fall of 2007, that included the first financial panic in this country in 100 years, was the result of massive government failure, and not that of capitalism. Fannie/Freddie corruption combined with extremely loose monetary policy, an explicit strategy for a weak dollar, and too cozy a relationship between Wall Street and Washington that fed too-big-to-fail moral hazard - as demonstrated by the ridiculous levels of leverage in our financial system - were all prime causes. But ersatz banking regulations of the kind favored by Messrs. Dodd and Frank, that forced firms to originate bad loans (before repackaging them and then selling them to other investors to "hold the bag") and then mark securities to an illiquid market were also a huge problem. All these policies were concatenated into a toxic mix that was guaranteed to cause a financial catastrophe. The Bush tax cuts, especially those from 2003, were not only not harmful, they instead lessened the eventual pain by engendering at least some genuine investment and capital formation that cushioned the blows in 2008-09.

Indeed Mr. Bush, to his credit, sent Treasury Secretary John Snow to Capitol Hill as far back as 2003 to plead for a recapitalization of Fannie and Freddie, and a more effective (and less cronyist) regulatory structure; by contrast, then-Senator Barack Obama was, in less than four years, the second highest recipient of Fannie/Freddie graft payments, also known as political contributions. And Dodd-Frank, named after the two originating ring-leaders of the present catastrophe, will only serve to make our financial system higher-cost, more brittle, more cronyist, and less able to channel real capital to wealth- and job-creating investments.

· In fact it's quite disingenuous for Mr. Obama to claim he inherited a catastrophe, because unlike President Reagan inheriting the mess created by Carter policies he vehemently opposed, Mr. Obama's philosophy tracks closely with much of the Bush 43 economic policy history, with the obvious exception of the 2003 marginal tax rate cuts. During the debates and the rest of the campaign, in fact, it will be politically useful as well as instructive for Governor Romney to tie the Bush 43 spending, protectionism, weak dollar, Medicare Part D, mass one-time per capita money payments, and TARP/bailout programs to the Obama economic policy set: all are of the same cloth. For it is quite true that much of what Mr. Obama has pursued in office is merely an extension of the Bush 43 program. President Bush was unfortunately very unfaithful to the Reagan paradigm that promoted economic growth in many ways, and it will be to Mr. Romney's advantage to explain this and distance himself from the Bush label in the process.

· Governor Romney then needs to move to an exposition of what his policy mix will entail in order to return the U.S. to sustained prosperity, in enough detail for it to be plausible. Marginal taxes need to be cut so as to induce investment, the only true formula for creating sustained wealth and jobs. Spending needs to be reduced so as to stop drawing scarce resources away from things that matter; so much of government spending is Solyndra-like waste or Chrysler-like cronyism (which also ends in abuse and destruction of scarce capital). Regulatory monstrosities like ObamaCare and Dodd-Frank need to be repealed and replaced with market-oriented legislation that solves problems without eviscerating private sector incentives, resources, and wealth. And the cornerstone of a high growth economy is sound money, so changes are needed at the Fed and U.S. Treasury (the Romney message on trade has been mixed; he talks about "opening markets" at the same time as he promises to hit China with sanctions).

All of this needs to be contrasted to the Obama policy mix, which is polar opposite on every dimension: higher taxes, higher spending, more regulatory oversight, a weak dollar, and "managed trade" relationships. In short, Mr. Romney needs to review the Obama policies that have given us such a sclerotic economy, with high unemployment, falling family incomes and net worth, stagnant GDP, no job growth, and even a low-grade inflation that has led to higher prices in many consumer categories, including energy, education, and health care.

And one more point is critical when making the contrast with Mr. Obama's policies: Governor Romney will help his cause immensely if he will put more emotion, that is, more "punch," into his talks. Stylistically, using words such as "disaster" or "train-wreck" in describing the result of Obama initiatives has two advantages: they accurately describe the end results of all heavy-handed government interventionism, and they do stoke emotions - such that the main point is remembered - very effectively. Dating back years now, Republicans have feared attacking the personally popular and even "cool" President. But to liken his policies to a colossal train-wreck in terms of bad outcomes for the economy is not only not personal; rather, it directs attention to the very serious problems caused by errant economic thinking.

· The discussion of what led us into the present torpor, followed by the Romney remedy contrasted with Mr. Obama's policies, leads to the most important point to drive home in the weeks ahead: President Obama is taking the U.S. economy rapidly down a path toward fully replicating the classic European-style welfare state. Mr. Romney should tell the American people explicitly that the Obama-led future involves importing the economy of, say, France, which cannot be done without also importing the French standard of living, which is a third lower than that of the U.S. This will be done via massive government spending over time, and the redistribution of wealth - there can be no other way. But, Mr. Romney needs to also make plain, redistribution will not be limited to the "top 1%." In fact, taxes will be raised on virtually all Americans, via such tools as the VAT, another European import. That is axiomatic, as the math cannot work otherwise, in a transfer of wealth and resources to the political ruling class. (It would also be instructive to point out, when Mr. Obama retorts as he has in the past that "that several European economies like Denmark work well" in terms of social welfare provision, that they do so in no small part because they live in the backdraft of American entrepreneurial energy and creativity, and American technological and managerial innovation, driven by a more capitalistic economy here. Obama-led "fundamental transformation" of the U.S. economy into a European welfare state model guarantees a lower standard of living in Europe as much as here in America.)

(2). Demand a mandate from the American people. For Republicans, the two most successful elections since the McKinley era were 1980 and 1994. It's no coincidence that the magnitude of the electoral victory and ensuing policy successes in each were due to Party standard-bearers (Reagan and Gingrich, respectively) unifying the Republican message around a few simple but explicit themes or initiatives, all pointing toward prosperity. Voters knew unambiguously what they were getting, in stark contrast to Democrat plans for a larger government and more sclerotic economy. In similar vein, Mr. Romney still has time to nationalize the election formally around 3-5 major proposals (say, sound money, taxation, spending, health care, and judiciary/regulation), in "Contract with America" style.

Doing so in a major announcement, say, on the Capitol steps, with all Republican House and Senate candidates present, and including an outline of the first 200 days of priorities to be acted upon, would confer several benefits upon the Romney campaign: it would change the national conversation overnight, regain the initiative for the rest of the campaign, and re-energize the Republican base. Most importantly, the clarity of the declaration of his most fundamental aims for policy change would allow Mr. Romney to ask for and then, once conferred, act upon a mandate rendered possible by a decisive electoral victory. As in 1980 and 1994, this would force the Democrats to conform to his program in 2013; by contrast, a Romney win that came with 50-51 in the U.S. Senate, say, would neuter his degrees of freedom to effect needed change.

(3). Treat the press as the enemy they are. It is a documented fact that news media professionals have voted upwards of 80%, and in many cases 90%, for the Democrat in every Presidential election since George McGovern in 1972. The latest example of this bias is the scandalous media coverage surrounding the deaths of four Americans in Libya, including the U.S. Ambassador there, the mainstream press whitewashing of Obama Administration incompetence over events as they unfolded, and subsequent prevarication by Obama officials. Instead of demanding answers concerning the details, the media spent several days ridiculing Governor Romney's criticism of Administration policy as exemplified by the Cairo Embassy's statement on September 11, which the Obama Administration itself fully repudiated by the afternoon of September 12. Worse, the media barely questioned material mis-statements on the matter by Administration officials for a full nine days after the fact.

Rather than attempt to coddle major Beltway and TV journalists, Mr. Romney and all Republican candidates would be better served by adopting an adversarial mindset and tone for the press. While remaining unfailingly courteous at all times, they should firmly and confidently challenge most every premise, and turn the blatant bias back on Leftist interlocutors. Taking the latest example, asking the press why they kept hammering Mr. Romney's criticism of a statement by the U.S. Government that the White House itself disavowed hours later, and then ignored obvious misjudgments and mis-statements concerning a terrorist attack that left four Americans dead, would be a great place to start. More broadly, Republicans from Mr. Romney on down should demand the press start asking questions of President Obama that never seem to get asked. The mere fact that they begin to do this would force some of the media to recoil, or at least be more circumspect, leading to better behavior from some. And it would be instructive for millions of voters in any case, as well as a rallying point for those interested in propagation of the truth.

In the end, there are two types of people who run for President: those who want to be President, and those who want to do something. For example, Ronald Reagan and Barack Obama have the latter trait in common: they ran for high office as archetypal conviction politicians, determined to implement their deeply-held policy vision for an America they deemed in need of change. In the next five weeks we'll finally find out, perhaps, if Mitt Romney can also claim this mantle. In one sense, five years into his quest for the Oval Office, the mere fact the question needs asking is itself the answer. And that's the biggest problem of all for the Romney campaign.

But frankly, it's irrelevant at this point, as Mitt Romney is the last roadblock between the United States' status as a high-growth economy and reversion to a welfare state, with all its attendant shortcomings led by a lower standard of living. Complaints have abounded in recent weeks, calling for Governor Romney to better specify and detail his case for election. If nothing else that's good practical advice, because his current tactic of propounding vague generalities while touting his resume is not working. And, implicit reliance on being the candidate not named Obama is hardly big enough for this historic moment, even if it could work. Worse, the theme of being the candidate most dedicated to sustainable prosperity has always been one available only to Governor Romney, and it is a minor scandal that he has so far, even post-Paul Ryan, shied away from unambiguously claiming it as his own (though it's never too late to do the right thing, fortunately).

Mr. Romney has the resources and the time to turn everything in his favor, and still faces a very beatable candidate whose record is one of failure. But for all the reasons above, a new strategy is called for now, and that is something a former Bain & Company executive ought to understand very well.

 

John Chapman is an economist and merchant banker at Hill & Cutler Co. in Washington, D.C. 

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