It could be a good thing if Barack Obama were re-elected US president.
That way we'll have eight years of proof that higher taxes and higher government spending don't stimulate the economy and don't create jobs. If Mitt Romney somehow wins the election the cry will forever be that the economic policies of the Obama administration would have worked if only they had been given more time.
Likewise here in Australia it could be good to have the Julia Gillard government re-elected. That way it would have to deliver on its promise to have a budget surplus, while spending billions of dollars more on education, dental services and a national disability scheme as commodity prices plummet and tax revenue declines.
President Obama's $800 billion stimulus package was meant to have got the unemployment rate in the United States down to less than 6 per cent by now. The unemployment rate for August was 8.1 per cent. In July the rate was 8.3 per cent, and the reason it fell was because people stopped looking for work.
If the labour force participation rate was the same today as it was when Obama became president in January 2009 the unemployment rate in America would be 11.2 per cent. Just 70 per cent of adult American men are either employed or seeking employment. That's the lowest figure since records began in 1948 — the comparable rate then was 87 per cent. On Wednesday the US Census Bureau reported that 46 million Americans live in poverty. The poverty rate in the US is the highest it's ever been.
It wasn't meant to be like this. In January 2009, after Obama had won election but before he was sworn in as president, his chief economic advisers Christina Romer and Jared Bernstein published a 14-page report titled The Job Impact of the American Recovery and Reinvestment Plan. It promised that a massive increase in government spending would save the economy. And it ruled out tax cuts. ''Tax cuts, especially temporary ones, and fiscal relief to the states are likely to create fewer jobs than direct increases in government purchases.''
The report contained a chart which has become famous. It plotted what Romer and Bernstein anticipated would be the US unemployment rate with and without stimulus spending. On the day of its release, Paul Krugman praised the report in The New York Times and wrote, ''It will be a joy to argue policy with an administration that provides comprehensible, honest reports, not case studies in how to lie with statistics.''
Romer and Bernstein thought that without the stimulus unemployment would peak at 9 per cent in 2010, but with the stimulus unemployment would rise to 8 per cent in late 2009. All of these predictions were wrong. Unemployment reached its maximum of 10.1 per cent in October 2009.
To a normal person the evidence would tend to indicate the stimulus package failed to do what was intended and maybe a new approach is needed. But that's not how economists who want more government spending think. Professor Laura Tyson, an economics adviser to Bill Clinton and then Barack Obama, said the problem with the stimulus package was that it wasn't large enough. She didn't explain why even more stimulus would be any more likely to achieve its target than the original $800 billion stimulus. When something has failed, only an economist would think of trying it again but on a bigger scale.
A few days ago, Tyson said that Romney's plan for cutting taxes and cutting non-defence government spending would weaken growth in the US economy. Whether this is true or not will only be known if Romney is elected and implements his plan. But one thing is known. The alternative plan, higher taxes and higher government spending, practised for the past four years, doesn't have a great track record.
The average annual rate of economic growth under Barack Obama as the US economy has come out of the global financial crisis has been 2.2 per cent. When the US economy recovered from a recession under Ronald Reagan the average growth rate was 5.7 per cent.
Chances are that the Obama economic experiment still has four more years to run — but it's not necessarily certain.
When Reagan was running against the incumbent president Jimmy Carter in 1980, Carter was the favourite to win right up to the last weeks of the campaign.
Reagan won the election easily, 51 per cent to Carter's 41 per cent.
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