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The Profoundly Screwed-Up Beliefs That Compose Mitt Romney's Economic Ideology

Mitt Romney is the most credible of all the likely Republican presidential candidates. He’s right to focus on the economy, but his specifics are loony.

Mitt Romney is smart enough not to join Newt Gingrich and Sarah Palin in using the proposed mosque at Ground Zero to to lauch a presidential bid. While Gingrich is busy comparing Muslims to Nazis (“Nazis don’t have the right to put up a sign next to the holocaust museum in Washington”), and Palin is calling on New Yorkers to “refudiate” the plan (she subsequently corrected her word choice), Romney is offering an economic plan.

That’s a wise choice. Mitt knows Americans don’t care about mosques in Manhattan. They care about money in their own mitts.

Romney is intent on selling himself to America as the businessman who can turn the country around (sad to say, unemployment is likely to remain high all the way through November, 2012). Unlike Palin and Gingrich, Romney did, after all, run a business (yes, it was a firm that bought and sold companies and laid off lots of people along the way but, hey, that’s business).

So we should take Romney’s economics seriously. In today’s (Wednesday’s)  Boston Globe op-ed Romney attacks Obama’s economic policies for being ineffective and calls for what he calls a “growth and jobs” agenda. Here are the main points:

– match U.S. corporate taxes with those of other developed economies,

– preserve the Bush tax cuts for everyone, “especially small business,”

– allow businesses to write off capital investments made in 2010 and 2011 rather than over time,

– eliminate taxes on investment dividends,

– eliminate taxes on capital gains and interest for households earning less than $250,000 a year, and

– balance the federal budget.

Apart from the impossibility of simultaneously cutting taxes and balancing the budget without taking a meat cleaver to Social Security, Medicare, and defense spending (Romney delicately sidesteps this conundrum by urging we “reshape government programs” and “restructure entitlements”), his policies raise a more fundamental problem.

Call it the wet-noodle problem.

For Romney, the key to America’s recovery is to cut taxes on businesses and on people who invest in them. These steps, he says, are the “conditions that enable businesses of all sizes to grow and thrive.” In other words, if businesse get more capital at less cost, they’ll create jobs.

But anyone looking closely at the American economy today would see this is nonsense. American corporations have an unprecedented $1.8 trillion of cash. The Fed, meanwhile, has slashed interest rates to essentially zero – a record low – and is still holding over $2 trillion in securities that it said last week it will keep from shrinking. And a Federal Reserve survey released earlier this week showed that banks have been making it easier for businesses of all sizes to get loans. Credit standards for small firms have been loosened for the first time since late 2006.

In other words, businesses have all the capital they need. They’re sitting on it or can borrow it more cheaply than ever. But they aren’t using it to create jobs.

Why not? Because there’s not enough demand for their products or services. Consumers aren’t buying.

Retail sales continue to slide. Wal-Mart, Home Depot, and Target report disappointing sales. Same with popular back-to-school retailers like Aeropostale, American Eagle Outfitters, and TJX. Housing sales are down. Appliances are down. (Cars sales are up a bit but that’s mainly because they fell to record lows in 2008 and 2009, and by now some people who have held back need another.)

Romney’s supply-side economics won’t create jobs. It’s pushing on a wet noodle. Businesses create jobs only if consumers are pulling the noodle from the other end.