Why a Republican victory would be good for America and the world

Non-Americans generally have a patronising, derisive view of American politics. That also applies to this presidential election campaign. Trivia, mud-slinging, bitter partisanship, extremism (particularly among Republicans) and Washington gridlock crowd out sensible debate, reasonable compromise and hard policy choices.

That, at least, is the conventional wisdom. But it is wrong in one major respect. The USA is having a serious debate about its anaemic economy. Low growth, high unemployment, a squeezed middle class and escalating public debt are the key issues on the campaign trail.

Policies

President Obama and the Democrats are offering one set of policies for American economic recovery; Governor Romney and the Republicans are offering a starkly different set of policies. Behind these policies are competing philosophical and moral visions of America. This is all out in the open and debated vigorously. It is testament to the continuing vitality of American democracy.

Europe, in contrast, is having no such debate. The European economy is in a worse state than the US economy, especially with a never-ending euro crisis. But Europe’s mediocre politicians and bureaucrats blunder on with crisis fire-fighting and half-baked policies – without a fundamental debate on policy choices, and with little sense of competing philosophical and moral visions that underpin them. Such debates on policies and ideas are also lacking in Asia and other parts of the non-Western world.

What are the choices on offer in the USA? There are of course differences between centrists and hardliners in both camps. But the red lines are clear.

Obama

President Obama and the Democrats agree that public debt approaching 100 per cent of GDP and projected to increase exponentially is unsustainable. They agree it should be cut in the medium-term. But, in the short-term, they favour a Keynesian stimulus via increased spending and payroll tax cuts. Beyond that, deficit cutting should include tax increases on high-income earners and steep cuts in defence spending.

They have nothing to say about cuts to entitlement programmes that account for the bulk of federal spending, notably health care and pensions. They also favour more government investment in infrastructure and renewable energy. The underlying philosophy is a combination of Keynesian macroeconomics and faith in government intervention.

Romney

Candidate Romney on his own might not have offered a starkly different choice. But the Tea Party surge and his selection of Paul Ryan – surely one of America’s most gifted thinking politicians – as running-mate have changed all that. Republicans reject Keynesian stimulus outright and aim to tackle public debt straight away and head on.

The Romney-Ryan budget plan relies on steep cuts to public spending through deep market-oriented reforms of entitlements, notably Medicare, Medicaid and Social Security. They favour tax reform to simplify the Byzantine tax code and close loopholes. They pledge tax cuts and foreswear tax hikes. And they have high ambitions for deregulation, not least on energy policy to spur a boom in shale oil and gas.

The underlying Republican philosophy is individualist rather than collectivist. It offers supply-side, not demand-side, solutions.  Republicans believe that removing government obstacles will provide the right incentives for private-sector saving, investment, entrepreneurship and innovation.

Government macroeconomic fine-tuning and detailed micro-interventions are rejected. “Limited government and free markets” is the mantra. This is a “Hayekian”, not a “Keynesian”, programme for the American economy.

Ideas matter

Ideas matter. Those who decry “doctrinaire” politics and favour “pragmatism” in the name of “whatever works” generally follow one fad after the next. They navigate without a compass. This is why America’s choice in 2012 – Keynes vs. Hayek – is so important.

I favour Hayek to Keynes. I think the classical-liberal message of limited government, free markets and individual liberty is superior – on economic and moral grounds – to Keynesian social engineering. That is why I hope Governor Romney will win the White House, and that the Republicans will keep control of the House of Representatives and strengthen their representation in the Senate.

There are big blemishes in the Republican programme: the outright rejection of more tax revenue to tackle public debt, a reactionary attitude to immigration (America needs more, not fewer, migrants), and neglect of infrastructure, head the list. But, ultimately, their package is far better than that of the Democrats.

President Obama inherited a crisis. But he and the Democrats have made matters worse. Their first Keynesian stimulus failed, federal spending increased and public debt mushroomed. The regulatory burden is much worse through Obamacare (on health care), Dodd-Frank (on financial regulation), the Environmental Protection Agency’s environmental regulations, and ill-judged forays into industrial policy (the auto bailouts and subsidies to renewables).

Right supply-side signals

More of the above is not what America needs. Rather America needs the right supply-side signals – especially to entrepreneurs – to bring about an economic recovery and renaissance.

That is what Ronald Reagan did in the 1980s. He tapped into the can-do spirit, the rugged individualism, of America. It is this American vitality, which a European-style social democrat like President Obama has never understood, that makes me much more confident about the American prospect than Europe’s prospects.

Two harbingers of an American economic renaissance come to mind. The first is the innovative capacity of US multinationals, especially in services industries. They are best placed to take advantage of the needs and wants of burgeoning middle classes in emerging markets, especially in Asia. Hence America is on the cusp of a new export revolution.

And second is America’s energy revolution, driven by hydraulic fracturing (“fracking”) technology and extraction of shale oil and gas. Reaganesque, supply-side signals to spur such innovation are just what American needs.

Final implications

Two final implications of the US elections deserve mention, one domestic and the other external.

On the domestic front, while the presidential election grabs the headlines, the congressional elections are at least as important. Even if President Obama is re-elected, it is likely he will face even stronger Republican representation in Congress. That will clip his wings enormously. And if Governor Romney is elected, he and Republicans will have to compromise to get things done – just as the Founding Fathers, who designed a constitutional system of checks and balances, intended.

Compromise on public debt will matter most of all. Republicans are right to put overwhelming emphasis on spending cuts, entitlement reform and tax reform, but they should concede something on revenue-raising measures. This would be in the spirit of the Bowles-Simpson Commission on debt reduction. They envisaged $4 trillion of debt reduction over ten years, split between $ 2.8 trillion of spending cuts and $1.2 trillion of revenue-raising measures from tax reform.

Lastly, America’s economic choices at home matter hugely for the rest of the world. Economic weakness at home translates into weak leadership abroad. Other powers, notably China, are ascending; the world is more multipolar. But diagnoses and prognoses of American decline are off the mark today, just as they were in the late 1980s and early 1990s.

“Indispensable”

The USA is still the “indispensable” nation. China and other powers are nowhere near the constructive global leadership that the USA has provided since 1945, nor are they likely to be in this position in the foreseeable future. That is true of “hard power”.

It is even truer of “soft power”: the American “way of life”, particularly its model of liberty in a law-governed society, remains globally compelling in a way no other country can match – least of all China. Furthermore, only the deluded believe that international institutions are a substitute for American leadership. On the contrary, they can only work with American leadership.

Hence the world continues to rely on American leadership on security and economic issues. That applies to Asia too, where the USA is the vital “balancing power”. The conventional wisdom is that American leadership will get weaker and weaker. But I disagree.

As Alexander Hamilton foresaw in the early days of the Republic, American leadership abroad depends above all on economic strength at home. An American economic renaissance will translate into reinvigorated leadership abroad.  The chances of that happening will be better with a Republican victory this year.

(The author is Visiting Associate Professor of the Lee Kuan Yew School of Public Policy, National University of Singapore, and Director of the European Centre for International Political Economy in Brussels.)