Next Tuesday Presidential elections will be held in the U.S. I do not know if there has ever been so much uncertainty about the outcome and, above all, about its consequences. Mr Obama is a well-known politician, but nobody knows what Mitt Romney could mean for the world and for us. What we have seen in campaign is that his economic proposals are crazy inconsistent.
At least since Ronald Reagan's era, Republicans have a single motto: to reduce taxes. This can be a long-term stimulus, but the problem is that they have no long-term strategy. They do not consider the high current debt approaching 100% of GDP, apart from promising to raise military spending, which would be a heavy additional burden on long-term debt.
In this aspect they are similar to Mr Reagan although he inadvertently managed to lower taxes and raise military spending and it resulted in a purely Keynesian policy that strongly boosted GDP. What he did really well was the deregulation of the goods markets. Financial markets deregulation, as I have explained before, has been one of the causes of the crisis. And that is Romney's way: go-go deregulation.
In the chart you can see the evolution of public deficit under Reagan and then how it went down under Clinton. The red line is the debt / GDP. The blue one represents the Fed's interest rate. Reagan ruled from 1980 to 1989.
Reagan showed us that Keynesian politics do work, at least in the short term. What would R. Braun say about this heterodoxy? I would tell him that facts are facts. Mr Reagan was a Keynesian, a liberal one because he deregulated markets. Clinton was a monetarist because he played with reducing the deficit in exchange of lowering interest rates.
I'm just saying this to prove that elections are a big enigma. Nobody expected Reagan to trigger the Berlin's wall fall. Not even him expected it.
We do not know what will happen if Mitt Romney wins. Probably, U.S. debt will rocket. If the Keynesian model would work again, demand will rise and so will employment, but not in a healthy way because fiscal problems would worsen.
I guess Republicans would try to blame the next President–I wish he had Clinton's luck then. But history does not always repeat itself. Maybe they would try to declare war on some country, something that they know how to do. That would make deficit and oil prices sky-rocket. And we'd go to hell.
