Thursday, October 4, 2012

How much growth does Romney need?

So, among the things that Mitt Romney said last night were these:

1) His policies will create 12 million new jobs

2) He will not support any tax cut that increases the deficit

3) He will, in fact, eliminate the deficit, which he claims is a moral issue

He pointed out (correctly) that there are basically three approaches that you can take to balance the budget. You can increase taxes, you can cut spending, or you can grow the economy.

And when I say "grow the economy," I mean, put in place policies that increase the number of jobs.

Also, when I say "grow the economy," I throw up in my mouth a little bit, because, ugh, seriously, "grow the economy?"

Whereas Obama argued for a balanced approach, involving a combination of spending cuts, tax increases, and growth, Romney seemed to be arguing for a growth-focused approach.

Well, Howard Hill, a retired investment banker, did a little back-of-the-envelope calculation to ask how much growth would be needed to eliminate the 1.3 trillion dollar deficit.

He finds, assuming that Romney cuts the top tax rate to 28 percent (which he has argued you need to do, you know, so that the job creators can create jobs), and assuming that this leads to the creation of 12 million new jobs, those jobs would have to pay an average of $433,333 per year.

Alternatively, if we assume that the new jobs will pay an average of $40,000 per year, then to cover the deficit, you would need to create 162.5 million new jobs, which is about 12 million more jobs than the current total civilian workforce.

The point is, even if you give Romney the maximum benefit of the doubt, and buy into the tax-cuts-equals-job-creation argument, there is just no realistic way to tackle a significant portion of the deficit with job growth alone.

Of course, the thing that Hill does not explicitly consider is increased tax revenue from increased salaries from existing jobs. For example, if Romney's plan were to create 12 million new jobs, each of which paid $40,000 per year, and the salaries for the existing 154.6 million jobs were to increase by $40,000 per year, that would do it.

And, everyone could buy a pony.

So, maybe Romney wants to increase the minimum wage to $27 an hour?

Which brings us back to our original point. There is no realistic way to tackle a significant portion of the budget deficit through growing the economy. *hurk*


  1. The other way to eliminate the deficit is through inflation, which is exactly what would happen if you raised the minimum wage to $27/hr, and is exactly the way the US got out from under its huge debt from WW2. Inflation is also how Greece should be getting out from under it's debt, except that it's Euro-zone membership prohibits it.

    1. Yup. But hey, it turns out central bankers mostly work for creditors, not debtors. Whoda thunk?

  2. Shorter version: Rmoney is banking on widespread innumeracy. (I don't see any reason to suppose he's innumerate himself - I'll grant him that much cred for his Bain experience. And that means he knows he's hawking snake oil.)

    1. Absolutely. I think his whole economic "plan" is pure cynical, disingenuous pandering.

  3. What kills me is that by taking a simple Economics 101 class, you realize so much of everything they say is utter bullshit. Yet a vast majority of the country believes it and factors it into their decisions.

  4. What about a smaller claim? Romney claims that whatever tax cut he makes will not add to the deficit. The mechanism according to Romney is new job tax revenue and closing loopholes. Assuming no loophole is closed, what would have to be the salary of the 12 million new employees to achieve this, that is to maintain the 1.3 trillion annual deficit?