If the economy is the key issue in the presidential election today, will the winner have a big impact on what ultimately happens to the economy?
No, says Mark Zandi, chief economist at Moody’s Analytics.
Zandi acknowledges that both candidates hold very different views of the role of government in the economy. Obama wants to keep the government highly involved in the economy, much like it is now, and would raise taxes and cut spending to maintain that. Former Massachusetts Governor Mitt Romney, in contrast, wants to reduce the size of government by cutting spending and lowering taxes.
But Zandi says, these different philosophies matter more in the long run, not the next two to four years.
Romney has promised to create 12 million jobs over the next four years; however, Zandi says no matter who wins the election the economy will see that level of jobs growth. “The dynamics” to create those jobs “are already in place,” says Zandi. Businesses, banks and households have reduced debt and real estate is rebounding.
“We’re going to get a lot of added juice from an improvement in construction activity,” he says. “That’s going to kick in and that’s independent of the election.”
Zandi says Obama and Romney would also address the key fiscal issues—the fiscal cliff, the debt ceiling and fiscal sustainability—in much the same way and then “this economy will be off and running.”
“I don’t think it really matters who wins,” says Zandi, who was also a former advisor to President Barack Obama as well as Senator John McCain when he ran against Obama in 2008.
He says, for example, that both Republicans and Democrats have a lot to lose if Congress fails to deal with massive spending cuts and tax increases mandated in the 2011 Budget Control Act, known as the fiscal cliff. He notes that either party will have a filibuster-proof 60 Senators for bills to sail through without compromise.
But Zandi cautions that the economy may have to literally go over the cliff in order to generate enough political will for compromise. In either case, Zandi says those spending cuts will hurt the economy early next year.
Romney’s economic plan to lower tax rates by 20%, limit deductions and credits and cut spending, without increasing the deficit, is very different from President Obama’s economic approach. But Zandi says Romney’s plan has no chance to become reality. “Given the politics involved that’s more theoretical than practical,” says Zandi, “It’s a bridge too far.”
He notes that the main difference between Romney and Obama on the economy is the timing of when each would deal with the big fiscal issues. He doesn’t agree with other economic commentators that a Romney win would mean a quicker response to the looming fiscal cliff. On the contrary, Zandi says.
“If Governor Romney wins, my guess is that President Obama will kick the can down into spring or summer to let the new president get up and running,” he says. “But if President Obama wins, then the clock starts kicking right way. But at the end of the day they both end up roughly in in the same place.”