Does Mitt Romney Have a Secret Economic Plan?

As when I first proposed it this fall, my suggestion that Mitt Romney might have a secret plan for the economy elicited guffaws. Andrew Sullivan says I wrote "one of the dumbest paragraphs" he's read this year. But hear me out: It's less stupid than it sounds.

In general, the best way to figure out a politician's intentions is to read his platform. But Mitt Romney is no ordinary politician. His ideological positions are entirely flexible and his capacity for pandering enormous. His platform reflects what he thinks will help him get elected, not necessarily what he will do if elected.

It's possible to understand every action in Romney's life as an effort to become president. But once he is president, what will his goal be? I don't know (nobody knows) but I suspect getting re-elected will be near the top of the list. To increase his chances of getting elected, he will have to implement policies that are likely to grow the economy.

Redoubling on Bush Administration economic policies -- with the added factor of severe budget austerity laid on -- is unlikely to serve that end. So, Romney will have good reason to implement policies that aren't in his stated platform, even if that means butting heads with Republicans in Congress.

The usual argument is that Romney will be boxed in: He's promised to be an Orthodox conservative, the Republican base doesn't trust him, Republicans in Congress have shifted far to the right.

But there are also countervailing factors. Congress was radicalized by opposition to Barack Obama, and is likely to be soothed by the return of a Republican president. George W. Bush had significant success in bending Congressional Republicans to his will, even when that meant expanding government.

And whatever his approval rating, Romney will be far more popular than Congress, which is now less popular than Communism. Like New York Governor Andrew Cuomo, he should be able to translate that popularity gap into the upper hand in negotiations with the legislature.

So what will Romney do to revive the economy, or at least avoid damaging it? I think Sullivan is right that he will break his austerity promises and run appropriately large budget deficits in the near term. Unlike Sullivan, I doubt he'll actually invade somewhere (a war doesn't seem like the kind of project Romney would enjoy overseeing) but it is likely that he will implement larger-than-desirable military spending.

That spending won't come at the expense of non-defense programs, as it does in House Republicans' current spending proposals. Deep program cuts are more popular on paper than in practice, and some of the Republican proposals (like a Medicaid block grant structure that sharply cuts federal spending) would run into opposition from Republican state officials, who would fear additional pressure on their own budgets.

Remember, when Romney ran for governor, he said the federal government should spend more on Medicaid. Watch for Republican governors like Chris Christie to become voices against these cuts, backing up Romney in an effort to spend more on defense without cutting elsewhere -- and financing the spending with deficits.

Eventually, economic conditions will change and large deficits will no longer be desirable. Andrew notes that Republicans have "theological" opposition to tax cuts, and I think it's true that there will be no tax increase so long as there is full Republican control over the federal government.

That may mean the fiscal adjustment is delayed until after the 2014 or even 2016 election. But if and when Democrats control a piece of the apparatus, the eventual expiration of the Bush tax cuts will make it possible to put together a revenue-raising deal while still allowing Republicans to say they never agreed to raise taxes. Obstinacy on deficit reduction is a luxury politicians enjoy because today's economy does not actually demand deficit reduction; when the economic reality changes, the political reality will change along with it.

Obviously, none of that fiscal policy is terribly appealing; it's the same muddling through we could expect in another Obama term, though, contra Sullivan, it wouldn't be significantly worse. But where I think a big improvement from Romney is likely is on housing policy.

While Romney has been conspicuously silent on housing, one of his top advisers, Glenn Hubbard, advocates an aggressive plan to restructure mortgages. The Hubbard plan would lower mortgage rates and reduce principal for underwater borrowers, both of which would stimulate the economy.

That's a tough sell to Republicans in Congress -- but they would be much more open to it under a Republican president than a Democratic one. The opacity of a restructuring program's finances -- upfront costs would be partly offset by repayments from homeowners whose values rise -- would make it hard to pin down the program's cost, making it an easier sell than stimulus spending.

Mortgage relief could also be coupled with long-term reforms, such as an eventual wind-down of Fannie Mae and Freddie Mac, which would please conservatives. It could be framed as "let's clean up the mess our predecessors made, at unfortunately significant cost, and then make sure it can never happen again."

The housing crash and our failure to recover from it is exactly the sort of policy problem that should appeal to Romney: It's complicated, he'll be able to understand it much better than the politicians he's negotiating with, and the solution involves a restructuring with many parties and Romney getting to play broker. This, not invading Iran, strikes me as the sort of thing Romney would actually enjoy doing as president.

We have been down the secret plan road with Romney before. He gave no indication, when running for governor, that he intended to implement the country's only plan for universal health coverage. But then he spearheaded a plan, basically of his own initiative, because he saw it as an interesting problem he could solve. It seems Romney-esque to view economic stagnation in the same way, and housing as a good angle to attack it.

Is it possible that I'm wrong? Of course. Romney could just acquiesce to the House GOP economic plan and slash and burn through the federal budget, tanking the economy. But I don't think Romney has devoted his life to the pursuit of the presidency so he can get to Washington and take orders from Eric Cantor. If he doesn't actually plan to lead after getting elected, then what was the point?

Betting on Romney's secret plan may not pay off. But given the impotence of the Obama Administration on economic policy -- which started well before Democrats lost control of Congress -- the opportunity cost may be low enough to give it a go.

(Josh Barro is lead writer for the Ticker. E-mail him and follow him on Twitter.)

Read more breaking commentary from Josh Barro and other Bloomberg View columnists and editors at the Ticker.

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