Hoover administration Treasury Secretary Andrew Mellon's infamous solution for the Great Depression was liquidation, as in his call to "liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system."
Who would have thought, in view of the debacle ultimately engendered by Mellon's advice, that 80-odd years later, the Republican Party would again make liquidation its main election theme? But that's what Mitt Romney and his party have done by choosing Congressman Paul Ryan as their new candidate for vice president.
Like Mellon, Ryan abhors what he calls "big government" and calls for massive reductions, abolition, and reshaping of government programs like Social Security, Medicare, Medicaid, and education. This is all in an effort to slay what Ryan and conservative Republicans see as the twin dragons of rising national debt and overly high taxes. In this view, taxes are stifling entrepreneurial spirit and investment while federal deficits and rising national debt are preempting capital, threatening future inflation, and thereby undermining the confidence of investors. In this view, government spending on anything except defense, which Ryan would leave largely untouched, is wasteful and deleterious to the economy and the human soul.
Of course, there is a large element of faith involved in this program. It is that cutting "big government" will automatically result in the revitalization of the U.S. economy and the resurrection of the American Dream. What neither Ryan nor Romney nor the Republican Party has done is to show exactly how this is supposed to happen. When confronted with the question of how to draw the line from trillions of dollars of reduced federal spending to millions of new jobs, they can't do more than speak of renewed "confidence" and reduced "fear" of inflation. They have faith that somehow these sentiments will translate into more production and jobs, but they don't know exactly how that might work.
Ironically, Obama and the Democrats have the same kind of faith -- only in the opposite direction. They warn of the grave risks of inadequate federal stimulus spending and of the danger of further decline in GDP growth and rises in unemployment if supplementary spending is not approved for unemployment compensation and for support of cash-strapped state-government programs. In this case, it is easier to identify the jobs that will be saved or created by the proposed spending. But there is also a faith that saving these jobs will lead to a jump-start to the economy that will also create booming new production and additional new jobs. When asked, the Democrats can no more describe exactly how these jobs will come about or from whence they shall arise than the Republicans can say the same for the slashing of spending and taxes.
The truth is high-tax, big-government countries like Sweden, Germany, and China are doing well economically and so are small-government, low-tax economies like Singapore, Hong Kong, and Switzerland. The fallacy here is the exclusive focus on macroeconomic elements and policies as the major drivers of growth an employment.
More important are globalization and competitiveness policies. Countries like Germany, China, Singapore, and South Korea that make being competitive a high national priority and that develop structural policies for ensuring their presence in key industries rather than taking job creation on faith tend to do well. Those, like the United States and Britain with a more high-faith approach, tend not to do as well.
The great shame of the U.S. presidential election so far is that neither party is focusing on the main game -- real jobs for real people.
Clyde Prestowitz is the president of the Economic Strategy Institute and writes on the global economy for FP.