It’s early morning in Sweden right now, and I keep thinking I’m crazy for staying up just to watch a debate and then stay up even longer to analyse it.

Anyway, I’m going to keep this short (which is what I always think before I end up writing 2000 words).

The political consequences are going to be analysed by anyone and everyone, so instead I’m going to focus on my favourite area: The economy.

Today’s loser, from an economic perspective, is Tim Pawlenty. 5 % growth? For 10 years? And he is supposed to be the serious guy who can take on Romney? I mean, I had heard his 5 % growth thing before, but I assumed it was a metaphor and that he was going to clearify that tonight and tone it down. Instead, he repeated it. It’s pathetic to scream at the TV, but even more so scream at the computer at 3 AM in the morning.

Does he believe it himself? He cannot find an economist who believes that. 5 % growth is possible in a poor country that trades with rich countries (China being the most recent example). They can grow really fast until they reach the output level of the rich country, after which they start to grow at the same rate as the other rich countries. And no, this will not make the rich country poor (but that’s another topic).

Yes, I know it happened after World War II, but that’s because after World War II, americans had a lot of saved money that they hadn’t been able to spend during the war years due to rationing. Does Governor Pawlenty intend to re-introduce rationing during his first term, so he can create 5 % growth in his second?

Another reason for the postwar boom was the fact that the US lacked competitors in a lot of industries. See, all your competitors had been bombed. Does governor Pawlenty intend to nuke Hiroshima again? These are important questions he needs to answer.

Or, he can just admit his mistake and recognize the economic reality: It’s unlikely that the US can ever grow at more than 2 % in the long run. Sure, I know our economic models aren’t perfect, but that they would be off by that much I see as highly unlikely. Of course, if Americans were to start to save as much as they ought to save (approx. 40 % of their income), that could cause a boom in investment which would lead to higher growth – but only temporarily. Also, in the short run, increasing the savings rate typically doesn’t help the economy.

I simply cannot understand how a smart politician, surrounded by dozens of advisors, can fall into the trap of setting a goal for growth. The growth rate isn’t set by congress, it’s a function of a million factors. Even if Pawlenty gets elected and does everything right, a eurozone collapse or a slowdown of the Chinese economy can still destroy any chance the US has of recovery. What Pawlenty is doing is handing the 2016 election to the democrats on a silver plate. I can see the attack ads on how he lied about 5 % growth in front of me. Setting expectations too high is what democrats do, and it ends up hurting the economy. A president promising 5 % growth can only have two possible effects: 1) Investors believe him, and they’ll start to build houses and produce luxury goods (which are in high demand during booms) like never before, believing that since the economy will be growing at 5 % a year, there will definitely be a demand. When the demand isn’t there (and it won’t be, since the economy can’t grow at 5 %), the economy crashes and all those businesses will be standing there with goods they can’t sell. or 2) Investors do not believe the President, instead they draw the conclusion that he is clueless about economics and stops listening to him. They lose whatever confidence they had in the american economy when they realize the american people have once again elected a President who lacks a basic understanding of macroeconomics and growth theory. Kind of like how they lost trust in Obama after he kept talking about recovery summers which in the end only existed in his imagination.

I personally liked Santorum the best. He pointed out the obvious; that the debt ceiling had to be raised and that you can’t cut 42 % of the government spending overnight. Stating the obvious typically isn’t a merit, but when no-one else does, it makes you stand out. We need to from emotional conservatism to rational conservatism. It feels good, emotionally speaking, to say “Let’s not raise the debt ceiling! Balance the budget now! And send Obama back to Kenya!” but once you’ve calmed down and you think about it in strict, rational terms, you realize it’s unreachable. Makes for a good slogan, perhaps, but the seriousness of the fiscal crisis calls for more than just good slogans. I’d love it if anyone who doesn’t believe that raising the debt ceiling was the right thing given the current situation (which of course is very regrettable) could offer a real alternative: Where is the money going to come from, the money that goes into medicare, medicaid, social security, defense and everything else? Is it all just going to disappear over night? And let me also point out, the US would have been downgraded even more if the debt ceiling had not been raised at all, as that would have increased the risk of default by a hundred times. Of course, the cuts should have been deeper, and of course they ought to cut more now and not just postpone everything to the future. I completely agree – but not raising the debt ceiling at all under any circumstances wasn’t even a realistic option.

Of the other candidates, Romney played very safe, didn’t say anything stupid but also didn’t have any really memorable lines. He didn’t need to, already being the frontrunner. I have to say my opinion of Romney has become more favorable the past months, but I’m not ready to support him for the GOP nomination (though I will support him if he’s the nominee). I’m still sort of hoping that Huckabee will jump back in. I am confident that he would have swept the floor with all these candidates.

Paul had some good points, and I got huge respect for the Austrian School of Economics. As I’ve mentioned earlier, I first got interested in economics when I read Mises, Hayek, Reisman and the others. Still, Austrian economists of today seems to be too focused on bringing back the 19th century rather than developing solutions for today’s world.

Pawlenty lost tonight’s debate. Who else won or lost is hard to determine; we won’t really know until we get the results on saturday. But Pawlenty lost, and he now has put himself into more trouble than he can ever imagine. This debate, and every other time he’s ever mentioned 5 % growth, will come back and haunt him maybe for the rest of his political career.

And that’s a shame. Because Tim Pawlenty is an experienced governor with a lot of great qualities we could use in the White House, but having such an unrealistic goal hanging around his neck will make him much less efficient as a President.

That’s it for tonight. I realize a lot of people are going to disagree with me on this, and you’re welcome to leave comments and I’ll respond as soon as I can.

Thanks for reading.

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  1. You are “right on” with you comments regarding Santorum and raising the Debt Limit!
    I thought Gingrich clearly won the debate tonight, so I hope he can stay in after Saturday.  Based on tonight’s performance, I don’t see anyone other than him or Santorum winning a similar debate with Obama! 
    I’ve never seen Ron Paul looking so OLD!  He seemed confused at times too.  Bachmann seemed wimpy to me.  It probably doesn’t help that she is the only woman in the group.  Don’t get me wrong, she is a very intelligent person, but I don’t see her as Presidential material.

    1. Ron Paul IS old! But I think that’s what we need. Someone who has been in the game a long time, knows how it works, and hasn’t flip-flopped on his stance. He had a great point I’m surprised John didn’t bring up; he stated we need to get rid of the FED (as he always does) but that it wouldn’t be something that happened over night.  I think Mitt Romney is phony baloney. I haven’t forgotten the last election. He is too similar to Obama for me. People voted for “hope” and “change” last time. Sure, our government isn’t working, and we need change. So why not vote for the guy who predicted what would happen with the economy YEARS ago when people were talking about his “crazy” talk. If they had listened, maybe we wouldn’t be in this mess. He has not only had a surplus in Texas, he has put it straight toward our nation’s debt two years in a row. He’s not just talk. I wish people would acknowledge these facts. It frustrates me that those types of things don’t get national coverage. Who doesn’t want to vote for someone who wants to give us our freedom’s back? That’s beyond me. Gingrich did bring forth intelligent material, but I didn’t hear him say anything that other candidates haven’t. He may be financially smart in many aspects, but I don’t think he is well rounded enough on the issues to be our president. I wish they would ask questions as to why the president is allowed to propose a budget? Isn’t that Constitutionally the  House’s job? I guess maybe I read that document wrong…. and as for social issues, when did they become as important as keeping our government running? In my opinion, I think Ron Paul has found the solution. Leave the social issues up to the states to decide and let the Federal government deal with the Military, Monetary aspect, and Enforcing the laws. Just my opinion.

      1. Katie, now that you’ve given me such an excellent opportunity, I just have to brag about the fact that I saw this crisis coming too in 2007, when I was 16, and during the financial crisis I wrote a lot of blog posts on a Swedish blog, and many of my predictions came true. Anyway, now that I’m done bragging, let me just say that I’m not a big fan of the Federal Reserve. I believe they were a part in creating this crisis by, just as Rep. Paul says, printing money out of thin air. I do believe an economy can survive without a central bank, but I’m sceptical to getting away with it now that we do have it. Every move, every investment and every change must have a return great enough to justify the risks involved in making it. I believe there are less drastic ways of controlling the federal reserve than shutting it down, but I completely understand the case made against the Fed. I do believe the Fed should be held responsible for its actions and that that’s the main problem; the “indepdence” of the Federal Reserve which means we can’t investigate it and push them up against the wall. It’s not like the Federal Reserve couldn’t figure out that this crisis was going to happen eventually; they’re not incompetent, they just obviously didn’t have any incentives to do well. They’re not independent in real life, they were subject to pressure from a lot of congressmen who wanted everyone to be a homeowner. I don’t think they can ever be independent, so let’s just make it official that they’re not. I’d rather have the money supply issues handled by people I can vote out. 

    2. My theory is that in order to survive the straw poll, you must place higher than Romney. Yes, I really think he sets the bar. He hasn’t actively tried to win the straw poll, so placing behind him will be absolutely unspinnable. I don’t think Gingrich can survive much longer. I kind of wish he hadn’t ran, so that we could have remembered him for what he was, not what he is. But I agree he did well in this debate, with the exception of him insisting that completely fair questions were “gotcha questions” – that’s something you expect to hear from Palin, not from him. I could have analysed more, but I figured no-one wants to read more than 1000 words and I’m honestly a tad tired. It’s morning here and I haven’t even gotten to bed yet. 

  2. Pawlenty and Huntsman were really disappointing. Paul was great but I just don’t see him in the presidency. He belongs in the Senate. Cain had some good points as well but he’s another one that doesn’t belong in the presidency. Romney was neutral. No opinion one way or another. Santorum was good alongside Gingrich. The only thing with Gingrich is that I feel as if he has already has his day and should just resign to being a commentator for the rest of his life. Santorum in the end is just not clicking for me. Finally, I was disappointed with Bachmann. Poor showing. I will give her another chance but if she doesn’t turn it around no way I am voting for her. Bottom line, I think the field is wide open for Perry. He has an opportunity to rip right through these candidates if he does it right.

    1. I think they will be quite tough against Perry. Bachmann in particular, as she will be fighting to preserve her spot as the anti-Romney (she’s been the flavor of the month as we know). Romney will relax, not attack anyone, at least not until the primary season actually begins and he knows whom he will be up against – right now we don’t know. It looked like Pawlenty, then Cain, then Bachmann, now Perry. I like Ron Paul, but I think he should run for either senate or, even better, Governor of Texas. Times like these, I really miss Mike Huckabee. He had it all. I folllowed him for three and a half year. I feel the race is unserious without him. With him, Romney’s opponent was given: It was a Huckabee vs Romney race from day 1, with Gingrich and Palin being in the second tier. When he got out of the race, all kinds of unserious candidates began declaring, all of them hoping to be the next Huckabee. But there’s only one Huckabee, and he is stuck in a fox news studio. Sorry for going off topic, but for me it was a personal tragedy when Huckabee didn’t run. And the way things look right now, it may end up becoming a national tragedy. 

  3. Second debate and ed reform initiatives ignored. Leaving that to the last five minutes continues the ed reform and both political establishment narrative….ignore. Silence is the status quo.

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