Paul Krugman: The Optimism Cure

Mitt Romney thinks he can use his magical powers to make the economy recover "without actually doing anything":

The Optimism Cure, by Paul Krugman, Commentary, NY Times: Mitt Romney is optimistic about optimism. In fact, it’s pretty much all he’s got. And that fact should make you very pessimistic about his chances of leading an economic recovery. ...

Mr. Romney’s five-point “economic plan” is very nearly substance-free. It vaguely suggests that he will pursue the same goals Republicans always pursue... But it offers neither specifics nor any indication why returning to George W. Bush’s policies would cure a slump that began on Mr. Bush’s watch.

In his Boca Raton meeting with donors, however, Mr. Romney revealed his real plan, which is to rely on magic. “My own view is,” he declared, “if we win..., there will be a great deal of optimism about the future of this country. We’ll see capital come back, and we’ll see — without actually doing anything — we’ll actually get a boost in the economy.”

Are you feeling reassured? ... You should ... know that efforts to base policy on speculations about business psychology have a track record — and it’s not a good one.

Back in 2010, as European nations began implementing savage austerity programs to placate bond markets, it was common for policy makers to deny that these programs would have a depressing effect... Why? Because these measures would “increase the confidence of households, firms and investors.”...

I ridiculed such claims as belief in the “confidence fairy.” And sure enough, austerity programs actually led to Depression-level economic downturns across much of Europe.

Yet here comes Mitt Romney, declaring, in effect, “I am the confidence fairy!”

Is he? As it happens, Mr. Romney offered a testable proposition in his Boca remarks: “If it looks like I’m going to win, the markets will be happy. If it looks like the president’s going to win, the markets should not be terribly happy.” How’s that going? Not very well. Over the past month conventional wisdom has shifted from the view that the election could easily go either way to the view that Mr. Romney is very likely to lose; yet markets are up, not down, with major stock indexes hitting their highest levels since the economic downturn began.

It’s all kind of sad. Yet the truth is that it all fits together. Mr. Romney’s whole campaign has been based on the premise that he can become president simply by not being Barack Obama. Why shouldn’t he believe that he can fix the economy the same way?

But will he get a chance to put that theory to the test? At the moment, I’m not optimistic.