Bloomberg op-ed by Betsey Stevenson, Justin Wolfers cites markets to argue "Romney's Party Isn't Fiscally Reliable"

October 8, 2012

Economists Betsey Stevenson and Justin Wolfers have opined in a column for Bloomberg View that if markets are any indicator, the Republican Party is not the party of fiscal responsibility.

In the piece, Stevenson and Wolfers consider how markets view the prospect of either a Democratic or a Republican winner in presidential elections. During the last forty years, for instance, bond yields have tended to fall with news that a Democrat is likely to be elected, indicating that investors expect a Republic president to increase national debt.

Historically, the authors say, the markets have been correct. "Presidents Gerald Ford, Ronald Reagan, George H.W. Bush and George W. Bush all presided over a rising national debt, in many cases despite reasonably strong economic growth. By contrast, before the last recession, debt has fallen as a share of gross domestic product under every Democratic president since at least Harry Truman."

A close look at market activity, Stevenson and Wolfers write, indicates that markets seem to believe the Republican Party has strayed from its commitment to fiscal responsibility.

"None of this tells us that Romney will blow out the budget deficit, or that stockholders are cheering for him to win," Stevenson and Wolfers conclude. "It does, however, suggest that his clearly articulated plan to cut tax rates, coupled with vague promises to make up the lost revenue by eliminating unnamed deductions, should be viewed with some skepticism."