Economy Vexes GOP at South Carolina Debate

The Republican presidential contenders might want to watch a bit more CNBC or Fox Business Network. The first question from moderator Chris Wallace of Fox News at last night's GOP debate in Myrtle Beach, S.C., was about the chances of an impending recession and what actions the candidates would take as president to prevent or minimize one. In short: Are they in favor of short-term fiscal stimulus and, if so, what kind?

But Mitt Romney, John McCain, and Rudy Giuliani all gave answers mostly about what they would do to ensure the long-run growth of the economy and appeared unaware of the fiscal stimulus debate currently happening in Washington and being closely watched by Wall Street. Only Fred Thompson seemed to have actually read the morning papers or been thoroughly briefed on the subject. And only Mike Huckabee, and Romney to a lesser extent, made a real effort to acknowledge American's widespread economic anxiety. It will be interesting to compare the GOP debate answers to the stimulus plan Hillary Clinton is supposed to unveil today. Anyway, here's a brief analysis of how the candidates responded to Wallace's critically important question:

Romney said the main thing the government should do is stop the housing crisis but didn't specify how. He then went on to talk up his plans to cut middle-class investment taxes, get America off foreign oil, and invest in science and technology. Again, all long-term stuff. If he thinks short-term tax cuts or spending increases are a bad idea, he should probably at least say so and explain why.

McCain argued that the federal government needs to rein in spending, saying deficits are "what caused interest rates to rise. It causes people to be less able to afford their own homes. We need to stop the spending, and that way, we can get our budget under control and we can have basically a strong fundamental fiscal underpinning." That answer basically makes no sense. Interest rates have been dropping—both long and short—and seem poised to fall further. What's more, his simple "crowding out" argument about how government budget deficits affect interest rates is disputed by many economic conservatives. McCain also echoed Romney's call for energy independence and more government R&D spending.

Huckabee mainly tried to diagnose what was wrong with the economy—housing bust, high gas prices—with no short-term solutions or fixes other than supporting President Bush's mortgage plan.

Giuliani treated the possible recession as some sort of vague, economic hypothetical and ignored the fiscal stimulus debate. He then talked up his ginormous $6 trillion tax cut plan and added, "But that's not the only answer to how you deal with a possible recession. You also have to cut spending as significantly as you cut taxes. You have to be willing to impose cutbacks on each one of the federal agencies, the civilian agencies. You have to be willing to engage in regulatory reform so that we have a picture here in the United States where we're not regulating businesses out of the country." I am pretty sure that spending cuts as a way of dealing with a downturn went out with Herbert Hoover. Moreover, Giuliani hasn't offered spending reductions anywhere near the trillions of dollars in taxes he wants to cut. Points to the mayor, though, for understanding that some tax cuts may well pay for themselves, but not all.

Ron Paul said the economy is already in recession and blamed it as economic blowback for the Fed's loose monetary policy earlier this decade.

Thompson said the Fed is the first responder when recession looms but made no mention of Chairman Ben Bernanke's aggressive rate-cut comments from earlier in the day. But Thompson did make mention of a key fiscal stimulus measure that Bush may propose: "We need to look seriously at whether or not we should do things such as speed up depreciation schedules for businesses, those that create jobs, have a deduction for capital expenses instead of having to capitalize them, things of that nature." Thompson also held out the possibility of tax cuts or rebates for lower-income Americans if the economy worsens and said Congress needs to extend the 2001 and 2003 tax cuts to add more stability to the economy and certainty to business and consumer expectations.