How Mitt Romney Should Respond to the Improving Economy

Even if the economy continues to improve, Mitt Romney still can present a better plan than Barack Obama's.

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The terrain of economic debate is moving under former Massachusetts Gov. Mitt Romney's feet. His response, so far, has amounted to an acknowledgement of reality with a subjective caveat: Things are getting better in spite of President Obama's policies, not because of them.

This won't cut it in November. Voters assign blame or credit, without parsing, to the guy who's standing there.

Romney is smart enough to know this, but he's yet to figure out a compelling alternative. (Primary elections are keeping him rather busy, you may have noticed.)

[ See a collection of political cartoons on the economy.]

Here's a start:

He should point out that a U.S. economy that recovers to the status quo ante 2007 is not good enough.

His economic adviser, Glenn Hubbard, underscores this fact in a forward to Romney's economic plan:

[T]he crisis years of 2008 and 2009 pulled back the curtain on a problem: economic growth had been slowing. U.S. GDP growth has averaged 3.3 percent over the past 50 years. But in the 2002-07 period, before the crisis's eye of the storm hit the financial system and the economy, that growth averaged just 2.6 percent.

Thereafter follow approximately 150 pages detailing how a Romney administration would spur faster, more robust growth: lower corporate tax rates, more domestic energy production, regulatory streamlining, etc.

[ See pictures of Mitt Romney.]

This won't cut it, either. Former Gov. Tim Pawlenty ran aground in the same shallow water. He promised 5 percent annual growth. Economists' eyes rolled in disbelief. My eyes rolled for a somewhat different, broader reason. Namely: Headline growth is a great and necessary thing. But what's it going to do for working-class voters whose standard of living has fallen even when times have been "good"?

Romney has no real answer to this. He simply gives a cosmetic facelift to certain aspects of his pro-growth agenda: limiting capital-gains relief to the nonrich; maintaining the current 35 percent top income-tax bracket; indexing the minimum wage to inflation.

Former Sen. Rick Santorum has a nostalgically pleasing, economically dubious answer—revive manufacturing—but at least it's an answer.

President Obama, too, has an answer, as adumbrated in his State of the Union Address. The pre-Crash economy was a "house of cards," he said (rightly). Now we need an economy that's "built to last." The building blocks, if you will, are continued investment in infrastructure and technology and education: the cultivation of a smart populace that can out-innovate our rising competitors abroad.

[ See pictures of Obama Delivering State of the Union Address.]

And here's the opening for Romney, the savvy business consultant. He can say the Obama administration is right about the need for innovation, but it's going about it the wrong way; it's trying to micromanage us into the future. Essentially, it's betting blindly: Pour money into a 100 Solyndras, and, if we're lucky, maybe the system will spit out the next Internet.

The Romney administration, by contrast, would not haphazardly slurp up investment capital and spread it like chaff.

It would leave the bets to the private sector and focus on what the federal government has proven it can do well: basic research.

Here's a key passage from the Romney plan as it relates to energy innovation:

There is a place for government investment when time horizons are too long, risks too high, and rewards too uncertain to attract private capital. However, much of our existing energy R&D budget has been devoted to loan guarantees, cash grants, and tax incentives for projects that might have gone forward anyway ...

From the perspective of creating new jobs and strengthening our economy, the main line of policy should be directed toward technologies that will replace imported oil with domestically produced fuels or electric power. Mitt Romney believes the Defense Advanced Research Projects Agency (DARPA) model—ensuring longterm, non-political sources of funding for a wide variety of competing, earlystage technologies—holds the most potential for achieving significant advances in the energy sector.

( DARPA, you'll recall, is where the Internet was gestated.)

In other words, the Romney administration wouldn't bet blindly; it would invest wisely and leave commercial applications to the private sector. Perhaps this isn't a dramatic enough contrast between Romney and Obama. Conservatives such as

James Pethokoukis of the American Enterprise Institute

are begging Romney to offer sweeping tax reform and aggressive entitlement reforms.

That might work if it were, say, 1996.But this year is different. Romney can't win by massaging Larry Kudlow's erogenous zones.

[ See a collection of political cartoons on Mitt Romney.]

The multitude of American voters who've been left behind by Turbo Capitalism are going to roll their eyes and vote for the incumbent.

Romney needs to adopt the Obama diagnosis and persuade enough voters that the president won't actually win the future—he'll strangle it.