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America’s Election and the Global Economy

STANFORD – As America’s elections approach, with President Barack Obama slightly in front of his Republican challenger, former Massachusetts Governor Mitt Romney, pollsters still rate the races for control of the presidency and the United States Senate too close to call, with the House of Representatives likely to remain in Republican hands. The differences between the candidates are considerable, and highly consequential for American economic policy and the global economy, although enactment of their programs will depend on the makeup of Congress.

The most important differences between the two candidates can be summarized as follows:

Spending. Obama has dramatically increased spending. He would likely continue many of his temporary programs (as Milton Friedman once observed, “There is nothing so permanent as a temporary government program.”); double down on having government pick winners and losers in green energy; expand spending on education and infrastructure; and substantially reduce defense expenditures.

Romney, by contrast, favors limiting overall federal spending, currently 24% of GDP, to 20%, and keeping defense at 4%. He wants private markets, not government, to choose winning firms and technologies.