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Obama or Romney: Whose debt reduction plan does history favor?

The two presidential candidates would pursue different paths to lead the US out of debt. Here's how debt-saddled countries of yore have dealt – successfully and unsuccessfully – with the problem, and how those lessons might apply today.

By Staff writer / October 23, 2012

Tina Veira cleans bells at Bevin Bros. in East Hampton, Conn. The company is resuming production, which stopped when a fire destroyed its factory.

Jessica Hill/AP

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When President Obama and Republican challenger Mitt Romney make their pitch to voters on how they'd tame the nation's debt and grow the economy, each suggests history is on his side.

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It's partly campaign rhetoric, but it represents a substantive point: The way forward for the US economy will be smoother if the nation takes appropriate cues from the experiences of other countries – and from its own past.

What are those lessons? The candidates have eagerly shared a few.

Mr. Obama notes that he arrived in office with the nation already in "the middle of the worst economic crisis since the Great Depression," a kind of contextual asterisk reminding voters to have patience on the road to recovery.

He also tells voters that a Romney presidency would return America to a failed Bush-era vision "that got us into this mess," a reference in part to policies that added to the federal debt while keeping taxes low for the rich.

And he refers to the policies of Abraham Lincoln, arguing that investments in education and infrastructure make government a contributor to economic growth, not an inhibitor.

Former Massachusetts Governor Romney says his tax reform would follow Ronald Reagan's 1986 approach, in which lower tax rates buoyed job growth, while limits on deductions helped ensure adequate federal revenue. And in the first presidential debate of the season, he pointed to the current financial crisis in Europe to make his case for big spending cuts.

"Spain spends 42 percent of their total economy on government. We're now spending 42 percent of our economy on government. I don't want to go down the path to Spain," he said.

So what are the most salient lessons history teaches about emerging from a deep slump – one attended by banking woes and rising debt? This story will highlight three broad lessons.

First, some general points to set the scene:

• Although America's economic path has been rough over the past four years, the United States isn't doing badly compared with other instances when recession has been accompanied by troubles in the financial system. Charts comparing various "financial recessions" at home and abroad suggest the recent US course is typical. This still leaves room for interpretation when it comes to Obama's track record. Some can say that he missed opportunities to kindle a faster recovery, others that the economy has done better on his watch than he's been given credit for. In fact, both points may be true.

• When it comes to the way forward, Obama and Romney have similarities as well as differences. Although Romney calls for a cap on government spending at 20 percent of gross domestic product and Obama does not, both candidates have voiced support for reducing federal deficits. That hints at another similarity: Neither is calling for the kind of stimulative fiscal policy next year that many economists recommend.

• Forecasters generally expect things to get better over the next four years – and for federal deficits to fall – no matter who is elected. The job market is improving, and US households have made substantial progress in "deleveraging" after heavy borrowing during the housing boom, both of which should buoy the economy's consumer sector. A big caveat: Europe's debt crisis and America's "fiscal cliff" (expiring tax cuts and new curbs on spending) cloud the outlook.

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