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

• Economists differ on whether America's high-level national debt is already crimping economic growth. But there's broad consensus that the long-term problem is real and that charting a fiscal course correction soon will make the problem easier to solve.

History lesson No. 1: Whatever else you do, grow!

Paying down debt is a lot easier if you have income. Faster growth creates not just jobs but also the right climate for easing fiscal challenges. Countries don't even need to achieve an outright reduction of debt. Often the key is just to have debt grow slower than GDP.

Sweden in the 1990s is a case study in how this can work. In the wake of a severe banking crisis and real estate collapse, the Scandinavian nation needed both jobs and debt control. It had a host of problems, from high taxes to heavily regulated markets.

In a chain of pro-growth reforms, Sweden made its labor market more flexible, lowered tax rates (boosting incentives to work and invest), and deregulated large swaths of the economy. The changes scaled back the welfare state but were done the Swedish way, retaining a large government and relatively small income disparities.

"A lot of people were saying, 'Yeah, it's not a dynamic society, but it's an equal society.' Well, today it is both equal and dynamic," Sweden's finance minister, Anders Borg, told a gathering at Washington's Peterson Institute for International Economics in April.

The point isn't that America should pattern itself on Sweden in all respects. Rather, Sweden's story shows the benefits when a nation pursues growth, not just stimulus or austerity.

Sweden's debt today is a relatively affordable 36 percent of one year's GDP, whereas in 1993 it totaled almost twice that. While the country's total government debt today is higher, measured in kronor, than it was in 1993, the economy's expansion made the difference in the debt-to-GDP ratio.

What Lesson No. 1 means now

Obama and Romney talk plenty about the need for vibrant growth and job creation, but their proposals draw mixed reviews from economists. Growth-oriented policies can include everything from streamlining the tax code to cultivating scientific innovation.

Not all the ground can be covered in this story, but here are some important contrasts.

Romney's mode of nurturing growth emphasizes low corporate taxes and easing the regulatory climate, while Obama's emphasizes the positive role government can play as an investor in scientific research, education, and other projects (one of them being a network of institutes to promote manufacturing innovation).

Economist Robert Atkinson, who specializes in innovation policy, argues that economic success depends on pursuing both those paths, not just one or the other.

Critics of the president, including some economists who aren't Romney supporters, say Obama has missed job-creating opportunities – for instance, that he could have pushed harder for corporate tax reform or pursued more domestic energy production.

Romney pledges to promote free trade while cracking down on trade-rule violations by China. Some economists welcome that stance, arguing that naming China a currency "manipulator" would help set the stage for a US manufacturing revival. Others caution that a more confrontational approach on trade could backfire, causing a 1930s-style retreat from global trade that damages growth in the US and abroad.

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