In a live interview at the Huffington Post, Krugman says the following:
"I think there's a real chance that he'll manage to pursue a policy in the first couple of years that simultaneously blows up the deficit and depresses the economy. Tax cuts for the rich, who won't spend them, and slash spending for the poor and the middle class, who will be forced to cut back. And so we end up managing to have a simultaneous deficit explosion and double-dip recession....
"I'm not seeing a lot of evidence that he [Romney] really does understand it [economics]. People say he's a smart guy, but it's not visible in his statements, and it's not visible in his off-the-cuff reactions either."
As we've all learned over the last 12-plus years, Krugman has a startlingly good track record when he makes predictions. But, while I certainly share his sense of the lack of verbal evidence that Romney is intelligent or understands economics, I note that there are indications, from time to time, that Romney does indeed know about the basic Keynesian stimulative story. And several of his economic advisors have made statements in the past suggesting that they favor fiscal stimulus (as well as more aggressive Fed policies) when there is a Republican president.
So the question is how Romney could meet his commitments to cut taxes on the rich and spending on the middle class and the poor - which I think the Republicans in Congress and the commentariat would be demanding, even if we agree that he is devoid of actual policy views beyond general plutocratic sentiment - and yet avoid a double-dip recession, which he knows would not be good for him politically. Pushing the Fed to be more aggressive is probably not enough, given its lack of strong tools, although I am certain he would try it far more aggressively than Obama has.
One possibility is that a Democratic Senate would give him running room to simply do nothing and let the economy continue recovering slowly by itself. But a Republican House plus Fox News would still be all over him, and he might be able to peel off a couple of conservative Democratic Senators to vote for his budget policies even if Republicans don't have the majority. Hard to think that he wouldn't do this, despite the political virtues of having an excuse, if it is indeed possible. He does, after all, seem to want to look effective and strong.
How else could he get out of the box? Well, it strikes me that war with Iran (or anyone else who proves conveniently available) would certainly be one way to go about it. This would create a scapegoat, allow stimulative spending in pursuit of the war, and perhaps inoculate him politically for a while via the rally-round-the-flag phenomenon that we commonly observe in times of foreign policy crisis.
Has Krugman therefore missed out on what is actually the worst case scenario here?