John McCain has put forward an economic program that won’t rescue the economy from its mess but Senators Clinton and Obama offer little more.
McCain advocates tax cuts for parents and corporations and mortgage relief for distressed homeowners, paid for by pairing nondefense, discretionary government spending and higher Medicare premiums for the well off.
Cutting taxes and government outlays together won’t boost spending for U.S.-made goods, increase traffic at restaurants and dry cleaners, put unemployed back to work or resurrect growth.
Neither would a stronger stimulus package, because the economic quagmire is not a 1950s-style recession, caused by a temporary buildup of unsold goods precipitating shorter shifts and layoffs. Rather, it is caused by systemic malfunctions, created by wrong-headed energy, trade and banking policies, that won’t easily resolve themselves.
In 2008, net petroleum imports will likely cost $400 billion, up nearly ten fold since Bill Clinton took office. Many oil dollars sent to Arabia, Russia and other friendly places are not spent on American goods and do not create jobs here.
Coupled with booming prices for food prices, rising gasoline, electricity and heating bills give Americans less and less to spend on nonessentials. Retail sales sink, layoffs mount, and wages falter.
U.S. exports have not kept pace with the bills for oil and the other goods we buy abroad. Since Clinton took office exports have increased about $1.1 trillion, while imports have jumped $1.7 trillion.
The overall result is a $700 billion dollar trade gap that reduces GDP by $250 billion and longer-term economic growth by even more.
Americans use too much gasoline, and the ethanol program dents the problem much less than it pushes up prices for butter, baked goods and beef, and instigates food shortages in poor countries.
Ethanol is the sophistry begotten by pandering for farm votes. The real answer lies in more fuel efficient vehicles manufactured with readily available and reasonably obtainable technologies, within our reach. [Techno-break-throughs are not the only salve. Rational local and regional networks for distribution of food and other products cold easily halve transcontinental 18-wheeler traffic on the Interstates, with huge fuel savings. Editors.]
Our free trade policies would raise productivity and living standards if we paid for what we buy abroad with exports, because exporting industries use labor more productively and spend more R&D. However, governments in China, Japan, and much of Asia intervene in foreign exchange markets to keep their currencies artificially cheap and U.S. exports too expensive in rich markets with the greatest untapped opportunities.
McCain, Clinton and Obama all refuse to back bills pending in Congress that would get tough with Asian currency manipulation, and establish conditions for more balanced trade with those protectionist regimes.
Since the 1980s, banks have moved from making loans funded by deposits to jobbing out lending to mortgage brokers and private equity funds, and wrapping mortgage, credit card and business loan payments into complex bonds for sale to insurance companies, pension funds and other fixed income investors.
Mortgage brokers made liars’ loans, built on questionable assessments of home values and borrowers’ ability to pay. The banks understated default risks to fixed income investors, and skimmed off excessive profits and bonuses, and left too little to cover defaults.
The Bush Administration is seeking tougher standards for mortgage brokers and real estate appraisers but its reform proposals for financial regulation go light on the questionable business practices of the Wall Street banks.
Predictably, fixed-income investors will no longer buy bonds created by the banks, and the banks have much less money to lend homeowners, consumers and honest businesses.
The presidential contenders, all busy harvesting contributions in New York’s financial district, have not explained their plans to fix that mess.
On important energy, trade and banking issues, McCain offers Bush redux.
Clinton’s platform is a throwback to 1970s French statism. Obama is offering what he does best: an Elmer Gantry campaign, full of expressions of hope but thin on policy and anything truly new.
It seems elephants have long memories but few new ideas. Donkeys are endearing but even less adaptive.
PETER MORICI is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.