WEALTH OF NATIONS
The Economics Of John McCain
Organizing much of his campaign around gas prices has forced McCain into a series of indefensible economic positions.Saturday, Aug. 30, 2008
by Clive Crook
LinkSince the start of the campaign, John McCain's economic proposals have come in for plenty of criticism, much of it justified. Lately, though, he has seemed to go out of his way to earn the complaints. Despite his thin credentials -- he admits that economics is not his subject -- one can well imagine that McCain might be a more successful president than Barack Obama on economic affairs. But it does get harder to imagine, the more he speaks out on the subject.
McCain's economic instincts are mostly right, it seems to me, and more to be trusted than Obama's. McCain is pro-business and pro-trade. He prefers low taxes and low government spending, and he worries about persistent budget deficits. He would be a more effective brake on the spending plans of the next Congress. He wants to get employers out of the health insurance business. He understands the link between immigration and economic vitality. Like his Democratic opponents, he wants to curb greenhouse gases; unlike them, he sees that this will likely require a big expansion of nuclear power.
All of this, to my mind, is good -- and these preferences hang together reasonably well, adding up to a moderate and pragmatic kind of economic conservatism. It should have been no great challenge to build a convincing policy program on this foundation.
Such a thing is nowhere to be found, and McCain's instincts are still all that we have. Crucially, his fiscal arithmetic fails to add up.
He promises to lower taxes, and to balance the budget in four years, but he will not say where he would cut spending. In area after area, McCain has failed to say exactly, or even approximately, what he wants to happen. He will reform this and improve that, he insists, but he rarely says how. Perhaps to make up for his silence, on the issues where he feels he has a political advantage -- gas prices and offshore drilling, for instance -- he has brazenly substituted simple-minded populism for honest economics.
The first item in his "Economic Plan" is "immediate relief for American families." Relief from what? First and foremost, from high gas prices. Promising oil producers and speculators that he intends to reduce American dependence on foreign oil, he says, will cut prices at the pump. His policies will strengthen the dollar, as well, he says, which will also make gas cheaper. He has continued to press the idea of a gas-tax holiday.
None of these ideas makes sense. The gas-tax holiday has been universally, and rightly, panned as a pointless gimmick. (Even McCain implicitly acknowledges this: If the idea made sense, why not call for the gas tax to be cut permanently?) Reducing American dependence on foreign oil, partly by offshore drilling, is a good idea, but not because it would make gas cheaper. (Whether it would exert much influence on the world price of oil even in the long term is debatable; in the short term, forget it.)
A stronger dollar might indeed make foreign oil cheaper in the United States, as McCain says, and reduce prices at the pump; though if it did, it would make the country more dependent on imported oil, not less. Meanwhile a stronger dollar would also make American exports more expensive, and thus weaken one of the few forces helping to sustain the country's economic growth. How, in any case, is the McCain administration proposing to drive up the dollar's value? Curbing the budget deficit might have that effect -- but, as noted, McCain has no credible plan of action on this, either. Taken together, his main tax and spending proposals actually point to a bigger deficit.
Perhaps it was a shrewd political calculation to organize much of his campaign around gas prices. On that, time will tell. But whatever the tactical virtues, this decision has forced the campaign into a series of indefensible economic positions, undermining whatever claim to competence in that area McCain could make. In the end, it is preposterous to couple a promise to curb greenhouse-gas emissions with a promise to make gas cheap, and you do not need to be an economist at the University of Chicago to see why. The cap-and-trade plan that McCain says he supports would make gas and other carbon-based forms of energy more expensive. That is why it might work. On McCain's own reasoning, gas needs to stay expensive -- and if people need help adjusting to dearer fuels, they should be assisted in ways that do not kill the incentive to economize on energy.
But there is worse. McCain's populist fixation on making gas cheaper has made it impossible for him to advocate an explicit carbon tax as the best way to curb greenhouse-gas emissions. This has two bad consequences. First, a carbon tax really is the best way to do it. This method avoids the complexities and opportunities for gaming that a cap-and-trade system is apt to create, and it makes the cost of action on global warming clear for all to see. (Admittedly, I am assuming that treating voters like adults is a good thing, even if not always the politically expedient thing.) It would also make international action on climate change easier to orchestrate, and such cooperation is going to be essential.
Second, if McCain had owned up to the fiscal consequences of a serious carbon-abatement regime, he would have had a clear source of extra revenue to set against the cost of his proposed tax cuts. That would have helped him balance his books. Granted, the revenues from auctioning emission permits under cap-and-trade could be used in the same way. But if you are intent on concealing the burden that climate-change policies would put on consumers, you can hardly draw attention to these revenues. The energy part of his "Economic Plan" does not so much as mention the cap-and-trade proposal. In choosing to campaign on the slogan "If you want cheap gas, vote for me," he has denied himself the best and most plausible way of making his fiscal plans add up.
Now and then, McCain is willing to be as brave and straightforward as I once supposed him to be. So far, at least, he has given no ground on liberal trade -- in marked contrast to Obama's laborious triangulations. He promises to cut corporate taxes -- a difficult idea to sell, but one that makes good economic sense provided the revenue loss can be made up. His fervent support for nuclear power was not without risk. He says he would repeal the tariff on sugar-based ethanol (again, he says, because it would lower the price of gas; but never mind). And unlike Obama he promises to roll back mandates on corn-based ethanol -- a lose-lose policy that has contributed to higher global food prices and has done less than nothing to reduce carbon emissions.
But all roads lead back to the hole at the center of McCain's fiscal policy. To preserve the Bush tax cuts, which he unaccountably intends to do, cut corporate taxes, and also balance the budget in four years would demand deep cuts in spending -- deeper and more sudden than would be desirable. Yet, aside from promising to block earmarks -- a worthy promise but one that yields meager savings -- he offers almost no specific proposals.
"After the completion of a comprehensive review of all programs, projects, and activities of the federal government, we will propose a plan to modernize, streamline, consolidate, reprioritize, and, where needed, terminate individual programs." After 25 years in Congress, he can be no more precise than this? What about Social Security, for instance? McCain keeps saying it is in bad shape and urgently needs repair. His proposal in full: "Americans have the right to know the truth, and John McCain will not leave office without fixing the problems that threatens [sic] our future prosperity and power." So it goes on.
It all reminds me of Monty Python's "Recipe for Rat Pie." 1) Get a rat; 2) Bake it in a pie.
Whatever one thinks of Obama's economic platform -- and there's plenty to dislike, in my view -- McCain has failed to develop an economic agenda of his own worthy of serious attention. He boasts that he has the support of more than 300 economists, and the list includes some very distinguished names. But I cannot believe that his academic supporters are endorsing the details of his plan, because his plan does not have any details to endorse. The reason they believe that President McCain would be better for the economy than President Obama, I am sure, is that McCain would resist rather than collaborate in the surge of spending to be expected from a strident new Democratic Congress.
They may be right. So far as the economy is concerned, the blocking powers of divided government may be the best reason to prefer McCain. But what a pity that he has done so little to advance a more positive case.
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