Obama vs. McCain 2008: Round 6: Economy

This is the sixth of a weekly series of public forums on TMB. Watch for a new round every Monday. The schedule and comment policy are available here.

I’ll leave this forum very open-ended.

The economy. McCain. Obama.


And don’t be afraid to ask questions (e.g., “What does McCain think about xyz?”)

Next week: Abortion.

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54 Responses

  1. “Stay the course? You’ve got to be kidding. This is America, not the Titanic. I’ll give you a sound bite: Throw the bums out!” — Lee Iacocca

  2. OK, I’m going to need a little more context for that one, Leo.

  3. In no particular order, the context is: weak job creation, soaring bankruptcies, huge budget deficits, huge international trade deficits, a weak dollar, dependence on foreign oil, inflation and unemployment both rising, the housing bubble, the credit crisis, a widening gap between the rich and the poor, persistent and increasing poverty while the wealthiest get tax cuts, falling consumer confidence, a falling stock market, and a looming recession. We could call it the American Sunset instead of Morning in America.

  4. Leo, what is the solution to your list of problems? Which candidate will best address the problems and why?

  5. We’ve had an incurious president holding fast to a rigid ideology. I think it is safe to say that big business and big oil have had the president’s ear to the exclusion of nearly everyone else. Why not go with a really smart and pragmatic candidate from the ranks of the people, not the plutocrats, who is willing to change course?

    As for an energy policy, check out http://www.westerndemocrat.com/2008/07/independence.html

  6. Ok. So who is the “smart and pragmatic candidate”? And what will he do to fix the long list of problems you listed?

    As for energy, your website simply states the obvious: that Republicans and Democrats are both approaching it wrong. So what do you propose instead?

    Here are my thoughts: http://pendulumpolitics.blogspot.com/2008/06/energy-straight-talk.html

  7. I can get you started (I’m assuming Obama is your “candidate from the ranks of the people”, a proposition I find laughable).

    Your list:

    weak job creation – Obama’s promise to increase taxes on owners of capital will hurt job prospects, not help them (though he will probably increase unemployment entitlements, which is a band-aid, not a cure).

    soaring bankruptcies – what does he propose to do about this?

    huge budget deficits – Obama promises endless increases in spending without requisite tax increases (indeed, to finance his big plans we would need some major, economy-crippling increases). This is just as bad as the endless-tax-cut ideas of conservatives.

    huge international trade deficits – please explain to me what the negative effects of large trade deficits are. Most economists aren’t concerned with the trade deficits themselves as much as they are concerned about the equivalent deficit between savings and investment. This is just a term to get economically ignorant people worked up.

    a weak dollar – ok, what’s his plan here? This falls under the Fed, not the president.

    dependence on foreign oil – I’ll be interested in hearing how he plans to fix this

    inflation and unemployment both rising – this is a repeat (“weak dollar” and “weak job creation”)

    the housing bubble – the market is currently fixing this problem in the form of foreclosures, which you will address from the above line

    the credit crisis – liquidity is the responsibility of the Federal Reserve, not economically ignorant politicians like Bush, Obama, and McCain (thankfully)

    a widening gap between the rich and the poor – fair enough, redistributive taxes should address this (but at what cost to growth?)

    persistent and increasing poverty while the wealthiest get tax cuts – you need to provide some evidence for this. I, too, disagree with Bush’s tax cuts, but in percentage terms, they helped the poor more than the rich. This is a common, and inaccurate, liberal accusation

    falling consumer confidence – and what do you propose the President do about this?

    a falling stock market – ditto

    and a looming recession – I think this is tied up in several of the other issues.

    We could call it the American Sunset instead of Morning in America. – Give me a break, this recession is certainly not the worst thing America has faced.

  8. This is what I mean about rigid ideology, continuing to cling to the failed strategy of unfettered markets and tax cuts. Remember, if your cat or your child dies from lead poisoning from imported Chinese goods, you can thank Milton Friedman. Obama was criticizing the relaxation of mortgage lending rules while the anti-regulation folks were cheering on the housing bubble. It is those lending practices that lead to the credit crisis. Bush championed his ownership society, but gave us a debtor society. We have been living in an Enron world, at the mercy of the plutocrats and deregulated big business, and paying the price.

    The country ran surpluses under the last Democratic administration, the one that raised taxes. With record deficits, the Fed has limited options. You can’t blame everything on the Fed. You can thank the GOP for popularizing the myth that deficits don’t matter. If we were running a surplus, the government could tackle the weaknesses in our economic infrastructure. If we were running a surplus, we could provide greater healthcare security for the American people. If we were running a surplus, we could improve educational opportunities. It goes on and on. Deficits matter, and the GOP has given us plenty of deficits

    Democrats have been pointing to the cost of the three trillion dollar war as an economic burden we can ill afford. Does anyone think the cost of the war has nothing to do with our economic decline? The war has been financed on a deficit basis and will be paid for in inflation.

    Forty-three percent of Americans say their standard of living is worse now than it was five years ago according to the Gallup Poll. And we are heading into a recession, so those numbers will only get worse. The economy has its ups and downs, but it used to be that the great majority of Americans could count on a generally increasing standard of living. This is no longer so, and that is a big deal, and the Republicans seem to have no answer but more deregulation and more tax cuts.

  9. According to CNN, there are many parallels to the 1992 election, in terms of worry about the economy. In 1992, Clinton reaped the benefits of the recession, which the first Bush was largely blamed for. Will it be, in the words of Yogi Berra, deja vu all over again? If not, what is different this time around?

  10. Leo,

    You are very confused. (1) I didn’t endorse endless tax cuts or other Bush policies (actually I criticized them in my comments). I don’t believe that unfettered markets can solve everything; but neither can central planning. The solution is somewhere in the middle. Rather than responding to my points, you cling to liberal “ideology” and respond to what you assume I believe about markets, when I don’t. (2) There is a difference between trade deficits and budget deficits. Budget deficits matter, as you say, but as I say, Obama’s big spending promises will increase the budget deficits not decrease them. Trade deficits are something different altogether. You mentioned trade deficits in your list, then attacked budget deficits in your response.

    You accuse Bush (and me) of clinging to ideology; you need to examine your own ideologies and do some reading. If you don’t know the difference between trade and budget deficits, you won’t be able to carry on a conversation about other economics concepts. For example, Obama’s trade protectionism contributes to inflation, something you say is bad (of course he is in the process of flip-flopping on this one). Luckily for you, Obama is now drifting away from these left-wing ideologies because he knows better. He used these ideologies to win uneducated voters in the primaries, who wouldn’t understand the real effects of protectionism, etc.

    You may also want to do some reading about Bill Clinton; he is personal hero of mine (see link below) simply because he let go of Democrat economic ideologies like you espouse (and Obama espoused in the primaries, though he is drifting) and instead understood the balance between markets and government intervention.


    You’re not dealing with a partisan when you talk to me. I’m just as quick to criticize conservatives as liberals. So falsely assuming you can just attack Milton Friedman with me isn’t going to prove your points. I also know about Friedman – and Hayek and Keynes and the rest. And I know the limitations of each.

    The truth is, up to this point Obama’s proposals have mostly been populist promises that he knows he cannot implement in office. Good economics is bad politics, because the average American doesn’t understand how economics really work. Most Americans, if they know anything, will just lump all economists together under the Friedman umbrella (as you have) then attack it without evidence.

    You have to provide evidence that Obama can solve the list of problems you proposed. Confusing simple terms like trade deficits and budget deficits puts you off to a bad start on a complicated issue.

  11. A few more items,

    You say I blamed everything on the Fed. I didn’t. I simply stated the fact, obvious to most, that liquidity and inflation are responsibilities that fall under the mandate of the FOMC, not the president.

    Another thing: I love how you wanted to discuss energy. Let’s talk about energy. Obama has embedded in his campaign lobbyists for the corn ethanol industry. Do I need to say more? Let’s not pretend this guy has a monopoly on foresight.

    Whatever the polls say, we have had many recessions before. Do some reading. Oil shocks in 1973 and 1979; crashes in 1987 and 1995. Recessions vary in magnitude, but we will pull out of this. The President doesn’t have the tools or the know-how to fix a recession; his job is to soften the blow and provide a safety net without compromising long-term stability.

    Finally, you blame the war for inflation. You really need to do some reading somewhere other than Slate. This is much more complicated than that. And, the 3-trillion-dollar figure for the war, I’m sure you know, was proposed by economist Joseph Stiglitz. Read some of his other books too, and you’ll find that he believes in a balance between markets and intervention. He certainly wouldn’t support some of the entitlement and protectionist ideas of Obama. Might I remind you that Gore and Clinton, the administration you praise, were in strong support of free trade. Clinton pushed NAFTA ratification through an isolationist Congress full of uninformed protectionists like Obama. If I could see you now, I would do as Gore did to Ross Perot on Larry King: he handed him a picture of Smoot and Hawley (if you don’t know about them, read up on that as well).

  12. Ryan,

    As it happens, neither of us is running for public office. I am not attacking you. I am attacking the mindset that has dominated and continues to dominate the GOP establishment. If you wish to distance yourself from the GOP’s economic playbook and their dismal economic record under President Bush, that is great with me. The choice in November is not between Ryan and Leo. It is between McCain and Obama and more broadly between the status quo and change. I am really not a doctrinaire liberal, and for most of my life I was a Republican. If you are not a partisan, that is fine, but I am shocked by your apparent indifference to the human suffering not to mention the economic inefficiency stemming from of the wave of foreclosures (“the market is currently fixing this problem in the form of foreclosures”).

    If McCain is elected we will have a continuation or at least an attempt at the continuation of the GOP economic policies of tax cuts and deregulation. If Obama is elected, there will be changes. The new president will have about a hundred days to break through the log jam in Washington with some bold initiatives. Since the House and Senate will be controlled by Democrats, it is much more likely that Obama will be able to get changes passed. Any Midwestern Senator will have relations with the ethanol lobby, but I don’t see that controlling Obama’s energy policy. In any event, ethanol from biowaste is potentially a good idea. What Obama’s opponents call flip-flopping, looks more like pragmatic centrism to me. What impresses me about Obama is his ability to see the issues and acknowledge that both sides of most issues have some valid concerns. It is the GOP that is stuck in doctrinaire positions of tax cuts and deregulation. That is the long-standing GOP brand.

    Then there is the economic impact of the war. You won’t be able to convince most Americans that there is a three trillion dollar free lunch. The war will have to be paid for, if not in future inflation (which is what I am predicting), then in taxes. You can squeeze the economic balloon wherever you want to pay for it, but Bush’s three billion dollar war is an economic disaster. The lamentable project for the New American Century envisioned an unchallenged American imperium. We will miss the Old American Century if Bush and his GOP successors take us much further down the road of failed empires living beyond their means.

    We will eventually pull out of the impending recession, but you missed my point that the economic tide is going out over the long haul. Our industrial base is eroding. Our budgetary debt is now held by foreign governments. Of course, I know the difference between our budgetary deficit and our balance of payments deficit. My point is that the GOP has ignored both. Moreover, I don’t believe we can run massive international trade deficits indefinitely without adverse economic effects. I once lived in Switzerland. The Swiss could never understand our indifference to a weak dollar. When I visited Germany not long ago, I was impressed by how much they value maintaining their export position and their industrial base. As a result of that attitude, the Swiss Franc and the Euro will hold their value much better than the dollar, and the Swiss and the Germans will have a better chance to maintain their standard of living.

  13. Ryan makes sense, Leo is a bit confusing…. It was interesting to hear Leo say Obama was going to change things. Crazy I have never heard that before. :)Change change change. Yet often times change doesn’t necessarily mean it’s better.
    great discussion, I am impressed. I read these quite often and I have an opinion in this and keep in mind, it is just my opinion.

    A great way to help the economy is offshore drilling. http://www.americansolutions.com ~~Utah alone can provide SOOOOO much fuel for us. But wait, what did Bill Clinton do, oops he made Utah off limits. “Clinton Declares New National Monument, Limiting Land Development in Utah”
    1.7 million acres gone in the West thanks to him.

    Do offshore drillling in Alaska, Florida, etc. it will provide a huge amount of jobs which I am not positive, but I am pretty dang sure with more people working, the better the economy is. :) This in turn gets us not dependant on foreign oil and weakens the power of all those lovely terroists, Taliban and other fabulous people. Plus we won’t have to stress about gas prices. Oh my goodness, although it is so fun paying 68+ bucks to fill up my Jeep, really…
    As far as bankruptcy goes and more specifically home foreclosures. Buy within your means. Be smart. Quit using your credit card. Pretty sure Bush didn’t make anyone buy things they could only afford momentarily. But yes, he is a great scapegoat for people who make bad choices. It’s all Bush’s fault I gained 10 pounds. Oh that makes me feel loads better. Individuals need to take responsibility for their own actions and not blame others. Ok I am done. I don’t make sense and that is fine, but it was still fun saying what is on my mind.

  14. Leo,

    You have yet to answer any of my many questions. You continue to go on and on about the “change” Obama will bring. WHAT CHANGES? What plans does he have to fix the long, confused list of problems you cited? So far, you have only advocated the famously failed strategy so common to partisan contenders: in this case, anything but Bush. That’s not a solution. So, we’re still waiting for you to explain how Obama will fix the problems you talk about.

    We agree that they are problems. Some of them can be solved by the Executive. Others cannot and should not. For example, if you think the solution to trade imbalance (which is not really a problem; again, I beg you to educate yourself on international economics) is Obama’s protectionism, you need to think harder. In the long term, not only will Obama’s belligerent, unilateral protectionist ideas hurt our foreign policy in similar (though, admittedly, smaller) ways to Bush’s unilateralism, but protectionism contributes substantially to inflation, another one of the problems you list!

    Again, we agree about the dangers of a budget deficit. So, do tell, wise Leo, how Obama plans to pay for his massive increases in entitlements, etc., while simultaneously reducing the deficit! Indeed, fixing the budget deficit would partially address the trade deficit; but, as you I’m sure know, the largest component of the savings/investment deficit is household indebtedness (which, incidentally, is a major factor in the foreclosures, credit crunch, and the rest). You seem to advocate a bail-out for foreclosures; fine, “yes we can” (setting moral hazard aside). But how will that address the larger structural problem, which is American habitual debt? Unless you find a way to incentivize savings and investment (taxes on capital do the opposite), we will continue to have trade deficits and housing problems recurring.

    Regarding foreclosures, you missed my point. I argued that sometimes (usually!) economic downturns cannot be fixed by the president; giving him the tools to do so would be similar to the dramatic, disturbing, and unconstitutional consolidation of executive power that has occurred under Bush (in addition to the rather concerning fact that presidents are usually former lawyers or businessmen – and/or “community organizers” – not economists). Rather, the president should focus on softening the blow. Assistance for the housing crash is ok by me, but we must not compromise our long-term stability for quick fixes – a tendency so common to partisan politicians. Political capture is the biggest danger with expansions of handouts so common to Democrats; and, as you know, political capture can carry costs that far outweigh the short-term benefits of populist policies (ethanol is a prime example, and, by the way, I’m glad you don’t harbor the delusion that Obama is a ‘different kind of politician’, since you acknowledge that corn ethanol support is common to all midwestern politicians; so much for CHANGE and compassion as 100 million more people enter the ranks of extreme poverty due to rising food demand).

    As for Obama drifting to the “pragmatic” center: I also applaud it; it’s a fresh change from his irrational, populist economic positions of the primaries. However, most of his supporters (I’m guessing you included) were gung-ho about his previous ideas and are blindly following him to new ones (you thought the old ones were good; now you think the new ones are). This kind of posturing and drifting to the center is indeed both pragmatic and politically common; but I thought we were HOPING for CHANGE, a break from OLD WASHINGTON POLITICS. As the New Yorker said well last week, “Obama, whatever the idealistic yearnings of his admirers, has turned out to be a cold-eyed, shrewd politician.” He has certainly become more attractive to informed observers of late (including me) due to better positions, but he has sacrificed much of his original appeal by fitting in with the normal old rules of Washington politics (but his faith-healed supporters are unlikely to notice).

    But I drift. We are still waiting for the “changes”, the “bold initiatives” that Obama will push through within 100 days. Your defense of him thus far is the same as what I hear everywhere else: he is different from Bush, so he is good. What would actually interest me, and probably most readers, is specific EVIDENCE that he is better – and to supply this, bashing Bush isn’t sufficient; focus instead of explaining Obama’s plans.

    Leo, give us a reason to believe you. Tell us what he plans to do. Use sound economics (I’m sorry, but from your comments thus far, it looks like you should do some studying first). Remind us how he will increase the value of the dollar while strengthening exports (increasing the value of the dollar typically decreases exports); balance the budget and pay off the debt while bailing out homeowners and dramatically expanding healthcare and other entitlements; foster long-term growth and create jobs while increasing taxes on owners of capital (hint: investment in capital is the primary fuel for growth and job creation, so unless you’re interested in permanent unemployment benefits instead of jobs, you’ll want to be careful how you structure investment incentives); fix the falling stock market while maintaining the anti-corporate attitude you reveal (here’s a hint: every American is part of the satanic Corporate America, through stocks, mutual funds, retirement plans, and even savings accounts); and remember that there are long-term consequences of short-term political stunts like populism. It turns out that, “yes we can” slogans aside, there are tradeoffs in economics, and free lunches cannot always be had for all. Yes, it turns out that only “sometimes we can”, just like only sometimes can politicians like Obama pretend to be above the political fray.

    I will certainly take you more seriously when you demonstrate some economic literacy beyond bashing Milton Friedman (one economist among thousands) and Bush and regurgitating Obama website platitudes. It turns out that economics is not as simple as you are arguing; the biggest problem with America is that, like you, many Americans choose to believe the platitudes of pundits and politicians instead of going to the effort to educate themselves on principles.

    If you feel overwhelmed by the need to actually inform yourself before making economic arguments, have no fear: YES YOU CAN!


    I disagree with you about drilling. I’m not a fan of it, and I believe that the dialog about environmental protection vs. using environment for income is very oversimplified. The truth is, drilling is a short-term idea for a long-term problem (the problem is called OIL). Supply is only half of the problem; demand is the other half – I drive a full-size truck, so I spend the bucks on gas too, but the idea behind high prices is to force you and I to conserve more.

    I won’t repeat my arguments here, because I wrote a treatise on this elsewhere:


    I must say, Obama is poised as few presidential candidates have been before. The real solutions to energy problems are unlikely to happen because they are politically difficult; someone with Obama’s celebrity status just might be able to pull them off (but his tendency to just say what people want to hear will likely prevent this). In Leo’s defense, Obama has recently drafted some real pragmatists into his economic advisory group – like Bob Rubin, Clinton’s guru – who understand the power of markets and don’t fall for populist ideas that hurt us in the long run. This is why I applaud Obama’s drift; but it seems his supporters are still dishing out his old rhetoric.

  15. This is very simple. Let’s just consider banking and lending regulations. The GOP brand has been deregulation. The Democratic brand going back to FDR was regulation. That is a big difference and would represent a big change. The housing-foreclosure-credit crisis is at its root a failure to enforce existing regulations and the failure to put timely new regulations into place to keep pace with the evolution of financial markets. The government failed to regulate predatory and unsound lending practices and failed to regulate esoteric financial instruments (CDO’s) that hid the weakness of the related bonds that were peddled to banks around the world, making our crisis a global crisis.

    Senator Obama was a long-time advocate against predatory lending practices and has advocated changes that would have prevented our current housing and credit crisis. The last time Senator McCain was involved in a banking crisis was the Savings and Loan crisis, which cost about $160 billion, most of which was paid for by the taxpayers and which was triggered by deregulation. Senator McCain didn’t exactly cover himself with glory in that crisis.

    Specifically, Senator Obama has called for (1) increased oversight and supervision of borrowing from the government, (2) reform of the requirements to which all regulated financial institutions are subjected, (3) streamlining the framework of overlapping and competing regulatory agencies, (4) regulations based on what institutions do, not what they are called, (5) increased vigilance against market manipulation, and (6) a process that identifies systemic risks to the financial system. These are all badly needed changes. Full text at http://my.barackobama.com/page/community/post/samgrahamfelsen/gGBNsq

    This is a big philosophical difference between the GOP and the Democratic Party. Most of us accept that the government should protect us from the manufacture and sale of toasters that would burst into flame and burn down our houses. The GOP failed to appreciate the importance of government protecting us from lenders whose products threaten to figuratively burn down our houses and our banks. Take a look at the stock price of Zion’s Bank, and you will see how even the prudent are threatened when some lenders take advantage of people who need to be protected from themselves. We once had underwriting practices that were designed to prevent foolish loans. The GOP turned a blind eye to their abandonment. Senator Obama, in contrast, has long advocated government action against predatory and unsound lending practices.

    Did we hear anything from Senator McCain about this problem a year ago? Was he even aware of it? On March 22, 2007 Senator Obama wrote Chairman Bernanke and Secretary Paulson:

    ”There is grave concern in low-income communities about a potential coming wave of foreclosures. Because regulators are partly responsible for creating the environment that is leading to rising rates of home foreclosure in the subprime mortgage market, I urge you immediately to convene a homeownership preservation summit with leading mortgage lenders, investors, loan servicing organizations, consumer advocates, federal regulators and housing-related agencies to assess options for private sector responses to the challenge.

    We cannot sit on the sidelines while increasing numbers of American families face the risk of losing their homes. And while neither the government nor the private sector acting alone is capable of quickly balancing the important interests in widespread access to credit and responsible lending, both must act and act quickly.”

    Full text at http://tpmcafe.talkingpointsmemo.com/talk/2008/03/obamas-year-old-letter-to-bern.php

    Senator Obama had the foresight to see what Bernanke, Paulson, Bush, and McCain did not see at the time or perhaps did see but did little or nothing about.

    More on other issues later.

  16. Well done! Now that’s a real response. I agree with you and Obama, for the most part, that financial markets are different than goods markets and drastically need more regulation. This is a classic argument from Stigltiz, Arrow, and even liberals like Bhagwati. Let’s follow Stiglitz by understanding when governments can help and when they make things worse.

    This does beg the question: are Bush/Bernanke/Paulson/McCain solely to blame for the problem? Given your claim that deregulation has been Dem doctrine since FDR, what steps did Clinton take to re-regulate after Reagan/Bush? The answer: not many. As much as you’d like to pin this on the GOP, like most issues, both parties are guilty.

    Secondly, will this regulation solve the root problem: American consumers make uninformed decisions about borrowing?

    Third, what do you and His Hopeness define as “market manipulation”? Does that mean interventions in markets that undermine basic economic forces (Obama talks about Smith’s “invisible hand”)? Because governments manipulate markets too – with things like corn ethanol subsidies. I hope Obama plans to check those manipulations as well. That darn political capture!

    Looking forward to your other issues.

  17. Ryan,

    Thanks. No time to answer all the questions. Suffice it to say that I am not a Clinton fan, nor do I see Obama as omniscient. I just see him as a lot smarter on economics than McCain.

    But on another topic, let’s look at deficits.

    The budget deficit. This is not so hard. See http://zfacts.com/p/318.html The deficit as a percentage of GDP went down under every post-war President except Reagan and the two Bushes.

    The GOP brand of tax cuts, tax cuts, tax cuts, has led to deficits, deficits, deficits.

    With a surplus, the government has options. It can spend money on improving healthcare, improving education, improving infrastructure, etc. without raising taxes.

    With a deficit, the government has fewer options, and it has to spend its money on increased interest. Eventually, the interest can become overwhelming.

    The reduction of government options is no accident. Grover Norquist, a prime architect of the Bush tax cuts, famously said “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

    Bush failed to shrink the government, but we did get the deficits and the astronomical interest payments. See http://seekingalpha.com/article/59505-national-debt-interest-payments-for-fiscal-2008

    Take you pick of which represents the best long-term pattern for the country. Ask yourself how you personally have benefited from Bush’s deficits.

    The cure for Bush deficits? Let us look where the money is and see if we can’t tax a bit more of it at one end of the economic playing field. See http://www.lcurve.org/

  18. You’re preaching to the converted. I know the effects of deficits and I criticize them consistently. The biggest problem with them is the way they affect long-term growth. I also consistently criticize the Bush administration and supply-siders for faulty economics. Deficits are bad news, tax cuts during deficits are irresponsible. I wrote a massive piece on this here:


    What you are proposing would be a massive, unprecedented redistribution of wealth using taxes. Not only is the fairness aspect of confiscating these resources a topic of debate, but this kind of redistribution would have enormous economic costs. I’m not anti-progressive tax; the rich benefit disproportionately from the American system so they are taxed in different proportions. But your asking for an extreme measure that would really mess up incentive structures. You are taxing the people who create jobs and invest in capital (and growth). You’re strangling growth.

    McCain is wrong to push for more tax cuts. But your side is wrong as well. Raising taxes to astronomical levels is equally irresponsible. Why don’t we talk about decreasing spending? Why don’t we talk about entitlements?

    Entitlements only get bigger; they never get smaller. A responsible government will not only provide a way to pay for current entitlements, but they will also provide a way to pay for the future costs of those entitlements. For example, if Obama wants to expand health care entitlements, he not only must explain how to pay for them now, but how he will leave resources to finance them indefinitely as they expand and take larger shares of GDP. He hasn’t done this; and all you propose is massive increases of taxes. Not only would the current increases be huge, but to maintain funding for expanding entitlements, future tax increases would have to be larger. The future resources for tax increases will diminish, however, as growth is strangled from your current redistributions.

    In other words, wanting to redistribute wealth is nice, but eliminating the resources for future growth is shooting yourself in the foot. You decrease your ability to fund programs in the future by strangling growth today. This is the pendulum after which I named my blog: you see the negative effects of laissez-faire economics, so you swing to the other way. But these messed up incentives are what ultimately caused the collapse of the Soviet economy.

    Just like the Bush admin, you and Obama refuse to do the obvious thing: exercise some fiscal restraint. Yes, we can afford for taxes to be a little higher in this country; but we certainly can’t afford for them to be as high as you will need to fund your ideas. You need to explain how to pay for your entitlements. The road Obama is on now will probably not balance the budget, and it definitely won’t provide long-term entitlement solvency. Remember, not only do we need to balance the budget now, but we must find a way to provide for the coming expansion of entitlements (and it is really coming).

  19. When I suggest that the rich could afford to pay a bit more in taxes, I am accused of a massive, unprecedented redistribution of wealth. You are guilty of exaggerating my position and Obama’s. Where are your specifics? The fact is that every post-war President was better at fiscal restraint than Reagan and the two Bushes. A lot of ideas get tossed around in a campaign, but then a restraining reality sets in, except for those three fiscally unrestrained Republicans.

    Moreover, the country did quite well with a more progressive tax code in the past and other countries do quite will with more progressive tax codes than we have now. They are many counties with a larger public sector than we have that do quite well. I would argue that the public sector in this country has been deliberately starved to the public’s disadvantage.

    Let’s consider healthcare. It has to be paid for somehow. It is already an entitlement. If you show up at the hospital emergency room, the hospital has to take you in. Then they try to shift the cost elsewhere or alternatively try to deny the needed care. We can continue our current inefficient ways of providing medical care or search for new, more efficient ones. You seem to forget that private healthcare costs have been exploding to the point where they are a serious burden on the rest of the private sector. Have you had a run in with your private insurance carrier lately? I have. Most people I know have. The current system is not pretty. Doctors increasingly favor public financing of medicine over private financing. See http://www.correntewire.com/majority_of_doctors_favor_medicare_for_all

  20. Now for some harder issues. Harder because it is less clear what each candidate intends to do, harder to know what they can do, and harder because Ryan and I will differ. This is not because I am willfully ignorant of economics. I differ because of the larger geo-political context. I beg to differ with Ryan on his indifference to the hollowing out of our industrial economy, the weakness of our currency, and our increasing dependence on the economies of less than friendly powers. In a perfect world with a free flow of goods, services, capital, and people across friendly international boundaries where environmental and labor protections were the norm, I would be in agreement with Ryan. Unfortunately, we do not live in such a world, and there will be countries willing to turn the screws on us to our disadvantage, perhaps to our serious disadvantage.

    Emmanuel Todd, the French historian, demographist, sociologist and political scientist at the National Institute of Demographic Studies (INED), in Paris wrote:

    “Until recently, [the US] was the most important factor in maintaining international order. But now it is a factor for instability. The industrial core of the US has been hollowed out. The American trade deficit amounts to $435bn a year. The country needs $1.5bn a day in foreign capital. The US is no longer self sufficient. Europe, with its strength in exports, is…As far as the balance sheet and financial flows are concerned, the US has long been a drain on the whole world. The Europeans can no longer react to this in a friendly manner; they must counter America with industrial and financial methods.”
    (See After the Empire: The Breakdown of the American Order)

    And that is from an ally. Consider our enemies or potential enemies.

    For better or worse, we are currently at economic war with Iran. See
    and http://montages.blogspot.com/2008/03/us-declares-war-on-iran.html

    What if we were at economic war with Saudi Arabia or a larger Arab block at some date in the not to distant future? What if we were at economic war with China over Taiwan at some point? What if several power blocks in the world notice that we are consuming a disproportionate share of the world’s resources? Economic warfare might be irrational on the part of those countries, but history is replete with countries that decided to put other interests (e.g. the spread of Islam, the forcible reunification of China, or a power grab for resources perceived to be scarce) ahead of rational economic interests. The Swiss support their own farmers by conscious choice because they nearly starved during two world wars they didn’t even participate in. Do I advocate across the board protectionism? No. Do I think we should have an industrial policy that preserves some geo-political independence? Absolutely. Will this be an issue in the election? I don’t know. Should we be talking about it? Absolutely.

  21. Ryan and Leo,

    I’m happy to see such an in-depth discussion. I have been quite busy today; perhaps I’ll weigh in on some of these issues tomorrow.

    Hi Joidee,

    Thanks for your comment! I hope you always feel welcome to weigh in with your perspective.

    I think that your comment certainly makes sense. I definitely agree about the need for people to take responsibility about home foreclosures. Too many of us buy homes that are way beyond our means. This ought to be the number one lesson of the recent housing crisis. (Plus, for me, how correct the counsel of our Church leaders is.)

    I will say, though, that in regards to oil, we also have a need to take responsibility. I am open to more (very limited) offshore drilling, but I’m not convinced that this is the solution and I wonder whether we should save such reserves for a true emergency. We need to think about our grandchildren and great-grandchildren.

    As Ryan has hinted at (I think), the fundamental problem is that Americans are addicted to oil — the same way we are addicted to debt. In this respect, a knee jerk reaction to more drilling might not be all that different than catering to people’s bad decisions regarding home purchases (I realize that in other respects, there are important differences).

    I’m no economist (Ryan can correct me if I’m wrong here), but the biggest thing that you or I can do regarding the oil problem is to use less oil. If Americans were responsive to the higher prices of oil, then oil would not cost as much. The fact that we are not responsive shows that we are addicted.

    For example, you would never think there was an oil problem based on the number of Utahans who drive a quarter of a mile or less to church on Sunday. This is certainly the case with my BYU stake, where almost everyone drives.

    We could probably all afford (in terms of our wallets and our bellies) to walk or bike more. I encourage everyone to do so. Doing so puts us in better connection with the environment and helps us to not be enslaved to a life of technological convenience (social critic and environmentalist Wendell Berry has spoken eloquently about this). It will also remind us that we as a nation have chosen to go to war, and we ought to be willing to live with certain sacrifices as a result. As you walk or bike somewhere, think about our troops and the sacrifices they have been making in Iraq and Afghanistan.

  22. Leo,

    Yes, completely paying off the debt and setting the country on the course of fiscal solvency in the long-term is a massive redistribution of wealth. That’s the evidence! Nearly $10 trillion of debt plus enough surplus to provide for rapidly expanding entitlements. Health care entitlements alone, as they are now structured, will reach a steady state level of at least 12% of GDP. That’s not counting Obama’s planned expansions! Think about that – GDP is currently around 13-14 trillion. Yes, it would be a drastic measure to try to tax away the debt and entitlements if you refuse to cut programs. And, more practically, such a measure has no chance of making it through Congress, even a Democratic Congress.

    You want to talk about hollowing out our industrial base? Try squeezing the owners of industry with taxes through the roof to fund your programs. That’s a good way to hollow it out. How do you propose to add jobs to the economy when you are hostile to those who provide the capital for growth? SERIOUSLY!

    Now I’m confused. I never showed “indifference to the hollowing out of our industrial economy, the weakness of our currency, and our increasing dependence on the economies of less than friendly powers.” Those things concern me as well; I simply asked how Obama plans to solve them. In fact, I asked some very pointed questions above about tradeoffs that you haven’t tried to answer. I can tell you this: Obama using speculators as a scapegoat for energy prices will do NOTHING to fix our dependence on foreign oil.

    Emmanuel Todd represents a view that is not found among economists. A huge American trade deficit is not a drag on world economies; we are buying their stuff! It strengthens their exports. I’m surprised you would quote such an extreme view. It’s important to get a more comprehensive understanding of this. The truth is, France has long complained about the value of our dollar, because it makes them less competitive.

    You really dramatically oversimplify your comparison between us and other countries. Yes, other countries have more progressive tax codes. Most of them don’t experience the prosperity we have, but some of them do. One such is Germany. Germany has focused on the “social market” system since WWII. We are talking about MAJOR structural differences between us and Germany that allow them to prosper with high taxes. MAJOR. I love the German model; I think it’s superior to ours; but at this point, it is impossible to implement it, even at the hand of the Grand Deacon of Unity Obama. Our economy has a very different structure than successful, high-tax countries. Imitating Germany would require changes of every kind, including our constitution. This is a complicated issue.

    I ask you this: who will provide all the jobs you dream of, and fix our industries, when we structure incentives in such a way as to discourage such activities? Some moderation is desperately needed in your tax position. Why not find a balance – some tax increases and some spending increases?

    You really miss the boat on my positions if you think I’m not concerned about dependence. But you fail to recognize that trade contributes substantially to your other goals. The key factor that kept inflation low in the 1990s was globalization. Not only is protectionism belligerent foreign policy; it is very detrimental to the economy. Please, do some research, and not at the fringes. What is it you are arguing for here? What kind of protectionism? The solution to trade problems, in the long term, is education, not populist policies that shoot us in the foot.

    Address my questions about tradeoffs. I will repeat them here so they aren’t forgotten. Remind us how he will increase the value of the dollar while strengthening exports (increasing the value of the dollar typically decreases exports); balance the budget and pay off the debt while bailing out homeowners and dramatically expanding healthcare and other entitlements; foster long-term growth and create jobs while increasing taxes on owners of capital (hint: investment in capital is the primary fuel for growth and job creation, so unless you’re interested in permanent unemployment benefits instead of jobs, you’ll want to be careful how you structure investment incentives); fix the falling stock market while maintaining the anti-corporate attitude you reveal (here’s a hint: every American is part of the satanic Corporate America, through stocks, mutual funds, retirement plans, and even savings accounts); and remember that there are long-term consequences of short-term political stunts like populism. Maintain friendly, multilateral relations with our neighbors while enacting belligerent trade policies.

    The links you provide are helpful, but most of them come from fringe sources. Do these people think the world is flat too? Start citing some people who know what they’re talking about to support your points. Find some reputable economists and evidence.


    Very well said. My original response to Joidee was poorly worded. I’m not completely opposed to drilling. Rather, I am ok with it as long as it is part of a comprehensive solution to the energy problem. Drilling before such a solution is prepared only puts off the real answers.

    I agree completely with Dennis that American oil addiction is the problem. High prices is the best way to solve that, and after $4.00 per gallon, we finally found a price that changes consumption habits. A Pigovian tax on gas would continue to provide alternative energy and conservation incentives.

  23. Leo,

    I should clarify that I also support health care reform. Of course you’re aware of the work of Arrow and others demonstrating why the health care market is severely inefficient and government involvement could possibly increase efficiency – in other words, it is not a free market, hence the outrageous prices. My concern with it is twofold: (1) Will it be the right kind of intervention? If not, we face major opportunity costs if we choose to intervene. (2) As I’ve asked several times, how will we pay for it? You propose taxing those nasty rich people, but this would require massive taxes because, as I argued before, we not only have to pay for the program now, but we also have to pay for it in the future when it will be much greater in real terms. How do you propose to do that? What kind of tax rates are you proposing for all of this? I normally criticize supply siders, but, as you know, Mankiw and others have demonstrated that there is a significant supply side effect at very high marginal tax rates (well above 50%), which is what you will probably need to pay for your programs. In other words, taxes that high have a major effect on productivity and, therefore, JOB CREATION, which is another of your issues. Are you willing to sacrifice jobs for health care, and engage in a downward spiral? Ahh, tradeoffs!

    The reason the market for healthcare is so inefficient, as has been demonstrated by Arrow, is Stiglitz’s evidence of information asymmetry. To bring health care prices down, the information problem must be fixed. I am 100% in favor of government intervention that will address this problem. But when we talk about programs that will save the world, we must also talk about how to pay for them. Taxes so high they harm productivity is like the farmer who upon killing the goose to get all the golden eggs finds that it won’t lay anymore. There must be a balance between equity and productivity, because the former cannot be sustained without the latter (some fabulous work on this, of course you know, by Jonah Levy – focusing on Europe; “redeploying the state”).

    What I’m trying to ask is, what makes you think you can have your cake and eat it too? Continual redistribution of wealth requires continual creation of wealth; sustained creation of wealth, I’m sorry to tell you, requires markets, as the many failed attempts at ISI and communist development strategies demonstrated. For markets to function, incentives must be structured properly. Too heavy of wealth distribution screws up incentives, and now you’ve sold the farm. In the long run, desires for equity must be balanced by the need for productivity; so while “yes we can” tells us we can solve all the problems you list, the sad reality is that we must pick and choose to what degree we want to address each of them. There really is no such thing as a free lunch.

    Further, despite claims by pundits and politicians, the President’s power over the economy is limited. As much as we’d like to give Clinton full credit for the boom of the 90s, we must also recognize that more important factors were: the lid on inflation caused by emerging markets; the advent of the Internet and consequential increases in production per effective worker and increased financial market volume; increased incentives due to lower marginal tax rates (Reagan brought them down from way too high; Bush2 is a different story) and, yes, deregulation; high amounts of liquidity allowed by the low inflation; etc. So, while I certainly would not take the name of Obama in vain, I must tell you that he will not have the power to solve all your problems, for two reasons: (1) We face tradeoffs, and I keep asking you to consider, and (2) the President does not have the power or the tools to affect the economy that much.

    So, while you may find that I support many of the things you support – like health care reform, equity, job creation, inflation, dependence, the environment – I just have to ask you how you plan to achieve these great things. I guess we’ve established that you think higher taxes on those greedy rich people is the way to pay for everything; fine, but now I ask you to consider the consequences of that policy. Looking forward to your answers to my questions about tradeoffs.

  24. Dennis,
    Thank you for making my point feel valid, I appreciate that. Especially as I don’t not speak as well as most. :) I am a (wait sit down) Conservative Repulican and don’t support Obama whatsoever, so I know I would get shotdown plenty of times on this forum. Although it is enlightening to see others’ opinions on this site. I love reading and learning and hearing what is going on in the political world of Utah County.

    I agree with your comments on conserving. I laughed as I pictured myself driving to church which is literally one street away. I have noticed that gas prices have caused me to think before I just go for random drives like the suncrest draper loop or I combine my errands instead of spreading them throughout the week. With a 3 year old and 8 month old that gets really hard to do, but you just do it.
    Ryan, I am excited as well to hear what Leo says about why in the world it will help to raise taxes on the rich. Not saying that I am rich in anyway, although that would be great. :) but we are blessed to be making a comfortable amount….The taxes we paid last year were out of control, I couldn’t imagine being taxed more! How would that help when our income is going to taxes and we can’t help the economy by spending our money and using it for good? Ryan you nailed it on the head with your comments on that regard. Higher taxes on the rich is not the answer. The consequences outweigh the benifits big time as you have stated. I look forward to next Monday too.

  25. I’m not even going to try to respond to all that has been said here. There’s simply too much, which I am happy to see.

    I would like to jump on this conversation about tax raises for the wealthiest Americans. Ryan is right that we need to look at both sides of the issue here — we need to be concerned with job creation, investment, and consumer spending, on one hand, as well as issues regarding social justice and distributive wealth, on the other.

    I wish to speak a little on this second concern, realizing that we have to always consider the trade-offs, as Ryan has said.

    I am very worried about the growing disparity of rich and poor in the U.S. I am especially worried about the shrinking middle class. I realize that the current tax rates are not responsible for this (though the Bush tax cuts might contribute a little).

    I will say, furthermore, that as Latter-day Saints we ought to be very concerned about this. A common trait of wicked societies is the wide difference between rich and poor, whereas a necessary trait of righteous societies is that there is no rich or poor. Of course, none of this means that the answer is a direct redistribution. I realize that. I say this simply because I think some of my fellow saints could care less about this problem (or, more likely, underestimate the severity of it because they only associate with the middle or upper class).

    Let’s be clear, also, that the tyrant king can make the same argument as the wealthy capitalist: Peasant, you need to understand that the wealthier I am, the better off you are! My wealth trickles down to you, so the more wealth I have, the more you get. Don’t you care about the GDP? (In the first case, economic freedom is virtually impossible; in the second case, it is theoretically possible but largely an illusion.)

    I actually believe in a free market. But only if we actually care about creating respectable jobs for actual people from all walks of life. We don’t care about this anymore. And this was one of Marx’s major critiques of an unfettered market: the number one way for me to save money is to do what? Cut jobs. Cut benefits by hiring as many part-time workers as you can. Replace human workers for machines. Hire the cheapest work I can, even if it’s a sweat shop overseas. This is the Wal-Mart approach, the business that has 5 people in the top 20 wealthy Americans list. And Wal-Mart certainly is not alone.

    Republicans need to realize that in a democracy this type of thing will not last for long. As those in poverty grow to be more of a majority, they will rise up — and in a democracy they will do it with their votes. They will do it even if it drags the entire country down. This is why even the wealthiest Americans need to be concerned about the disparity between rich and poor (if they don’t already care for a little thing called compassion).

    Now, whether Obama will take things too far is an important question. But, as for McCain, I have seen virtually nothing that distinguishes him from Bush in terms of the economy, which has done very little to help those in poverty AND those who are wealthy. So let’s be clear that the Bush administration has failed on both fronts! It is a complete disaster, even with the recognition that the executive cannot do everything. “Things will get better” and “be patient” are hollow promises to me, because I don’t see things getting better, as far as the disparity between rich and poor. I see things getting worse every day. More than anything, I see Republican calls for “little government” as hollow. Ideally, yes, we would have little government. But if businesses are not going to do what is morally right for their employees — valuing them as human beings (which Wal-Mart does not) — then the government needs to intervene. And for (some) Republicans to ignore this is inhumane and immoral.

    Unless McCain can convince people (with actual solutions) that things will change during his presidency (rather than simply castigating Obama), then this one’s in the bag for Obama.

  26. I need to add, from my last comment, that people see in Obama’s restoring the tax rates for the wealthiest Americans as a simple thing that can be done to help tilt the scales. It is not a panacea. It does have some trade-offs. But, in my opinion, it’s a sensible solution (in the spirit of the economic centrist Bill Clinton) that will help the lower and middle class, at least in the short term. The rates can certainly be readjusted in the future. And frankly I have little sympathy for many of those who will be affected, considering that they have relatively lavish lifestyles that offer minimal help to anyone. I am so tired of hearing about how someone’s million dollar house is not selfish because it’s an “investment.” Give me a break.

    Now, where I disagree with Obama is on the capital gains taxes that he wants to increase. This is a different story entirely, and I would rather cut out a lot of Obama’s programs (such as early childhood education) and keep these rates where they are.

    But all things considered, Obama is the best fit for America’s economic needs right now.

    Ryan, I am curious: If you had to pick McCain or Obama, right now, on the economy, who would you pick?

  27. Great comments, Dennis. You’re good at discussing the philosophical underpinnings of your views.

    1. Very valid points about income disparity. America has an alarming Gini coefficient, which is a common measure of wealth/income gaps. The trickle-down and supply-side theories of the Right have not fixed this (they have done the opposite). The obligation to think about economic fairness is especially important for LDS. For a long time I have argued that the moral arguments of the Right (about abortion, gay marriage, etc) are inconsistent since they lack similar moral arguments about poverty. Here’s a place where I discussed this at length with some right-wingers (my stuff is in the comments; I go by “RD”).

    2. Here are my thoughts on free markets. It is a big mistake to lose faith in them and try to replace them with legislation. Experiments on this haven’t worked. Markets truly are amazing; when certain assumptions hold about information availability, etc., free markets allocate resources very efficiently. But, unlike those on the Right, I don’t believe markets to be an end; rather, they are a tool. Governments should harness the power of markets to (a) allocate resources in some degree of fairness, and (b) ensure stability and growth (which is necessary so the amount of resources continues to grow). Now, I said that markets work when assumptions hold. Free markets to lift everyone as long as everyone has something to trade. This is why sub-Saharan Africa is not benefiting from globalization yet: it’s great for the Right to talk about markets, but when you start with nothing, they don’t do you much good. So, in addition to harnessing the power of markets for fairness and growth, governments should ensure that (a) the weakest members of society are given enough resources to benefit from markets, and (b) assumptions about information symmetry and mobility are met. Obviously, this means that governments can and should intervene in markets to meet these all of these ends – based both on moral grounds and stability grounds (countries with large income gaps tend to develop a lot of other problems for obvious reasons). Now I’ve done it – the Republicans are mad that I advocate government intervention, and the Dems are mad that I believe too much in markets! This all said, governments must be very careful about intervention, because misguided interventions can make things a lot worse (the Smoot-Hawley Tariff or Nixon’s price controls on oil are fantastic examples).

    Ultimately, government policies regarding markets must find a balance. Equity is not sustainable without growth in the long run. Growth is not sustainable without some equity in the very long run (this is Marx’s argument, kinda). I advocate enough taxes to pay the bills, but not so high that they harm productivity. Currently, Obama and McCain are both failing to meet these criteria.

    3. Now Dennis is forcing me to quit screwing around as devil’s advocate and actually take a side. Six months ago, McCain would have gotten my economics vote hands down. He was a fiscal hawk, who didn’t fall for supply-side endless tax cut rhetoric. He believed in markets but understood the need for equity. Meanwhile, Obama was promising big spending increases, big tax increases (which I’m ok with, but his are too big for comfort), and trade protectionism. But now things are changing. McCain has drifted to the right, selling out for various reasons that are poor excuses. Obama is drifting closer to the center. I still believe McCain will go back to most of his old positions once in office. I believe Obama will stick with his new ones. Right now, I must say that it is a toss-up for me (honest!).

    4. You both raise valid criticisms of the Right and selfishness. I’m on your team: I don’t think the rich are doing us any big favors by buying giant houses. If you visit the Life and Lybberty blog link above, you will find that since that is a right-wing blog, I tend to argue from the left a lot. There are some serious moral (and economic) inconsistencies on the Right. But I also see some shortsightedness to the arguments of the Left. I am a big believer in equity (visit my blog – just click on my name – and read the articles about poverty and sweatshops). However, the long-term path to sustainable equity must include markets – but, as I say, they should be considered a tool, not an end.

  28. Dennis, you can delete this comment, I’m just asking: do html tags work in these comment boxes?

    Dennis’ response: Let’s just leave the comment for the benefit of others. Yes, they do work. It’s the standard formula. Within HTML tag arrows, type a href=”http://thelinkyouwant.html” and then right after this, type the text you want hyperlinked followed by /a within tag arrows.

    You can also put something in a block quote by typing blockquote within tag arrows before the quote and /blockquote within tag arrows after the quote.

    Same procedure for:

    Bold: strong and /strong
    Italics: em and /em

  29. Ryan,

    “…completely paying off the debt and setting the country on the course of fiscal solvency in the long-term is a massive redistribution of wealth. That’s the evidence!”

    But where is the evidence that Barack seriously intends to completely pay off the national debt during his term? And what about taking a bit from a bloated defense budget? The way I read Barack, he is for all sorts of good things, but incrementally, not overnight.

  30. I just heard on CNBC Secretary Paulson say before Congress that a strong dollar is in our interest. What he failed to acknowledge was the miserable job the Bush administration has done maintaining a strong dollar.

    He did seem to acknowledge that while he believes in markets, China doesn’t play by market rules. One result is the serious weakening of our industrial base.

  31. Leo

    1. You were the one who advocated fixing the debt problem. I was just saying why it is difficult to do so. perhaps I misunderstood. Regardless, not only do we need enough fiscal responsibility to balance the budget, but we must be actively paying the debt off at some rate. Further, you have not addressed my points about high taxes and productivity loss. You still haven’t discussed the tradeoff problem.

    2. We all agree the strong dollar is in our interests. (1) To what degree is maintaining the dollar a responsibility of the President? (2) What tools does/should the President have to do that? (3) What effect will a strengthened dollar have on our trade balance, and therefore, our industrial base? This is what you are repeatedly failing to address in your comments: the fact that solving all the problems you decry is not as simple as you’d like to make it in your attacks on Bush and the Right. Tradeoffs are involved.

  32. Ryan,

    Tradeoffs are, indeed, involved. It appears from the dismal record of the Bush administration that their chosen set of tradeoffs has given us less fiscal responsibility than any post-war democratic administration, while not producing a particularly robust economy.

    Senator Obama voted for the pay-as-you-go (PAYGO) federal budget rules in 2005, 2006, and 2007. He helped pass legislation limiting no-bid government contracts.

    Where does your party or candidate (if you have one) stand on those issues?

    I agree that the President is not a king (though supporters of the unitary executive might disagree), and he doesn’t have a magic wand. Nevertheless, a glance at Senator Obama’s website shows a sensible and pragmatic platform. This is a candidate who can do nuance. President Bush never liked nuance.

    The GOP playbook has been a rigid insistence on tax cuts at all costs (since deficits don’t matter in the words of the vice president) and a reliance on unfettered markets (which produced a very nasty bubble).

    I don’t have time to produce every answer to every question, at least not today. I merely am pointing out the folly of the Bush years and suggesting that there are sound alternatives.

  33. Leo,

    You have yet to answer any of my real questions (ok you sufficiently dealt with one – financial market regulation). What control does the President have over the value of the dollar (you skip around on issues a lot, but you keep coming back to this one)? And what control does the FOMC have?

    The Bush record is bad, but he is certainly not as blameworthy as your partisan mind wants to think. You refuse to discuss, despite me asking several times, the relationship between the value of the dollar, something you are concerned about, and volume of net exports, something else you are concerned about. Further, you fail to discuss the relationship between liquidity, something you implicitly care about (you want foreclosure bailouts, more jobs, etc.), and the value of the dollar. It is very likely that if the FOMC had been making inflation-fighting policies only, and the value of the dollar were strong, you would criticize Bush for not providing enough liquidity to the market (because unemployment would be climbing much faster than it is now). Tradeoffs are everywhere in economics (a truth you pay lip service to but refuse to discuss substantively), which makes policymakers’ jobs very difficult. Unfortunately, they make critics’ jobs very easy.

    If an administration lets the dollar get weak, critics attack it. If an administration keeps the dollar strong, and liquidity and exports decline, critics attack it. Here is a fact that politicians, pundits, and you won’t admit: there is such thing as a business cycle. Often it cannot be prevented. As much as you want to, you cannot blame Bush for all our economic problems. The economy is much bigger than Bush or Obama or Democrats or your partisan mind. Policy makers choose how to respond to and anticipate problems based on (1) wisdom, empirics, and theory if they are an independent central bank, and (2) politics if they are a president (and yes, give up your fantasy that Obama is/will be above politics; his abruptly shifting positions, while beneficial for the country, demonstrate that he is just another politician). Bush has made some mistakes. The FOMC has made some mistakes. But you have clearly demonstrated in our conversations that you lack the tools to give anything more than a parrot’s analysis of the difficult tradeoffs involved. Further, you continue to simply attack the Right instead of explaining why Obama’s ideas are better (except in a very few instances). I’m sorry, but the idea that anything other than Bush ideas is better is just plain stupid. Bush made this exact same mistake when he first got in office with respect to national security: he adopted the ABC policy (anything but Clinton) and therefore failed to recognize the terrorist threat that Clinton had warned him about ( just wrote an article about this). You see, these partisan games are on both sides, and they stink.

    Have you even taken an economics class beyond freshman level? Have you read a single book by an economist? Even a paper? Because it seems to me that your criticisms are motivated by hatred for Bush and blind love for Obama rather than real knowledge of economics.

  34. Ryan,

    Would it help you to know that I was critical of Carter’s failure to protect the dollar? Fortunately, I was being paid in Swiss Francs at the time. Or of Clinton’s multiple failings? I never voted for Clinton. You imagine I am only critical of the GOP, but it is not so. Why do you accuse me of hatred? I don’t hate Bush. Why do you suppose I have fantasies about Obama being above politics? I don’t. He is very much a politician. He is the probably the only Democratic politician who could have defeated the Clintons. I’ve said I see him as a pragmatic centrist, and I see him as capable of changing his mind. What is so wrong about that?

    Did I ever say there wasn’t such a thing as a business cycle or that Bush was personally to blame for everything in the whole economy? You are making wild accusations if you think I have.

    The problems of our economy are much deeper than one man can cause, but Bush championed the unitary executive and its inherent powers and with himself famously as the decider. He does appoint the central bankers. His signing statements indicate disinterest in the will of Congress. He wants to be seen as the man in charge. If things were going great, he would gladly take the credit. More importantly, he has insisted on tax cuts at all costs and on deregulation. The rough justice of American politics is that if things were going swimmingly, the Democrats wouldn’t have much of a chance against him.

    I could be happy with Bloomberg as President, but he isn’t running. Bush represents the unhappy status quo, and you don’t seem very much concerned to defend him or McCain, only to attack me. Other than yourself, who would you like to see as President?

    You argue for fiscal restraint, but haven’t said much about Bush’s lack of fiscal restraint. You profess admiration for the German system when I hold it up as an example we should move towards, but seem to say we can’t. Germany maintains a strong currency and strong exports, which you don’t seem to believe is possible for the U.S. You don’t explain why Germany can do this and we can’t. It doesn’t take a Ph.D. in economics to notice that some countries are doing some things better than we are.

    Other than the fact that you don’t seem to like me or Bush or Obama (but you really don’t say why in the case of Obama), and you do like yourself, I can’t figure out where you are coming from.

    More on the dollar later.

  35. Ryan,

    First of all, lighten up a bit. This is a blog, not an economics journal. If you expect the content of an economics journal, you should go there, not to a general interest blog.

    OK. Confession time. My Ph.D. isn’t in economics, but in one of the physical sciences. But I have a good friend who is a professor of economics at a major non-U.S. university. And a friend who is a vice president at a major bank who first clued me in about the danger of derivative financial instruments so complicated that no one understands their value. And a son who is a mathematician and a trained actuary, who keeps me informed about Social Security. And a son who has an MBA from an Ivy League school who works for a major corporation. And a son half-way through his MBA who is working this summer for a major financial firm. And a son who works overseas for a major oil company. We talk. We don’t always agree or vote the same way, but the majority feeling is that the Bush administration has not done very well, and the economy is not doing well, and this is more than a temporary blip, and, it is, of course, more than the fault of one man. I only read two popular economics books last year, but I watch up to an hour of financial news a day including European broadcasts. I’ve lived and worked overseas. I’ve worked for European and American firms, big firms and small firms. I can remember all the presidents back to Eisenhower. I have never seen such unease in Europe over an American presidency. I have seldom seen such unease in America. If you think that is it too partisan to express that, then I beg to differ.

    Bernanke and Krugman might differ over whether we should worry about our trade deficit. Warren Buffet is certainly worried. It is not hard to google up the names of other economists and financial experts who are worried.

    When I quoted Emmanuel Todd, you merely dismissed his remarks without giving much of a reason for doing so. European bankers and government officials are concerned that exaggerated dollar fluctuations are not healthy for the world economy, and that the U.S. authorities are not doing enough to match their own rhetoric about the dollar.

    I am not prepared to debate Bernanke or Krugman or Buffet or Todd or European bankers, but to suggest that only the ignorant are concerned requires you to devalue the intelligence of a number of people more credentialed and experienced than I expect you are. Those experts who do worry have pointed to possible cures. I freely admitted in my earlier post that it was not easy to determine where the candidates stood on this or what the best solutions might be. But I did suggest this was worthy of consideration. And what do I get for bringing this up? As far as I can tell, only personal abuse. We need a national conversation on the economy, and your attitude certainly won’t encourage it. In fact, the President would be a good person to start a national conversation on the economy. If we have structural problems, like a low national savings rate, the President would be a good person to take the lead in seeing what might be the best way to cure that. I don’t see the current occupant of the White House having enough credibility left to lead such a discussion, his own MBA notwithstanding, and I don’t see Senator McCain as having had all that much interest in the economy during his long career.

  36. I really haven’t stayed up until 3 a.m., people, I promise; I’m having trouble sleeping tonight.

    Ryan and Leo,

    OK, you two, time to leave some of the personal accusations to yourself. There’s no need for Ryan to use formal economics knowledge as a club (the arguments alone should suffice), and there is no need for Leo to make assertions regarding Ryan’s supposed self-importance.

    I’ve really liked the conversation and I don’t mind it continuing, but the personal digs don’t help any.

  37. I was really hoping for a Bloomberg run as well.

    My Apologies. I don’t mean to use economic training as a club. I don’t think people need an econ PhD to argued about economics; I bring it up only because Leo, you refuse to discuss the implications of your ideas. All those tradeoffs I listed – why do you refuse to discuss them? You want a stronger currency; what effect does this have on liquidity and exports?

    I think I’ve mentioned several times my dislike for Bush’s lack of fiscal restraint. I didn’t think I needed to push the point because everyone here agrees. I have argued extensively about Bush’s irresponsibility at another blog.

    I’m a big fan of Krugman. I assume you have read some of his research and not just his column. If you have, you will remember that he has warned against government intervention in markets, despite his clear demonstrations that, theoretically, it can be beneficial, because of the dangers of political capture and opportunity cost of mismanagement.

    I guess this is the last time I will plea: explain how you feel about the tradeoffs I’ve asked about. The reason I haven’t sided with a candidate yet is that neither seems to make any convincing arguments, nor do their supporters. Further, you will notice that I have made very few normative claims. This is because I find economics very complicated. I don’t think I can make such clear-cut claims as you considering all the difficult complexities of the tradeoffs involved. That’s why I continually ask you to explain.

    Sorry if you feel attacked by me; I know that being asked to explain your ideas and where you got them could be seen as offensive by some. It won’t happen again. I just feel that you have found some “hobbies” – bashing Bush and complaining about the dollar, but you refused to demonstrate a more comprehensive understanding of those darn tradeoffs.

  38. Ryan, apologies accepted. The common narrative in the popular financial press is that consumers were allowed to build up too much debt over the past twenty years. The debt was used to buy houses that consumers could not afford, within a reckless and poorly supervised financial system, leading to the crisis in the American mortgage market that broke last year. A further consequence of this lax monetary policy was a big trade deficit.

    This deficit could be financed only with the help of surplus-generating countries in Asia and the Middle East, which has left us quite vulnerable. Manufacturing has been outsourced to the developing world, and our economy is now overly dependent on the financial sector. This is compounded by workers to taking on more debt and rising income inequality.

    The faith that increasing debt will cure all problems is misplaced. Growth is about the level of capital spending and saving, education, technology, R&D, etc. What we are seeing is the unwinding of a giant credit bubble two decades in the making. To prevent a financial collapse, the Federal Reserve has been forced to lend not only to banks but also to brokerage firms and accept as collateral securities of unknown quality. The Fed’s effort to stimulate demand by cutting short-term interest rates is being countered by higher lending standards. The Fed’s rate cutting has also weakened the dollar, which has exacerbated the run-up in oil and other commodity prices. Because we allowed a bubble to be created, we are being forced to make less than pleasant trade-offs.

    The underlying feature of the narrative is a long-standing and unwarranted faith in unfettered markets on the part of the U.S. combined with an indifference to debt, all leading us to this crisis. Perhaps you would like to explain what is wrong with this narrative.

  39. Getting back to election, Senator McCain’s campaign co-chair, Senate ally, and economic advisor (and a man with a Ph.D. in economics) thinks we are a nation of whiners for complaining about very real (not mental) losses to our economy and standard of living. If Senator Gramm keeps going with this rhetoric, the election won’t resemble 1992, it will resemble an election six decades before that.

  40. One of Senator McCains’s signature issues is repealing the federal tax on gasoline, at least temporarily. I am hard pressed to find economists who support the idea, and can easily find many who oppose it. It may or may be a vote getter. It does, however, fit the GOP playbook of tax cuts.

  41. 1. McCain’s gas tax idea is absolutely embarrassing. There is no defense of it. Thinking back, I think the point at which he started advocating that idea is the point at which his entire economic platform went downhill.

    2. Your analysis is fantastic. I agree. I think where we may disagree (though perhaps not, since my normative thoughts are not fully formed) is the prescription for the problem. How do we bulk up the value of the dollar, address the trade deficit, and maintain liquidity all at the same time? The “Mundell-Fleming” triangle is the theory (demonstrated in empirics) that a government can choose two of the following three things: monetary autonomy, tightly managed exchange rate, and capital controls. You cannot have all three; you must choose two. Further, there are the tradeoffs between the value of the dollar and exports, etc. This complicates the task ahead. What do you, or Obama, propose we do to address each of these issues?

    I believe Obama’s gut reaction to trade imbalance has been protectionism. This is misplaced. There are very few instances when protectionism has been beneficial. The deeper problem lies with the gap between savings and investment.

    3. You’re right, I failed to address my thoughts on Germany. I will do so now, because I think it’s a fascinating country. I will tell you why I like the German system so much, and why it cannot really be implemented in the US.

    Post-WWII, Germany adopted a mixed-member proportional electoral system for the bundestag (for our purposes, this is almost the same as proportional representation). America, Britain, and other older democracies have majoritarian, or first-past-the-post, electoral systems; Ljiphart is a political scientist who became famous demonstrating the implications of electoral systems. Majoritarian systems almost always create a two-party system. PR systems create multiparty systems. The beauty of multiparty systems is that they force politicians to moderate platforms, compromise, and care about more “stakeholders”.

    In addition to its electoral system, Germany has a long tradition, going back to Bismark, of social protections. Bismark created the “welfare state” because he needed to appease the Socialists (to prevent unrest, etc.). Combine these two things – a typically centrist, compromising legislature and a cultural tradition for the welfare state – with the post-War pressure from America and Britain to liberalize, and you get the German “social market”.

    This will oversimplify, but after all, this is just a comment. In Germany, representatives of employers meet with representatives of employees to set wages. A process of deal-making occurs. Employers have incentives to give good wages and benefits to maintain a steady, skilled workforce; employees have incentives to make reasonable requests so their employers can handle the pressures of markets on wages and maintain high employment. These meetings result in (kinda) long-term deals. Once these deals are made, employers are obligated to maintain high employment. To do this, firms have developed close, long-term relationships with banks. During hard times, banks are willing to supply capital so firms can maintain high employment. Firms know that they have employees for the long-term, so they have major incentives to invest in human capital. This has led to the development of the very famous German ‘skilled worker’. Workers in Germany are highly skilled. It’s hard for me to explain this, but it’s important.

    Employers want to be good to employees in whom they have invested a lot of training; employees want to be loyal to employers (meaning less wage demands than in other countries) because of the good treatment and stability they get. The government is involved in all of this – but it isn’t central planning. It is a “social market” – the market tells firms what wages they can afford, etc. The government provides a strong social safety net as insurance for the whole process, taking some pressure off employers. Further, it avoids doing things that would straitjacked productivity and investment for the owners of capital. The combination of the government-market relationship, the worker-owner relationship, and the owner-banker relationship has made a very stable, productive economy.

    America is very different at a structural level. Our political system is not conducive to making deals (in fact, it can be very hostile, as John McCain learned when the GOP basically tried to disown him). There is no employer-banker relationship to speak of: when firms need money, they must go to a financial market and get it (Germany doesn’t have nearly the depth of financial markets that we do). This means that when times are tough, firms must lay people off. And, since there is a weaker employer-worker relationship, firms don’t have an incentive to invest in human capital and workers don’t have an incentive to moderate wage demands. I believe that the differences in our banking system, our employer-worker system, our political system, and our culture are deep, structural differences. Here’s why:

    Our banking system will not change to the old German way. Financial markets are just much more profitable (indeed, even Germany is turning away from the old ways). Further, as Chinn and Frankel have argued, depth of financial markets is crucial to a currency’s ability to be a world reserve currency (they argue that this is the main thing slowing the euro from overtaking the dollar in this aspect; we both know it’s not the dollar’s strength that does it).

    Our employer-worker system is very different as well. In such a fast-moving market, without the solid social safety net and long-term capital (banking) relationships of Germany, firms don’t have the same incentive to invest in skills. Workers don’t have the same incentive to be loyal and moderate demands. This may seem easier to change – increase social spending, etc. – but I don’t think it is that easy. America is very distrustful of governments because they just don’t handle things very well. The American government is so polarized (caused in part, I think, by our two-party system) that it just doesn’t get things done. Compare our progress on issues like climate change and energy with Germany’s. I believe their MMP system, which forces parties to come to the center and make deals, causes their government to make better decisions which serve the interests of more people. So, Americans just don’t want a welfare state, because many of us don’t trust the government to run it without running the economy into the ground (I must say I am in this camp).

    Our political system will not change. I would love to see the House of Reps go to a PR or MMP system, with a sharp decline in the power of the senate, to make our government more representative and less inclined to swing back and forth between ideologies like a pendulum. But, it is constitutional. Our constitution is institutionally harder to change than almost any others in the developed world. Additionally, many on the Right seem to feel that it is a sacred document (I think it is in a small way, but I think we can and should change it from time to time). Therefore, unfortunately, I don’t think we will ever have a political system conducive to the social market.

    Finally, the last reason I don’t think we can effectively imitate the German system: even Germany is slipping away from it, under the pressures of globalization (and unification, which I don’t have room to discuss – I already take up too much space on Dennis’ blog!). In the information age, and the age of lowered capital controls, bankers like financial markets better than social markets, no matter how much regulation we throw at them (and, as I said above, we are agreed that there should be more regulation). The free movement of labor makes it hard to develop the kind of relationships that Germany has had in the past. Sadly, I think we will see Germany continue to drift away from their old model (although Levy has made some great arguments about European governments maintaining solvency by ‘redeploying the state’ – and it’s the Left-of-center parties doing it!).

    4. Perhaps I can change the subject to something we probably have more common ground on: education. I believe that the long-term solution to outsourcing and, partially, the trade deficit, is education. When we open up trade with developing countries, it is the low-skilled workers who lose their jobs. The country as a whole benefits.

    Now, here is a common argument about trade from the Right: “The total benefits from trade are enough that we could compensate all the losers with the gained wealth”. This is a true argument. But, it is very disingenuous, because how often does the Right argue for redistributing the gains from trade? Never.

    Here is a common argument from the Left: “Trade ships our jobs overseas and hollows out our industrial base.” This is true as well, but the response of the Left is all too often: “freeze trade. Don’t make new agreements. Unilaterally renegotiate the ones we have.” This is not the solution, because doing this makes the country as a whole worse off. Additionally, this is bad foreign policy. Unilateral trade protectionism is often seen as belligerent economic warfare (hence the Canadian consul’s concern at Obama’s NAFTA rhetoric).

    I believe in trade. I believe that the gains from trade should be redistributed in the form of (1) temporary social safety nets – handouts, and (2) extensive retraining programs. States that have focused their welfare efforts on training instead of long-term handouts have seen good results. I would be perfectly happy with a ‘trade tax’ – a tax that is used to fund 2-year college attendance for those who lose their jobs due to outsourcing, to give them more competitive skills.

    Further, in the long-term, we need a more educated America to compete in the future. I have read Obama’s book and his website and I will concede this: his plan for education is superior to McCain’s. That was my favorite chapter from the book.

    Dennis, forgive me for being so long-winded.

  42. Ryan,

    I think we have more in common as this discussion continues. Time does not permit the lengthy reply your post deserves. You did hammer me earlier on being too tough on Bush. I admit he is a too easy target, but I think Krugman said it best in his July 17th column: “We really do have a lousy economy, a fact of which Mr. Bush seems spectacularly unaware. But that’s not the same thing as saying that the bad economy is Mr. Bush’s fault.…Other politicians besides Mr. Bush share the blame for the mess we’re in — but most of them are Republicans.”

    I agree that in the short run our hands are somewhat tied, hence your point about necessary trade-offs. Truman once said he wanted to meet a one-armed economist who wouldn’t be able to say “on the other hand.” Bernanke is no fool. When the housing bubble burst, the Fed had to cut interest rates to keep the economy liquid, which hurts the dollar, but that helps our exports, but amplifies the increase in the price of imported oil, which helps reign in our wasteful energy usage, etc. But the wild swings are damaging economic confidence and people’s lives. A stitch in time might have saved nine. Meanwhile, the Chinese are inscrutable, at least to me, and the Europeans are definitely not happy with what we are doing to trans-Atlantic trade.

    Back to McCain. He is promising to balance the budget by 2013, keep the Bush tax cuts, and cut more if he can. He clearly is a foreign policy and military hawk who will be naturally inclined to increase, not decease military spending. I find it hard to see him slashing the Pentagon’s budget. Unless he guts domestic spending to an unprecedented and probably politically impossible degree, I don’t see how he can do it.

    Back to Obama. Is he a protectionist? I think the jury is still out on that. I suspect not. I think he might favor some sort of nation industrial policy, an idea that seemed to die with the Hart and Mondale campaigns of some years back. A bad national industrial policy could have hurt us, but a good one implemented a couple decades ago might have prevented some of our current pain.

  43. Dennis,

    I know energy policy is for a future debate, but this has relevance for my economic critique of the Bush administration, wherein the perfect storm of a bursting housing bubble combined with a spike in oil prices has exposed structural weaknesses in our economy which might have gone unnoticed for some time in the absence of our current crisis.

    But back to energy policy. The Bush-Cheney energy policy has been marked by non-transparency, but we can guess at its outlines. Global warming was denied or ignored. This is a mistake, the ultimate costs of which have yet to emerge. Peak oil was also probably dismissed as a mere theory. That is another mistake with serious long-term consequences. Cheap oil was seen as good for the American economy, which is a reasonable assumption if you deny global warming and peak oil. A vigorous policy to maintain U.S. access to cheap Middle Eastern oil was the corollary. Bush and Cheney were oilmen. They knew where the oil was. Overthrowing Saddam Hussein and replacing him with grateful and pliant Iraqi’s who would supply us with cheap Iraqi oil while democracy would spread to Iran with similar effects was the spectacularly failed dream. The three trillion dollar cost of the Iraq war is a mere down payment on what this madness could ultimately cost us, because it said to the world that we will go to war over access to foreign resources heedless of the costs and regardless of world opinion.

  44. 1. We agree that Bush has botched energy policy. His reluctance to acknowledge global warming is, in my mind, equivalent to believing in a flat earth. Bush’s failure to address energy and climate change issues is representative of the broader failures of the American system to develop solutions to any problems (after all, has the Democrat Congress done any better, despite its promises?). Two great articles by Thomas Friedman about: Bush’s failures and America’s failures. I am glad that McCain has parted ways with Bush and the GOP on environmental concerns. I have written extensively about energy solutions here. I feel that not only has Bush dropped the ball, but McCain and Obama have both also failed to develop a real energy solution. I do, however, feel that the decision to invade Iraq, while certainly accounting for oil, was not nearly as simple as you make it. I recently discussed this at length here.

    2. Regarding Obama and protectionism: on this topic, it is hard to criticize Obama because he is a moving target. There is no doubt that he was a protectionist during the primaries, especially in the Rust Belt. He won a lot of votes by promising to unilaterally rewrite NAFTA (causing discomfort among leaders in Canada and Mexico). He gained significant political capital in the Midwest complaining of how trade affects the economy and made false claims about NAFTA’s effects on jobs. He got caught in a sticky situation with his chief economist and the Canadian consul which reflected both his political shiftyness and, I hope, his real views about trade. But, oddly, right when he clinched the nomination, his rhetoric changed. As part of his broader shift to the center, he has hedged on trade implicitly but denied such hedging when asked point blank; I just don’t know where he really stands. I do know, however, that a unilateral rewriting of NAFTA would not only destroy his reputation as a believer in non-aggressive, multilateral foreign policy; it would also give Canada a great opportunity to shaft us on oil purchases. Honestly, I applaud Obama’s drift to the center, but it makes me have serious doubts about his authenticity and integrity (as I’ve argued here).

    3. A great article by Gregory Mankiw, famous Harvard economist, in the Times today discussing what it would be like if politicians listened to economists. This is a must-read (if it asks for a login, just create one – it’s free and gives you unlimited access to NY TImes archives since 1981).

  45. Ryan,

    McCain is different from Bush and most of the GOP on global warming. Elsewhere on this site, referring to torture and Gitmo you wrote:

    “I’m afraid that the Right is pushing him [McCain] to become more right wing on this issue.”

    That is the scenario that worries me where McCain differs from his party on a number of issues.

    For reasons too lengthy to go into here, I find your analysis of the Iraq fiasco unpersuasive. There were people from the Bush 41 administration and maybe half of the Democrats in the Senate who foresaw the dangers of an invasion and urged against it. Hans Blix was doing a credible job. Instead of supporting him and giving him more time as many member of the U.N. wanted, the war hawks were vilifying him. We had Saddam in a box. He was not much of a threat just prior to the invasion, regardless of what Clinton or Bush may have thought previously. It was like the Guns of August all over again, where a great power started a war that could have been avoided, even at the last minute, had the will to avoid war been there. Colonel Lawrence Wilkerson, Colin Powell’s chief of staff said of Douglas Fieth, whom you quote, “Seldom in my life have I met a dumber man.” Lieutenant Colonel Karen Kwiatkowski has described him as “very arrogant” and closed minded. Had the invasion of Iraq turned out as it was sold to the American people, I would have more faith in the opinions of its architects.

    I agree that Obama has been a moving target on trade. That fits my estimation of him as a centrist politician. Clinton beat him up on NAFTA because he was quietly signaling to the Canadians not to worry, that he was not a protectionist. My worry has not been Canada or Mexico. My worry is China. So McCain is moving to the right, and Obama is moving to the center. Both are changing. My vote is for the candidate moving to the center.

    I agree pretty much with the Mankiw article, but it leaves out a lot of other economic issues. See, for example, below.

    I am not against rich people. Nor do I consider them “nasty” (your term). I am doing fairly well myself, and if I were only concerned about myself and not my children, grandchildren, and the larger society, I would vote my economic self interest for further tax cuts and flatter taxes. Obama does favor a middle class tax cut, so I suspect his tax policy would be about a wash for me. The GOP is obsessed with a permanent tax cut and insuring that taxes can only go down, but quiet frankly, I see that has crazy inflexibility. Both candidates agree that our tax code needs overhauling. McCain was against the Bush tax cuts before he was for them, so he is moving target as well. (See above about McCain moving to the right.)

    But when it comes to rich people, I am very concerned, as are some economists, about increasing income inequality. I hear Democrats talking about this. Republicans not so much. Since this is an LDS perspective site, I leave it to the reader to search the Book of Mormon for thoughts on income inequality. How bad is it out there? Based on per capita GDP, the U.S. is like Switzerland, Sweden, and the U.K. Based on income inequality (using the Gini coefficient), we are more like some third world countries and getting worse. High inequality reverberates through society in health, education, crime, racial harmony, civic participation, and overall happiness. How badly is that affecting the U.S.? Life expectancy is falling for men in 50 U.S. counties. Life expectancy for women is falling in 900 counties. Overall, we are not in the world’s top countries based on life expectancy. Exact figures vary, but some estimates show we are not even in the top forty. We used to lead the world in college graduation rates. Now we are in the middle of the OECD pack. A hundred years ago, as a society we committed to a free universal high school education. But for college education we have moved away from direct aid towards loans that pass through bankruptcy. Imagine if we had made such a decision about funding high school a century ago. As technology continues to advance, if Americans do not erode the financial barriers to higher education, we will see not only a further increase in inequality, but a shortage of skilled technology workers as well, unless, of course, we want to outsource some of our best and most important jobs.

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  47. More on poverty.

    “In Washington, while there’s a never-ending debate about how to confront poverty, there is hardly any clarity on who is actually poor. I spent most of my career in the private sector, and I’m a big believer in the saying, ‘If you can’t measure it, you can’t manage it,'” Mr. Bloomberg was to have said, according to his prepared remarks.” (New York Sun)

    How bad is it getting out there?

    “Nearly 61% of local and state homeless coalitions say they’ve seen a rise in homelessness since the foreclosure crisis began in 2007, according to a study released in April by the National Coalition for the Homeless.

    According to the study, which let respondents offer multiple replies when asked where they’re headed once their property is foreclosed on, 76% of displaced homeowners and renters are moving in with relatives and friends. About 54% are moving to emergency shelters. About 40% are already on the streets.”

    (ABC News)


    “Food banks besieged by hard-hit families” (San Jose Mercury News)


    “Food banks seeing record numbers seeking assistance”
    (Deseret News)


    I don’t look for the Bush administration to do a major study on this in their last six months in office.

  48. Excellent discussion so far, fellas.

  49. http://www.nytimes.com/2008/07/31/business/economy/31jobs.html?_r=2&oref=slogin

    “The number of Americans who have seen their full-time jobs chopped to part time because of weak business has swelled to more than 3.7 million — the largest figure since the government began tracking such data more than half a century ago.”

    The whole article is worth reading.

    You could also file the loss of benefits under healthcare.

  50. Leo,

    Thanks for posting this article. Everyone should read this!

    I’ve been thinking about these issues for some time (ever since I was in high school when I worked as a bagger for Albertson’s, and I heard a growing number of clerks complain about how they expected to get 40 hours a week but were only getting 30).

    It is one thing if your business really does need only part-time help. But it is ridiculous for these giant corporations (e.g., Walmart) to hire tons of part-time employees. It is far better to hire 1 employee at 40 hours a week than 2 at 20 hours.

    But, hey, it all trickles down, right? :)

  51. It has been some time since I have posted on this thread. The economy has been deteriorating at a disturbing pace with unemployment rising and banks and financial institutional giants failing at rates not seen since the thirties. This is getting very serious folks.

  52. […] the Russia-Georgia conflict, and Hurricane Ike. (There are separate forums for discussing Iraq; the economy; oil, energy, and the environment; and terrorism and […]

  53. […] election. We have had many great discussions on a range of topics, such as character, Iraq, the economy, abortion, relationship with LDS Church, health care, faith and family values, terrorism and […]

  54. The economic crisis is much worse than I thought just a few months ago when I first posted on this thread. We now know that have a shadow banking system that has a lot fewer reserves behind it than Jimmy’s Stewart’s bank in It’s a Wonderful Life. Jimmy’s old bank has been replaced by a system of SIV’s, CDO’s, CDS’s, and other fancy financial instruments that few people know about and even fewer understand. The $700 billion bailout bill was designed in part to stabilize the shadow banking system. We still have a long way to go to get out of the woods. I’ve never seen serious economists so worried or pessimistic as they are now.

    In the deregulated financial and securities markets of the last two decades, new financial instruments like CDO’s, collateralized debt obligations, were invented. A CDO is a debt security collateralized by a variety of debt obligations including bonds and loans of different maturities and credit quality. CDO’s originated in the 1990’s when financial institutions began moving debts off their balance sheets. A SIV is a structured investment vehicle, a fund that acts like a bank.

    Risk was spread, and supposedly reduced, by the use of derivatives. Derivatives are financial instruments whose values depend on the value of other underlying financial instruments. This includes credit default swaps (CDS’s). A CDS is like an insurance policy against bad debt, but it became a vehicle for unregulated speculation. The CDS market exploded over the past decade to more than $45 trillion in mid-2007. This is roughly twice the size of the U.S. stock market. The U.S. gross domestic product is about $14 trillion. The world GDP is about $54 trillion.
    Credit default swaps funded credit gone wild. This was a gigantic credit feeding frenzy. It includes credit cards and all sorts of loans as well as mortgages. You probably have received in the mail solicitations for credit cards. You probably have seen TV programs offering wealth with no money down. You probably have seen internet ads for mortgages. Now we know where all that ended up. We just can’t figure out how bad it is, how much is good debt and how much is bad. With complicated financial instruments and unregulated markets, bad investments got spread around the world like so much toxic waste, and no one can yet figure out how toxic they are because they are so complicated.

    What began as a potentially dangerous idea became an extremely dangerous bubble, and the regulators were asleep at the switch for a decade. Even as recently as a few months ago, we were repeatedly assured that the fundamentals were sound. But the fundamentals were not sound. Things had gotten way out of hand, and no one still knows how bad things are. Is $700 billion enough? No one knows. That is the scary part. These financial instruments are so complicated and so hard to value that people’s eyes glaze over when you talk about them. There was even a market for the market for CDO’s of CDO’s (a CDO squared). Who can determine what a CDO squared is worth?

    Foreign banks and sovereign wealth funds figured the fundamentals of the world’s largest economy (the good old USA) were sound and bought a fair amount of our new fangled financial instruments. We can’t default of them now without bringing down the world economy.

    In the earlier days of a well-regulated banking system, this crisis would not have gotten out of hand or could have been more easily contained if it had. If a bad loan stays with the originating bank, then it would be relatively easy to value and the loss would be limited to the originating institution. Moreover, the bank or the other lending institution would have had a much greater incentive not to originate a risky loan.

    Ironically, our current mortgage system was rebuilt after the Savings and Loan meltdown, which was caused by the deregulation of the system that was built after the meltdown of the Great Depression. Deregulating the banking system is a terrible idea. Even Alan Greenspan’s faith in self-regulating markets has been shaken. This part of the Republican revolution needs to be replaced by well-regulated and transparent markets that FDR would recognize. The Democratic Party is the party best suited to do this, and the country knows it.

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