McCain confirms US ideological bankruptcy
By Peter Morici
United States Republican presidential candidate John McCain has tabled an
economic program that won't rescue the country's economy from its mess, but
Democrat Senators Hillary Clinton and Barack Obama offer little more.
McCain advocates tax cuts for parents and corporations and mortgage relief for
distressed homeowners, paid for by paring non-defense, discretionary government
spending and higher Medicare premiums for the well-off.
Cutting taxes and government outlays together won't boost
spending for US-made goods, increase traffic at restaurants and dry cleaners,
put the unemployed back to work or resurrect growth.
Neither would a stronger stimulus package, because the economic quagmire is not
a 1950s-style recession, caused by a temporary buildup of unsold goods
precipitating shorter shifts and layoffs. Rather, it is caused by systemic
malfunctions, created by wrong-headed energy, trade and banking policies that
won't easily resolve.
In 2008, net petroleum imports will likely cost US$400 billion, up nearly
10-fold since Bill Clinton took office. Many oil dollars sent to Arabia, Russia
and elsewhere are not spent on American goods and do not create jobs here.
Coupled with booming prices for food prices, rising gasoline, electricity and
heating bills give Americans less and less to spend on nonessentials, and
retail sales sink, layoffs mount, and wages falter.
US exports have not kept pace to pay for oil and the other goods we buy abroad.
Since Clinton took office exports have increased about $1.1 trillion, while
imports have jumped $1.7 trillion. The overall result is a whopping $700
billion trade gap that reduces GDP by $250 billion and longer-term economic
growth by even more.
Americans use too much gasoline, and the ethanol program dents the problem much
less than it pushes up prices for butter, baked goods and beef, and instigates
food shortages in poor countries.
Ethanol is the sophistry begotten by pandering for farm votes. The real answer
lies in more fuel-efficient vehicles manufactured with readily available and
reasonably obtainable technologies, within our reach.
Sadly, hardly anyone in Washington - including the trio of senators running for
president - seems willing to embrace truly rapid deployment of hybrids, lighter
vehicles, fuels cells and more efficient diesel and gasoline engines.
Our free-trade policies would raise productivity and living standards if we
paid for what we buy abroad with exports, because exporting industries use
labor more productively and spend more on research and development. However,
governments in China, Japan and much of Asia intervene in foreign exchange
markets to keep their currencies artificially cheap and US exports too
expensive in rich markets with the greatest untapped opportunities.
McCain, Clinton and Obama all refuse to back bills pending in Congress that
would get tough with Asian currency manipulation, and establish conditions for
more balanced trade with those protectionist regimes.
Since the 1980s, banks have moved from making loans funded by deposits to
jobbing out lending to mortgage brokers and private equity funds, and wrapping
mortgage, credit card and business loan payments into complex bonds for sale to
insurance companies, pension funds and other fixed income investors.
Mortgage brokers made liar's loans, built on questionable assessments of home
values and borrowers ability to pay. The banks understated default risks to
fixed income investors, and skimmed off excessive profits and bonuses, and left
too little to cover defaults.
The George W Bush administration is seeking tougher standards for mortgage
brokers and real estate appraisers, but its financial regulation reform
proposals go light on the questionable business practices of the Wall Street
banks.
Predictably, fixed-income investors will no longer buy bonds created by the
banks, and the banks have much less money to lend homeowners, consumers and
honest businesses.
The presidential contenders, all busy harvesting contributions in New York's
financial district, have not explained what they plan that would fix that mess.
On important energy, trade and banking issues, McCain offers Bush redux.
Clinton's platform is a throwback to 1970s French statism, something President
Nicolas Sarkozy is trying to escape. Obama is offering what he does best. An
Elmer Gantry campaign, full of expressions of hope but thin on policy and
anything truly new.
It seems the Republican elephants have long memories but few new ideas. The
Democrat donkeys are endearing but even less adaptive.
Peter Morici is a professor at the University of Maryland School of
Business and former chief economist at the US International Trade Commission.
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