September 24, 2008; as prepared for delivery
UCLA Anderson Forecast Conference (10:30 AM)/
Stanford SIEPR Conference (5:00 PM)
Back in the 1980s, I hoped that I would be here today--in places like this, giving my views of the relative merits of presidential candidates--and I was certain I would be a member of the sensible bipartisan center. I would dislike the Republicans for their addiction to tilting the distribution of income in favor of the already well-off and for their lack of concern about true equality of opportunity. I would dislike the Democrats because of their false confidence in the power of administrative solutions to rule processes for which gardening would be a much better metaphor and for what appeared to be excessive fear of competition from foreign workers. I would be willing to cross the aisle if one party managed to successfully damp down its worst instincts while the other did not. But I thought that most of the time I would be pretty balanced as far as economic policy was concerned--part of the sensible, bipartisan center. And I thought that most of the time my vote would be decided by three other considerations, all of which weighed against the Republicans:
Republican foreign policy was horrible: a lack of confidence in our own soft power, a lack of understanding that we are strongest when we are and are seen to be the good guys, and an addiction to the rhetoric of "rollback" intended for domestic consumption only--as the Hungarians found out in 1956, and the Georgians are finding out right now.
Richard Nixon: A party that can choose Richard Nixon to be its leader for a generation must be punished at the polls. By voting against a party that chooses Richard Nixon as its leader I am the agent of a Just God.
Lyndon Johnson: Lyndon Johnson's decision to try to honor the check that America wrote its African-American citizens in the Declaration of Independence was a brave and noble act. By neutralizing the vote of one of the people who votes against the Democrats because Lyndon Johnson tried to honor that check, I am the agent of a Just God.
I believe all three of these reasons apply with at least as great force now as they have in the past--one and three apply, I think, with greater force.
I started out, as I said, a member of the sensible bipartisan center, my presidential vote gettable by either party if it adopted sensible economic policies. Yet each time since the mid-1980s I have filled in the oval by the Democrat's name, and now I find it almost inconceivable that I would vote for a Republican.
I remember back in 1988, listening to George H.W. Bush address the Republican National Convention while seated next to a Republican subcabinet-rank class official, and hearing him utter a "barnyard epithet" when George H.W. Bush recited Peggy Noonan's line "read my lips, no new taxes." George H.W. Bush promised no new taxes and promised a balanced budget through cutting waste, fraud, and abuse. He delivered neither.
I remember back in 1992, watching George H.W. Bush denounce his own economic policy team--Richard Darman and Michael Boskin--and promise to fire them if he won reelection, and I thought: "this can't be real." It was. I voted against George H.W. Bush. And things got a lot better, policywise.
Back in 1996 was the first time I was on a stage like this, debating Jim Miller, former OMB head and a true believer in the suppliest of supply-side doctrines. He promised the audience that the Clinton tax increases of 1993 were crushing the economy like an egg, and that if Clinton was reelected 1997-2000 would see slow growth, recession, and higher unemployment. He was wrong.
Back in 2000 I debated Mike Boskin at Stanford's SIEPR. I remember saying that George W. Bush's team was telling people about their tax cuts assuming that the AMT would be amended in order not to snarf them back and that George W. Bush's team was costing out its tax cuts assuming that the AMT stayed fixed in nominal terms. I said that either (a) 3/4 of the tax cuts promised would not be delivered, or (b) the Bush tax cuts would be vastly more expensive than the Bushies were saying and might well destabilize our fiscal situation once again, casually and criminally undoing the hard work of sensible centrists who loved their country during the Clinton administration. Mike Boskin said I was wrong. I was right.
Back in 2004 I was all set to debate Dick Schmalensee at UCSD, when he stood up at the start and said that he couldn't stomach what the Bushies had done on economic policy and would vote for Kerry. We had a fine time.
There is definitely a history here.
Now it's 2008. I don't expect my interlocutor to have the cojones, the wisdom, and the courage of Dick Schmalensee and announce that in his view you should vote for Barack Obama. I think he should tell you that. I think he should tell you to vote against the Republican. What reason could there be not to vote against a candidate who says he doesn't know very much about economics? Not to vote against a candidate whose two chief economic advisors are Phil "What Problems with Deregulation, You Whiners?" Gramm and Carly "H-P Paid Me $21 Million to Go Away" Fiorina. All signs are that McCain economic policy is set to be much worse than even George W. Bush policy--unless Douglas Holtz-Eakin could win the fight inside the White House snakepit. But I don't think he could: McCain regards Gramm and Fiorina--not Doug--as peers to be deferred to. I would be happy to be proven wrong if we take the gamble, but it's not a gamble I want us to take.
Just one more thing to takeaway about John McCain. John McCain once to (a) provide another big round of tax cuts, and (b) balance the budget, by (c) cutting earmarks. Here are the earmarks he wants to cut.
It is not just that economic policy under John McCain is likely to be ver bad, it is that economic policy under Barack Obama is likely to be quite good. Barack Obama shows every sign of continuing the moderate Democrat tradition of economic policy--working to reduce income disparities, enhance opportunity, restore fiscal balance, speed up productivity growth, try to fix our health care system, invest in America's future, and engage with the global economy. He is a very smart man with, I think, a very good team of advisors.
I have been trying to run the numbers. And what I get is that Barack Obama's health care plan, when phased in, is likely to:
- Boost minimum-wage and near minimum-wage employment by $100,000 or so by reducing the health costs of those employers that do offer employment-sponsored insurance.
- Shift 1 million workers who used to believe that they had to work 9-to-5 for a large bureaucratic entity in order to get health coverage for their families into jobs that they like more.
- Shift 1,500,000 workers into higher-wage high-benefit jobs in the expanding capital-intensive industrial sector.
- Boost wages by $1,500 a year for the average worker in the coverage-providing sector.
What I get is that Barack Obama's fiscal policy is likely to, by 2017:
- Boost annual incomes by between $290 and $440 billion real 2009-value dollars.
- That's some $1,800 to $2,700 per worker.
- Boost sustainable employment by between 1,750,000 to 2,500,000 jobs.
On the financial panic, Barack Obama backs the Democratic approach of Chris Dodd and Barney Frank--the very smart and very competent chairs of he congressional committees--in stating that aid to support the financial sector has to be coupled with a piece of the upside action to protect the taxpayer, an analogous program to offer support to homeowners who are equally or more deserving of support, and steps to make sure that those responsible for the catastrophic failures of risk management we have seen do not profit.
What I like most about the Democratic approach is how the monies paid out by the Treasury to financial businesses for the troubled assets it is taking off their hands change classification depending on what happens in the future. If in the future the Treasury is able to sell the assets for a good price, the monies paid by the Treasury were a purchase. If in the future the Treasury is not able to sell the troubled assets ever and must eat a large loss, the monies paid by the Treasury are deemed to have been an investment in the firm--and the government and the taxpayers own a pro-rata share of the firm, and get a pro-rata share of the dividends and the capital gains the firm earns in the future.
On the one had, we have a candidate unengaged with the economy as opposed to a candidate who is. A candidate who gets on the phone with Phil Gramm and Carly Fiorina--and who doesn't appear to know that Ms. Fiorina received one of those golden parachutes he is denouncing--as opposed to a candidate who listens to Austan Goolsbee, Bob Rubin, Larry Summers, Gene Sperling, and Laura Tyson. The choice seems obvious to me. I'm interested in why it doesn't seem obvious to Wolf/Hassett.
And I have talked long enough.