McCain confirms GOP out of ideas but so are the Democrats
By Peter Morici
Online Journal Contributing Writer
Apr 17, 2008, 00:09
John McCain has tabled an economic program that won�t rescue
the economy from its mess but Senators Clinton and Obama offer little more.
McCain advocates tax cuts for parents and corporations and
mortgage relief for distressed homeowners, paid for by pairing nondefense,
discretionary government spending and higher Medicare premiums for the well
Cutting taxes and government outlays together won�t boost
spending for U.S. made goods, increase traffic at restaurants and dry cleaners,
put unemployed back to work or resurrect growth.
Neither would a stronger stimulus package, because the
economic quagmire is not a 1950s-style recession, caused by a temporary buildup
of unsold goods precipitating shorter shifts and layoffs. Rather, it is caused
by systemic malfunctions, created by wrong-headed energy, trade and banking
policies, that won�t easily resolve.
In 2008, net petroleum imports will likely cost $400
billion, up nearly tenfold since Bill Clinton took office. Many oil dollars
sent to Arabia, Russia and other friendly places are not spent on American
goods and do not create jobs here.
Coupled with booming prices for food prices, rising
gasoline, electricity and heating bills give Americans less and less to spend
on nonessentials, and retail sales sink, layoffs mount, and wages falter.
U.S. exports have not kept pace to pay for oil and the other
goods we buy abroad. Since Bill 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 dollar trade
gap that reduces GDP by $250 billion and longer-term economic growth by even
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 R&D. However,
governments in China, Japan, and much of Asia intervene in foreign exchange
markets to keep their currencies artificially cheap and U.S. exports too
expensive in rich markets with the greatest untapped opportunities.
McCain, Clinton and Obama all refuse to back bills pending
in Congress that would get tough with Asian currency manipulation, and
establish conditions for more balanced trade with those protectionist regimes.
Since the 1980s, banks have moved from making loans funded
by deposits to jobbing out lending to mortgage brokers and private equity
funds, and wrapping mortgage, credit card and business loan payments into
complex bonds for sale to insurance companies, pension funds and other fixed
Mortgage brokers made liars' loans, built on questionable
assessments of home values and borrowers ability to pay. The banks understated
default risks to fixed income investors, and skimmed off excessive profits and
bonuses, and left too little to cover defaults.
The Bush administration is seeking tougher standards for
mortgage brokers and real estate appraisers but its financial regulation reform
proposals go light on the questionable business practices of the Wall Street
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
Clinton�s platform is a throwback to 1970s French statism,
something President 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
It seems elephants have long memories but few new ideas.
Donkeys are endearing but even less adaptive.
Morici is a professor at the University of Maryland School of Business and
former Chief Economist at the U.S. International Trade Commission.
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