Fantasy Economics and Our Presidential Candidates

We can discuss the war in Afghanistan and Iraq. We can talk about health care. We can grouse about the sophomoric level of political campaigns. However, the one prime issue on which this presidential campaign will turn is the economy. Here’s a brief summary of what the two candidates are claiming as their economic plans for the country. The data I have included here comes from the August 11 issue of Time Magazine.

Senator John McCain says he will balance the budget. He plans to do this by reducing government spending. So far, the only thing he has said he will cut is little things. He wants to cut out all earmarks. McCain has said that as President he would veto any bill with earmarks included. Since the vast majority (even the most fiscally conservative) of senators and representatives use earmarks, this would set up a real battle royal between the White House and the congress. One the president probably could not win.

But, for the sake of argument let’s say President McCain did actually eliminate earmarks. That would amount to a savings of about $20 billion a year. McCain is also proposing to extend the so-called Bush tax cuts and add to them a large cut in the corporate tax rate. This alone would subtract about $300 billion from the government’s revenue. McCain would also, at least for the foreseeable future, continue spending $10 billion a month in Iraq and Afghanistan. What this means is that there is absolutely no way McCain is going to balance the budget, with the proposals he has offered. It sounds good but it ain’t going to happen.

Senator Barack Obama, on the other hand, has no intention of balancing the budget. And he promises to raise taxes, at least on rich people but probably on all of us. He is promising a universal health-care program, and $21 billion a year on infrastructure and alternative energy. To pay for all this, Obama says he will end the Bush tax cuts for people and families making over $200, 000 yearly. He will raise the capital gains tax, which applies mostly (but not entirely) to more wealthy tax payers. In addition, Obama says he intends to close some of the corporate tax loopholes. Basically, it is an economic plan right out of Hogwarts. It just won’t work, unless Obama has been hiding a magic wand we don’t know about.

Obama recently held an economic conference with some high level economists (Paul Volker, Warren Buffet, and Robert Reich). The conclusion of the conference is that government needs to become more involved in manipulating the economy. This is probably necessary, but there is a risk. Government is seldom as efficient as the market in trying to set an economic policy. However, given the current state of affairs, government activity and a level of deficit spending will be necessary to help get us through the worst of this recession.

Clearly, neither candidate is telling us the truth. Nevertheless, because he does not promise to balance the budget (something neither candidate can or should do), Obama's economic plan seems a little more honest than the one offered by McCain.