Oct 2nd 2008
From The Economist print edition
Thanks to the credit crisis, both presidential candidates are trading on increasingly false prospectuses
A FINANCIAL crisis on the scale of the one unfolding on Wall Street would be terrible at any juncture. But the timing of this one is astonishingly bad. In one corner is a president with just over a hundred days left to serve, who many people believe is among the most calamitous ever to occupy the White House. In the other corner is Congress, where a third of the Senate and the whole of the House face re-election in exactly one month’s time. Flickering in and out of the fray are the two presidential candidates, whose campaigns have become the playthings of forces over which they have no control. If ever there were a recipe for poor political leadership, this is it.
The malign coincidence of crash and election reinforces the difficulties. Political weakness makes it hard to get to grips with a reeling economy, and the economic crisis disrupts the process of choosing a new president. Most obviously, it is distracting attention from the contest. At a time when voters ought to be weighing up the candidates’ characters, records and policies, the airwaves are saturated with the grim news from the world’s banks and bourses. Even worse, the crisis makes a mockery of many of the campaign promises laboriously crafted in focus groups and policy workshops, and methodically laid out on the stump and via the internet.
Read all about it
Even before the cost of bail-outs is considered, the budget deficit for the current fiscal year is estimated at slightly over $400 billion, already about 3% of GDP. If America were part of the EU, it would be facing trouble for breaching the Maastricht guidelines; and if it moves into full-blown recession next year’s deficit will be a lot worse. Even though the full $700 billion cost of the proposed bail-out would be spread over several years, and the offsetting value of the loans the government intends to buy up will increase if the bail-out works, the current crisis is likely to drive a large hole through a budget that already looks stretched. Deficits do, and ought to, rise in recessions; but if they start out high and are coupled with promises of expensive tax cuts and spending boosts, the long-term consequences for the public finances are alarming.
This week we publish a special 20-page briefing looking at the pledges the two presidential candidates have made; we also have a survey of economists examining their schemes—(see article). Both men are exposed to a budget crunch (as indeed are parties elsewhere, such as Britain’s Tories—see article). John McCain has the bigger tax cuts, but an empty Treasury may hurt Barack Obama more because he has proposed a lot more on the spending side. He has more promises that may have to be broken if there is no money.
To many voters, Mr Obama’s most attractive single policy is that he is committed to introducing universal health coverage, ending the disgraceful situation whereby some 46m Americans have no health cover and get little or no health care until they end up in an emergency room. On top of that, tens of millions more have health cover that is restricted or inadequate, and an even larger number fear that they could fall into one or other of these categories should they lose their jobs and the health insurance that goes with them.
Fixing health care is a laudable aim, but even on Mr Obama’s own reckoning, it will cost some $50 billion-65 billion a year, and most analysts think that the true price would be a lot more. Mr Obama also promises investment in alternative energy, affordable university tuition, a big push to upgrade America’s crumbling infrastructure and much else. He has admitted, under questioning, that the state of the economy means that some of these promises will have to be “delayed”. He has been, unsurprisingly, reluctant to say which ones.
Mr McCain’s problems are rather different. He has made fewer economic promises than Mr Obama has, but the ones he has made, mainly to business in the shape of slashing corporate taxes from 35% to 25%, and allowing immediate write-offs of lots of equipment, are very expensive. One reason why our polled economists come out so heavily against Mr McCain is because the deficit would rise dramatically under his plan. Against that, few people, including probably Mr McCain himself, have ever believed that he would get his tax cuts through a Democrat-controlled Congress. To that extent at least, the Republican, who once used to be a fiscal conservative, has less to lose in the crunch. But that is hardly a flattering yardstick.
The candidates’ economic plans are still a useful guide to their very different political philosophies. But when it comes to paying for it all, neither is offering much straight talk.
Knowing Obama won't be able to ins ute many of his faulty economic ideas will make it easier to vote for him. While the financial crisis was the nail in the coffin, they were truthfully unrealistic from the beginning. Good ideas in terms of getting hired, bad ideas in real life.
It sucks. He energy policy actually might've really helped the economy, and out of all of it, looked to be the most politically feasible.
Good read. Tough sell indeed.
I'll agree with that. Obama's energy policy is easily his most realistic economic policy. And even with the financial crisis, I think he'll still be able to follow through on it. A $150B investment over ten years is more than reasonable.
I hope it happens. Investing in renewables R & D now will seem like a stroke of genius in about 10-15 years, given what is likely to happen with oil and natural gas.
Hasn't Obama been saying that he is making energy his first priority in office? I actually believe him in that regards. Although, the last half dozen presidents have all promised something similar . . .
Yeah. The optimist in me hopes this will be a bit different. It is hard to say for 100% certain until they get the office.
The realist in me knows that most of the "plans" they put forward end up on the dungheap of history.
That is why I put little stock in such things. They are more of a window as to thought processes.
More can be gleamed from the way in which it is written, and who wrote the policy than anything else.
Presidents are made or broken by those that serve under them. Bush attracted hacks that valued ideology over competence. The list of results from this, like the Justice Department firings, the horse show judge as FEMA head, the hack who ed Iraq's health care system, goes on and on.
Obama has obvious attracted some pretty talented people.
McCain, for all his "maverick-y-ness" would probably end up attracting and employing the same kind of hacks that Bush did.
I made my decision a long time ago, and am very comfortable with it. The last few months have only solidified my belief that it is the right decision.
That's kinda where I'm at.
a stroke of genius? Gimmie a break.
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