Jewish World Review Oct. 9, 2008 / 10 Tishrei 5769
Regrettably, neither of the presidential hopefuls has a grasp on economic theory
By Jonathan V. Last
http://www.JewishWorldReview.com | The first three weeks of the financial crisis were no time for recriminations - so important was it to focus on passing a bailout plan to keep the credit markets from seizing up.
Well, the first bailout proposal died in the House, the executives who drove Lehman Bros. into the ground still stand to collect their $2.5 billion in bonus checks, and the credit markets are still functioning. So perhaps it's time to start pointing some fingers.
The most obvious target is President Bush. It's important to note that Bush didn't do anything to cause the crisis. His were sins of omission.
He appointed two middling managers to lead the Treasury Department. And he refused to deal seriously with oil prices after 9/11, when it became clear that U.S. military action (albeit necessary) would create long-term uncertainty in the market.
The gas crunch put the economy on edge, but the fundamental problem was the subprime-lending spree of the last decade and the trade in mortgage debt, which amplified the effects of defaulted loans.
Again, none of this was Bush's doing. But the president sat idly by while the entire housing industry plotted its own destruction. Banks made ridiculous loans to people who had no way of repaying them. Worse, the banks then sold and resold the loans as "investments," spreading the contagion. The consequences of this foolishness were not impossible to predict.
And not only did President Bush do nothing; he actually lauded the irresponsible spree. He praised programs designed to give mortgages to families with bad credit.
One of the boasts of his 2004 campaign was the record level of home ownership, particularly among lower-income people - who couldn't afford the homes they had bought. He mistook a symptom of economic sickness for a sign of economic health.
Democrats were no better. They attacked anyone who questioned the bad loans being facilitated by Fannie Mae and Freddie Mac, or who proposed reforming those institutions. In 2002, for instance, Rep. Barney Frank, D-Mass., called the companies "great assets." In 2003, Frank insisted that Fannie Mae and Freddie Mac "are fundamentally sound financially and (can) withstand some of the disaster scenarios." Oops.
And where do we go from here? Neither of the two men who would be president has a firm grasp of economic theory. McCain's economic advisers include men such as Jack Kemp, Phil Gramm and Peter Peterson, whose worldviews completely contradict each other.
Another of McCain's economic advisers is Kevin Hassett, whose biggest claim to fame is having co-written the remarkably unprescient book "Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market." Seriously.
Obama might be worse. He is campaigning on a promise of massively increased government spending. (McCain, at least, is committed to cutting spending.)
Obama's theory is that he'll gin up more revenue by increasing taxes on businesses - apparently not understanding that businesses both employ and trade with consumers. Most businesses faced with higher taxes will pass the cost on, either in reduced wages, reduced spending on capital goods, or higher prices.
Obama gave a sense of his economic priorities during last week's debate. Asked what he'd be willing to give up to pay the tab on the $700 billion bailout, Obama refused to name a single program. Instead, he listed areas in which he wanted to increase government spending - and not just on giant-ticket items such as government health care.
"There are some programs that are very important that are underfunded," Obama said. For instance: "I want to increase early-childhood education." Faced with the greatest financial crisis in 80 years and a gaping hole in the budget, Obama won't even hold the line on preschool spending.
As to the government spending being debated in Congress this week, there are compelling arguments in favor of a $700 billion bailout of the financial industry. The best of them is that - cosmic unfairness aside - it'll cost taxpayers more in the long run if the crisis isn't put to rest now. So why is the public so opposed to a bailout?
Perhaps because Washington's rescue effort is characterized by the same unseriousness that contributed to the calamity. And because, when it comes to economic seriousness, the next chief executive is not likely to represent much of an improvement.
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Jonathan V. Last is a columnist for the Philadelphia Inquirer. Comment by clicking here.
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