Economics

Fiscal War, AWOL Candidates

Bad news: McCain, Obama, and Clinton don't know much about economics

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For some time now, the three presidential candidates have been striving to outdo each other on what Hillary Clinton calls "the commander-in-chief" test. She says that she and John McCain have passed it. McCain's response has been on the order of, "What do you mean, 'we'?" Recently, Barack Obama assembled a passel of retired generals and admirals to publicly salute him.

It's good to know they are preparing themselves for that 3 a.m. phone call. But I'm not convinced any of them is ready for the 8 a.m. call from the budget director reporting that the deficit is raging out of control. When it comes to combating the fiscal menaces we face, these three are all absent without leave.

The budget situation is already dire. In the last six years, the federal government has spent some $1.8 trillion more than it has taken in. This year, the deficit will hit an estimated $410 billion. If the economy falls into a recession, the gap will grow.

Believe it or not, these are the good old days. In the next few years, the budget will begin to show the effects of a mammoth event that has long been dreaded: the retirement of the baby boomers. Social Security and Medicare already account for one-third of federal spending, and over the next 30 years, they are expected to nearly double in cost as a share of the total economy.

A recent report from the Brookings Institution found that just to pay for all federal outlays, we would have to raise taxes by at least one-third by 2030. To avoid such tax increases without cutting Social Security, Medicare and Medicaid, our leaders would have to make cuts of 50 percent or more in all the other federal programs. Or we could slash benefits for the elderly.

Clearly, some hard fiscal decisions will have to be made. But you would never know any of this from listening to presidential campaign speeches. The candidates all act as though we've time to kill and money to burn. None has made a priority of finding ways to live within our means.

The parties do have their differences. Obama and Clinton spend most of their time dreaming up new programs. The National Taxpayers Union Foundation (NTUF) estimates that his plan would boost federal spending by some $287 billion a year, while hers would carry an annual price tag of $218 billion.

They claim they can pay for most of this by raising taxes on the wealthy and ending the war in Iraq. But the first would bring in no more than $100 billion a year or so. And the money we are spending in Iraq is money we don't have in the first place. It's like saying, I can't afford a Hawaiian vacation, so
I'll take the money I'm not spending on that to buy a Mercedes. The clear implication is that either of the Democrats will finance their proposals the same way President Bush has financed his—by sending the bill to our kids.

For all his stern talk about eradicating earmarks, John McCain would take a similar approach. True, he is much less inclined to launch new initiatives, but he spurns the notion of paying for all the expenses we currently have, much less the ones looming ahead.

He says he would not increase taxes under any circumstances. That would be lovely if McCain were proposing deep cuts in the federal budget to eliminate the growing deficit. In fact, NTUF calculates, his plans would increase federal spending by $7 billion a year.

As the Brookings report put it, "Some people might believe that the federal government should both tax and spend at about 18 percent of gross domestic product (GDP), while others might believe it should tax and spend at about 30 percent of GDP. No reasonable person, however, would argue that the government should tax at 18 percent and spend at 30 percent. … Yet, this is the future we will get if we try to fund the spending required by current law with today's level of taxation."

It's 8 a.m., a fiscal crisis is at hand, and the phone is ringing in the White House. Will the next president take the call or let it go to voicemail?

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

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  1. Too bad that the only person in the race to speak to these concerns was Ron Paul, who has by now been written off as a has-been and something of an old coot/crank. I keep telling my friends that a time of testing is near, and that they should give ample consideration to Switzerland or Australia as a future home.

  2. Just as Lincoln never ran on emancipation, nor did Nixon on arms control and comity with China, the next president may have to be the one to crack the entitlement nut, whatever is said on the trail. After all, it was just to
    mollify the working classes and preserve capitalism, and that job was done long ago.
    Scrap the lot.

  3. Steve Chapman doubts that any of the White House hopefuls know how to handle a financial crisis.

    Steve’s wrong. They all know how to handle a financial crisis. What they know is wrong, but that won’t stop them from further screwing things up.

    If they didn’t know how to handle a crisis, they could ask someone who does, but that’ll never happen.

  4. To be fair, what president has ever actually understood economics? Certainly none have in my lifetime. It is their willingness to hire _and listen to_ experts in economics and other technical fields that is the key. Economists can help guide tax policy, regulatory policy and pension issues, such as Social Security. But big war spending, inflexible politics of Social Security and a big pandering Medicare prescriptions plan, those are the kind of things that put the budget in the crapper and are the result of not hiring and listening to good economists (well the war, that was just listening to conservatives complain for a decade that George H.W. Bush “should have finished the job,” or, “the United States should never work with other governments on international problems,” and other stupid, immoral and costly myths…).

  5. The clear implication is that either of the Democrats will finance their proposals the same way President Bush has financed his-by sending the bill to our kids.

    I’m wondering how far off the day is when the rest of the world realizes that we’re never going to be able to pay back our existing debts, never mind new ones. After that, even borrowing-and-spending won’t be an option anymore.

    That won’t be a good day.

  6. Doesn’t Europe face an even worse entitlement threat than the U.S., with a more rapidly aging population and a replacement birth rate well below ours? Wouldn’t that put an even greater strain on the E.U. budget and the future strength of the Euro? Or would those politicians simply wave a hand and default on their obligations with nary a care since those bureaucrats don’t have to face an angry electorate?

  7. “Or would those politicians simply wave a hand and default on their obligations with nary a care since those bureaucrats don’t have to face an angry electorate?”

    Kind of like the spoiled brat who loses at a game and throws the table into the air, scattering all the pieces everywhere?

    The sad part is when it happens in real life, real people are the game pieces.

    /that’s the way it will probably work out.
    //i hope i am gone by then.

  8. Doesn’t Europe face an even worse entitlement threat than the U.S., with a more rapidly aging population and a replacement birth rate well below ours? Wouldn’t that put an even greater strain on the E.U. budget and the future strength of the Euro?

    For this reason, I have been consistently baffled by the decline of the dollar against the Euro.

    What structural weakness does the dollar have that the Euro doesn’t have in spades?

  9. With the Euro there’s strength in diversity, it covers 15 countries where you have a lot of different markets. But the coming recession in the US, the Fed printing and handing it out like there’s no tomorrow, and fears of inflation fueling commodity growth, the dollar still isn’t at rock bottom.

  10. Truly remarkable. We’re in the most economically perilous times since 1932, and we have three complete economic illiterates seeking the presidency. For that matter we might as well throw the current Fed chairman into this group, since he seems to think that accelerating the downward slide of the dollar by further reducing interest rates is a proper strategy.

    Don’t be surprised by a several thousand point descent in the Dow in the coming week, followed by a world wide panic to bail out of dollar-denominated government securities.

    Then we’ll be in a full-fledged crash to make the Great Depression seem like a minor downturn.

  11. If McCain starts a new war or two, his spending will outdo Obama’s and Clinton’s in short order.

    As for government spending being some fixed percentage of GDP, it’s a ludicrous concept. Government is supposed to be constrained to a few enumerated functions (defense, law enforcement, the courts, etc.). As the economy grows, the percentage of GDP consumed by government should be steadily falling.

  12. I doubt the market will crash. Real inflation is already at eight percent and that will drive the market up. Just not fast enough to make up for the shrinking value of the dollar.

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