We had a great session at the New America Foundation yesterday, featuring the economic advisors to all the presidential candidates, or, I should say, economic advisors to all the Democrats plus John McCain. (Mitt Romney and Mike Huckabee were supposed to send people, but didn't.)
My main impression from the event was that everything has suddenly changed, more abruptly than we realize, and we are looking at a recession election. And, not that there's anything good about a recession, but it can open the door to some new ideas. For the last 15 years or so, we've been paralyzed by prosperity, coasting along in Thomas Friedman's world, in which we are constantly told that we can't really risk changing anything for fear that it might jeopardize the benefits of globalization.
Now it's blowing up all by itself, and we have a chance to start talking about how to put it back together, in ways that go well beyond a stimulus package. How do we give people real economic security? How do we help people become homeowners, without making homeownership a trap, as it has been for many victims of the sub-prime crisis? How do we restart economic growth based on real investment in education, broadband, and infrastructure, rather than asset bubbles? And in a recession,
Ezra's article about health care in 1994, among many other merits, reminds us how much that perceived opportunity was created by the recession of 1991-92. And that while the Clinton White House dithered and delayed, the recession ended and the moment was lost.
This is also a chance for the campaigns to, in effect, hit the reset button on their domestic and economic policies. And that's particularly an opportunity for the Obama campaign, to deemphasize some of his relatively timid domestic initiatives, such as his grab-bag of tax credits and put forward something more, um, audacious. Austan Goolsbee, representing the Obama campaign, made a good case not only for the Obama stimulus package (validated by it's top-of-the-class grade from Ruth Marcus in the Post today) but for the idea that Obama's programs to encourage savings are simple and rooted in testable behavioral-economics; for example, that it's more effective to create a default retirement savings option, forcing people to make an active choice not to save, than to layer on yet more special tax credits. (I wish they would make the same argument for their health plan: Automatic enrollment in the public plan would go a long, long way to alleviating the need for an individual mandate, and while I think that's a feature of the plan, Obama never makes that case.)
Representing Clinton, former Treasury official Gary Gensler was as relentlessly on-message as a press secretary, with a very conservative-sounding emphasis on incentives for business. Leo Hindery, a former telecom executive representing the Edwards campaign was speaking almost an entirely different language, and seemed to best capture the sense of new possibility, and made a great case that talking about "the sub-prime crisis" put the responsibility on the poorest people, people who were taken advantage of, rather than lenders and investors.
The McCain campaign, represented by Kevin Hassett, at least showed up, but seems to be setting up a high-stakes gamble: The fundamental economic problem, according to Hassett, is the long-term budget deficit, there's no need for stimulus ("the financial thing is going to work itself out...government policy won't have much to do with it"), and the tax cuts we need have to be permanent rather than temporary -- and not merely, permanent, but also retroactive! If the problem is long-term spending, and the only solution is long-term tax cuts, either you have some huge spending cuts in mind, or you're counting on the Laffer Curve to do a lot of work. But then, in Professor Hassett's Econ 101, the Laffer Curve seems to be all you learn.
If McCain persists in that position and the crisis deepens, he will seem even more out of touch than George H.W. Bush in 1992. More likely, though, if he gets past the Club for Growth conservatives to win the nomination, McCain will be able to adopt yet another persona, super-stimulus-man, and the gullible press will happily forget that he ever held any other position.
-- Mark Schmitt
