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Smith Faculty
Opinion Article
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April 9,
2008
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By Dr. Peter Morici, Professor of
International Business
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McCain Confirms GOP Out of Ideas but So Are the Democrats
John McCain has tabled an economic
program that won’t rescue the economy
from its mess but Senators Clinton and
Obama offer little more.
McCain advocates tax cuts for parents
and corporations and mortgage relief for
distressed homeowners, paid for by
pairing nondefense, discretionary
government spending and higher Medicare
premiums for the well off.
Cutting taxes and government outlays
together won’t boost spending for U.S.
made goods, increase traffic at
restaurants and dry cleaners, put
unemployed back to work or resurrect
growth.
Neither would a stronger stimulus
package, because the economic quagmire
is not a 1950s-style recession, caused
by a temporary buildup of unsold goods
precipitating shorter shifts and
layoffs. Rather, it is caused by
systemic malfunctions, created by
wrong-headed energy, trade and banking
policies, that won’t easily resolve.
In 2008, net petroleum imports will
likely cost $400 billion, up nearly ten
fold since Bill Clinton took office.
Many oil dollars sent to Arabia, Russia
and other friendly places are not spent
on American goods and do not create jobs
here.
Coupled with booming prices for food
prices, rising gasoline, electricity and
heating bills give Americans less and
less to spend on nonessentials, and
retail sales sink, layoffs mount, and
wages falter.
U.S. exports have not kept pace to
pay for oil and the other goods we buy
abroad. Since Bill Clinton took office
exports have increased about $1.1
trillion, while imports have jumped $1.7
trillion.
The overall result is a whopping $700
billion dollar trade gap that reduces
GDP by $250 billion and longer-term
economic growth by even more.
Americans use too much gasoline, and
the ethanol program dents the problem
much less than it pushes up prices for
butter, baked goods and beef, and
instigates food shortages in poor
countries.
Ethanol is the sophistry begotten by
pandering for farm votes. The real
answer lies in more fuel efficient
vehicles manufactured with readily
available and reasonably obtainable
technologies, within our reach.
Sadly, hardly anyone in
Washington—including the trio of
Senators running for President—seems
willing to embrace truly rapid
deployment of hybrids, lighter vehicles,
fuels cells, and more efficient diesel
and gasoline engines.
Our free trade policies would raise
productivity and living standards if we
paid for what we buy abroad with
exports, because exporting industries
use labor more productively and spend
more R&D. However, governments in China,
Japan, and much of Asia intervene in
foreign exchange markets to keep their
currencies artificially cheap and U.S.
exports too expensive in rich markets
with the greatest untapped
opportunities.
McCain, Clinton and Obama all refuse
to back bills pending in Congress that
would get tough with Asian currency
manipulation, and establish conditions
for more balanced trade with those
protectionist regimes.
Since the 1980s, banks have moved
from making loans funded by deposits to
jobbing out lending to mortgage brokers
and private equity funds, and wrapping
mortgage, credit card and business loan
payments into complex bonds for sale to
insurance companies, pension funds and
other fixed income investors.
Mortgage brokers made liars loans,
built on questionable assessments of
home values and borrowers ability to
pay. The banks understated default risks
to fixed income investors, and skimmed
off excessive profits and bonuses, and
left too little to cover defaults.
The Bush Administration is seeking
tougher standards for mortgage brokers
and real estate appraisers but its
financial regulation reform proposals go
light on the questionable business
practices of the Wall Street banks.
Predictably, fixed income investors
will no longer buy bonds created by the
banks, and the banks have much less
money to lend homeowners, consumers and
honest businesses.
The presidential contenders, all busy
harvesting contributions in New York’s
financial district, have not explained
what they plan that would fix that mess.
On important energy, trade and
banking issues, McCain offers Bush redux.
Clinton’s platform is a throwback to
1970s French statism, something
President Sarkozy is trying to escape.
Obama is offering what he does best.
An Elmer Gantry campaign, full of
expressions of hope but thin on policy
and anything truly new.
It seems elephants have long memories
but few new ideas. Donkeys are endearing
but even less adaptive.
Peter Morici is a professor at the
Robert H. Smith School of Business and former Chief Economist at
the U.S. International Trade Commission. ►More Faculty
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