The Royalist And The Neoliberal

The New York Times takes a look at the economic programs of both Barack Obama and John McCain and finds them both to hold doctrinaire ideological positions.

For all the efforts of Senators John McCain and Barack Obama to portray themselves as willing to break with party orthodoxy to get things done, the economic debate that opened their general election campaign this week previews a classic clash. It is a battle between Republican supply-side economics and a Democratic tradition that uses government levers to try to reduce inequality and spur the economy.

Mr. McCain, who once opposed the Bush tax cuts in part because they favored the wealthy, has now made extending those cuts a central plank in his economic plan, which is based largely on the Republican credo that tax reductions stimulate the economy. And he is pushing another strain of fiscal conservatism that has not been much in evidence of late: a call for smaller government and a vow to cut pork-barrel spending.

He often adds a dash of populism, speaking against excessive corporate pay packages on Tuesday, and has pushed for a gasoline-tax reprieve. And while Mr. McCain has portrayed his tax cuts as benefiting the middle class, most of the benefits would go to the wealthy and to corporations, including his calls for the elimination of the alternative minimum tax.

Mr. Obama often speaks of the traditional liberal goal of trying to redistribute the tax burden to reduce economic inequality, and at least in his public pronouncements has not emphasized the market-friendly, deficit-reduction aspects of the economic approach credited to former President Bill Clinton and former Treasury Secretary Robert E. Rubin in the 1990s. Mr. Obama’s plan would raise taxes on those making more than $250,000 by allowing Mr. Bush’s tax cuts on top earners to expire, and he has signaled that he would consider increasing the current cap on income subject to the Social Security payroll tax.

He has also proposed, for instance, more spending on providing access to health care, which critics say would widen the deficit when coupled with tax cuts. While Mr. McCain asserted in a speech in Washington on Tuesday that under Mr. Obama’s tax plan Americans of every background would see their taxes rise, Mr. Obama’s plan calls for cutting taxes on people earning less than $75,000 a year and for eliminating federal income taxes on elderly citizens who make less than $50,000 a year.

I think they get it half right. McCain is certainly following in the economic royalist tradition of the hard right. He wants massive tax cuts based on - not a credo - the myth that tax cuts add revenue by spurring the economy. He believes in wealthy corporations getting wealthier, and he thinks that a $200,000 annual salary is not rich. He's going to use the same tired refrain that "my opponent will raise your taxes" while he seeks to redistribute wealth upward. His sensitivity to runaway spending masks the fact that he himself has requested and taken $60 million in porkbarrel projects, and that he wouldn't touch the sacred defense budget, the biggest source of waste that the government funds. It's more of the same profit taking for the rich under a McCain Administration.

The Obama economic philosophy is a little harder to understand. He's not a populist, and he sits pretty squarely in the Robert Rubin tradition of neoloiberalism, at least in part. He's trying to maintain the free market but make sure that, in a time of great economic dislocation and disruptive change, that there is some measure of protection given to those in the middle who suffer because of that disruption, and that the "burdens and benefits of globalization are fairly distributed." Matt Stoller explains it further.

The central challenge of his strategy is that while he believes that we are undergoing a fundamental structural shift in our global economy, the changes he is proposing, with the exception of health care, are somewhat small-bore. This makes sense when you examine his economic team in a bit more detail. The big news on that front is that Hamilton Project denizen and neoliberal economist Jason Furman is Obama's newest economic advisor. Steve Clemons a noted, "To some degree, Furman manifests the interests and perspective of perhaps the leading neoliberal force in politics today, Robert Rubin." Furman is not Rubin, but Clemons thinks that he is "an essential spear-carrier of Rubinomics."

Furman's defense of Walmart as a 'progressive success story' provides an element of caution to the good news about Obama's strength as a candidate. I am not ringing alarm bells about Obama as a NAFTA loving centrist, or suggesting that Furman is a bad choice for an advisor. I know and like Austan Goolsbee, and Furman is probably a highly intelligent and open-minded policy advocate. Additionally, the economic debates have moved far beyond that, and he's likely to pull as much of his policy ideas from Cass Sunstein and Richard Thaler's Nudge with its behavioral economics frame of 'choice architecture', or 'libertarian paternalism' in which the government gently slopes the choices we face in ways that are good for us, without banning bad choices outright. Opt-in, opt-out, and default choices, for instance, are significant and substantial forces in governing our society, and my guess is that Obama believes strongly in making small adjustments for big impacts.

Furman's appointment has raised the ire of some on the left, but it's worth noting that Republicans have gone so far to the right and shown the ultimate failure of an unregulated free market that the Rubin forces and the more liberal economists have moved substantially leftward. When you have Senate Republicans filibustering any energy bill that doesn't solely address the crisis through drilling, when you have Republicans in general only interested in tax cuts without paying for them, I can understand why the NYT would say that both sides are ideological. Only the Obama camp represents about 99% of the spectrum of economic opinion, and McCain that tiny 1%.

Some of those mainstream Democratic ideas, like extending unemployment insurance, are mainstream because they work. In fact, Republicans know they work, because half of them are about to break and vote for the bill. Common-sense measures like this, like a windfall profits tax on oil companies, like a donut-hole approach to Social Security, like fairness in trade, like the Employee Free Choice Act, fit into a coherent argument because the right has retreated to a small, radical corner on the economic front. So Obama can get away with rhetorical brilliance like this.

... We did not arrive at the doorstep of our current economic crisis by some accident of history. This was not an inevitable part of the business cycle that was beyond our power to avoid. It was the logical conclusion of a tired and misguided philosophy that has dominated Washington for far too long.

George Bush called it the Ownership Society, but it’s little more than a worn dogma that says we should give more to those at the top and hope that their good fortune trickles down to the hardworking many. For eight long years, our President sacrificed investments in health care, and education, and energy, and infrastructure on the altar of tax breaks for big corporations and wealthy CEOs – trillions of dollars in giveaways that proved neither compassionate nor conservative.

And for all of George Bush’s professed faith in free markets, the markets have hardly been free – not when the gates of Washington are thrown open to high-priced lobbyists who rig the rules of the road and riddle our tax code with special interest favors and corporate loopholes. As a result of such special-interest driven policies and lax regulation, we haven’t seen prosperity trickling down to Main Street. Instead, a housing crisis that could leave up to two million homeowners facing foreclosure has shaken confidence in the entire economy.

I understand that the challenges facing our economy didn’t start the day George Bush took office and they won’t end the day he leaves. Some are partly the result of forces that have globalized our economy over the last several decades – revolutions in communication and technology have sent jobs wherever there’s an internet connection; that have forced children in Raleigh and Boston to compete for those jobs with children in Bangalore and Beijing. We live in a more competitive world, and that is a fact that cannot be reversed.

But I also know that this nation has faced such fundamental change before, and each time we’ve kept our economy strong and competitive by making the decision to expand opportunity outward; to grow our middle-class; to invest in innovation, and most importantly, to invest in the education and well-being of our workers.

If that's not liberal enough for people, I don't know what more he can say.