A Brit surveys the economics of the US presidential race
I am going to America next week to report on the economics of the US presidential race. I'll be in the north-midwest (Wisconsin down to Arkansas I think) - so if you've a story to tell about the political economy of this election there, let me know. For now I'm cramming it all in like a final-year medical student - here's my impressions.
1. Obama's trying to "own" the economic issues, McCain to own "security" in its wider sense. So the economics plays a different role in the two campaigns. Both have produced bullet-point economic "plans". Read Obama's and McCain's .
2. Its as plain as a high school text book that this is a battle between market Keynsianism and "small state" neo-liberalism - as far as the rhetoric is concerned. McCain will slash public spending, cut corporate tax, cut social security and cap state health spending for the elderly and the poor. All with the aim of balancing the US budget by 2013 (it is 800bn in the red now)....(continues)
2a. Obama meanwhile is promising a $50bn spending splurge, half of it to fund road and bridgebuilding; his commitments on the budget are hazier and he's not really spelling out a way to reduce it. Instead he's combining tax cuts for the lower paid with a windfall tax on energy firms and a giveaway of $1000 per family to meet home energy bills.
2b. Nobody has quite come out and said it, for fear of being hounded or derided, but Obama's pitch is substantially to the left of the British Labour Party in economic terms. It is far more influenced by the US unions than Labour policy is here.
3. But neither candidate seems willing to go to the heart of America's economic problem: it is a superpower in relative economic decline. It's had an economic recovery where the tax take did not recover; but it's used that recovery to hike its defence spending massively: in 2005 the USA was responsible for 80% of the world's total defence spending increase and 46% of global spending full stop. It's nearest rival is Britain with 5% of world spending (a cluster full of details )
4. As I've blogged before: the language to describe the ordinary Joe to whom the economic sell is being made has shifted decisively towards the phrase "working class". You still get "middle America" referred to in both documents, but Obama's speech mentioned the workers seven times (and even picket lines); Palin's speech namechecked the (which must have pleased Tony Woodley no end as he has just agreed to merge Britain's left-leaning Unite union with the USW) and slammed Obama for sneering at working class insecurity over religion and guns. This is the first election I can remember in a G7 country where the ownership of the "brand" working class has been a big issue (the last one was Britain 1979, where skilled engineers were the undeclared demographic battlefield - Mrs Thatcher won).
5. While the casual observer might think it is electoral suicide for McCain to soft-pedal economics in a year of near recession and job+repossession pain, it is not. The McCain-Palin pitch is cleverly designed to link military security, energy security, economic security and personal security. The subtext is "the democrats promise you stuff but we are like you and feel your pain".
6. In the end, for all the divergence in economic rhetoric, the fact is that the US public finances are far from neo-liberal in reality. They are massively unbalanced: net debt at 60% of GDP, borrowing at 6% - compared to 37.5% and under 4% here (depending on how you calculate it). Whatever the candidates say, from 20 January 2009 the next president is running an economy that is a) only growing because of a rabies-jab sized injection of market-Keynesian tax and interest rate cuts; b) massively overspending. Even if McCain balances the books by 2013, for the entire first term the dynamism of the US economy looks like it has to be driven by state initiatives, whether tax cuts or loose monetary policy. So the small state is not coming to America anytime soon.
7. Both candidates' public finance plans rely on a dividend from drawdown of operational spending in Iraq/Afghanistan - which has so far cost about $170bn on top of the $440bn defense budget. Obama terms it "withdrawal"; McCain "victory".
8. The long shadow of extends over the whole thing: I don't mean this pejoritavely (the preening speeches, tommy guns and graft): I mean the rhetoric of "the little guy versus the vested interests"; which McCain gave a masterclass in last night and on which Obama's entire pitch is based (though with a different cast of characters playing the bad guys).
9. The whole thing is a massive advert for the Presidential/Separation of Powers/Primary elections system, and fixed term administrations of the USA. It has proved virtually impossible for incumbent parties in Britain to change their economic policies, yet that is what McCain is doing to US conservatism. Likewise Obama has been able to carve out a popular centre-left programme that would have got him kneecapped by Brownite fixers if he'd tried it within the PLP.
10. With unemployment at 6.1% and 9% of all mortgage payers in trouble or facing repossession, America's economic pain will define the election.
Hit the comment button.
Comment number 1.
At 5th Sep 2008, John_from_Hendon wrote:notes on your points...
(hope this is what you are attempting to elicit!)
2.b Left of the Labour party - not a difficult position to adopt given the move to occupy the centre (right wing) nature of Labour's position. I do wonder if the substance of Obama's campaign is rather too 'intellectual' to appeal to the mass of mid western red necks.
McCain appears not to be so influenced by the neocons but the appearance may hide the reality.
Sarah Palin's views and past actions and in particular seeming to grant human rights only to Americans do provide a cause for concern, but she is only the possible vice president, but again Dick Cheney is only a Vice President (Haliburton man) Mrs Palin is certainly in the big oil club (and that is most certainly about the economy!)
3. 'Super Power in decline' (I omit 'relative') - Americans get very touchy about this as I have found so in essence it must be true. Basically they appear to need to limit their foreign expenditure for aid and military adventures. I can only see the Credit Crunch exacerbating this situation during the next Presidential term no matter who wins. In essence its 'the economy stupid' (c.f Bill Clinton's campaign) still but more so.
5. When you have trouble at home wage a foreign war - but will it get you elected (re-elected possibly) Neither candidate can afford the wars that the USA is fighting. McCain the more so as he intends to cut spending.
9. US Presidents propose the Congress disposes (and vv)
10. Will there be more large high profile banking defaults before the election? Possibly or possibly not? I am not sure who it will hurt. I suspect it will (perversely) help McCain as age, gravitas and safety are on his side. I also wonder if the dire economic conditions may not decline in significance as it may be/become so serious that voters may seek a distraction and an escapist candidate? (Favouring Obama perhaps as McCain will not escape his Republican predecessor.)
Overall:
Will the rest of the World continue to buy US Government Bonds? This is the critical factor after oil.
McCain is directly connected to oil at the cost to the environment through Palin and has previously indicated he wants to explore the continental shelf.
Obama has matched McCain over oil.
US Treasury Bonds and the value of the 'mighty' US Dollar. Will the foreigners who finance the USA pay?
Another factor in Economic terms is that the USA makes far less of its goods than it used to - it is at best can be characterised as a screwdriver shop for China etc.. The mighty US Car industry that used to be the bellwether of the economy exists as underfunded pension funds that have some residual car company activates.
Essentially it is highly likely that employees and pensioners of many US large companies will find that their health insurance is no longer paid for by the employer. This may become an economic factor in the election.
You do not mention the cost of environmental issues, including the desire for Americans not to buy huge US produced SUVs but small sub-compact imports due to the cost of fuel. This issue will I think damage McCain/Palin as she is linked to environmental damage in Alaska due to he connection with big oil, but it is complicated.
Mid West farmers and farm subsidies and both candidates intentions towards them also matter - more so due to the way the elections are counted.
If I think of anything else I will add it....
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Comment number 2.
At 6th Sep 2008, bookhimdano wrote:...to the left of the British Labour Party in economic terms?....
the effective nationalisation by Bush of fannie and freddie and other banks, brokers etc is right wing?
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Comment number 3.
At 6th Sep 2008, Tom wrote:Folks should have listened to Ron Paul and allowed him access to the debates.
On matters of the economy he was not a one to shy away, and had all the answers.
The Federal Reserve system is a fiat money system with private interests, money is created as debt out of thin air with the money supply causing inflation and erosion of the value of the dollar.
It is not a sustainable system, and in combination with an unregulated fractional reserve banking system amounts to legalised counterfeiting for private interest.. and when things unwind, the poor and middle classes are destroyed. This was seen in the great depression, history is repeating itself.. only this time, there is no gold standard - so it could be worse.
The US is effectively bankrupt, and the system must change.
The Keynesian economic model must be abandoned as it is quite simply not a sustainable model. The Austrian school of economics should be considered the long term replacement, this would be a fairer system less liable to corruption as a result of corporate greed as we have seen through the past centuries.
I would recommend that everyone watch this 47 minute video.. and if they understand the concepts involved they should be educating others... so that when it eventually comes to a vote one day, or influencing fair minded politicians, they can make some informed decisions:
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Comment number 4.
At 10th Sep 2008, var42605 wrote:I've hit the comment button because you said so. I can't make a good comment, because I'm not clever or knowledgeable enough to make a useful or interesting comment.
But I do love reading your blog and you're really good at using it to expand and supplement your broadcasts.
Keep it up!
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Comment number 5.
At 23rd Sep 2008, mrboredwithbiase wrote:The problem here economically is not rocket science because the economic cycle was extended by cheap chinese goods which kept inflation down .
This lead to complacency and greed allowing over gearing in debt both governmental, private and commercial. This was inevitable humans forget past errors as those with experience of over speculation be it junk bonds, thirties speculation or tulip bulbs is lost as those who saw it last retire.
Normally inflation keeps this in reasonable check as bank rates are raised in the face of inflationary consumption. But Chinas flood of cheap products delay led this natural control not removing it but storing it up .
Once china reached a threshold of consumption as its economy grew China's need for raw materials ensured that after a period of historicaly low inflation due to cheap manufactured goods the price of raw materials oil food and commodities have rocketed leading to rising inflation and falling growth (old fashioned stagflation).
Governments both labour and Republican have a great responsibility for not damping down on the growth in their own debts or those of their voters.
In Britain massive spending has raised taxes and increased government debt leaving no room for measures to counter the downt turn be it reduced taxes to help the public or increased public spending. Labour will borrow massively hoping to get past the next election before the consequences of their mortgaging our childrens future becomes obvious .
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