McCain Adviser Attacks Clintonomics
If doesn't matter whether Hillary Clinton or Barack Obama is the Democratic nominee. At some point during the fall presidential debates, one of them will turn to John McCain and say something like this: "Senator McCain, we raised taxes in the 1990s and had one of the greatest economic booms in American history. Why not go back to those rates by repealing the Bush tax cuts?"
In my chat yesterday with Douglas Holtz-Eakin, McCain's director of economic policy, I presented him with that exact scenario. Here is what he said (boldface is mine):
That's bad economics. How would [Clinton or Obama] replicate the [information technology] boom of the late '90s exactly, which was the driving force in the economy, which was at the root of growth and productivity in the mid-'90s? We saw productivity return to the U.S. economy.... It disappeared in the '70s, no one knew why, and then in the early '80s we undertook big changes—opened markets, deregulated, lowered the tax burden. There was a lot of investment in IT through the late '80s, and finally in the mid-'90s we start to see stuff take off.... And what should not be forgotten out of that era is that even though we had the IT bubble in [stock market] valuations, we had real productivity growth, and that was the good thing. The economy survived higher taxes—that doesn't mean the higher taxes caused it. I am sure it was not true, and it doesn't mean the higher taxes were a good idea.
I also asked Holtz-Eakin about what he thought of the "bond market theory" of economic growth—that the way to grow the economy is cutting the deficit, which will lower interest rates and cause the economy to grow?
That is not what happened, and it doesn't make much sense. If the bond market theory were right, the U.S. economy would be at a standstill. We have overwhelming on-the-book commitments to the entitlement programs, and so if you took the bond market theory version of the '90s and applied it to today, we might be facing a much more serious downturn.
In addition, I asked him about economic nostalgia among some for the 1950s-version of the U.S. economy and the high taxes of that era. If the economy grew back then with high tax rates, why not now? His answer:
Because you would also have to root for a world war and have the other economies in the world literally in ruins. That is not something to root for, and we also don't want an era like in the '70s with very high marginal rates, and it was a really awful period and anyone who lived through it doesn't relish going back to it.... We have learned some things, and those lessons should not be lost.
Tags: economics | economy | John McCain
Tools: 
Share
|
| Comments (16)
Reader Comments
MCCain's advisor
If McCain hires advisors to compensate for his own lack of knowledge on how the economy works he better not choose Douglas Holtz-Eakin. He suggests the IT boom in the late nineties was due to the good policies of the early eighties? What about the recession in the early nineties? This guy does not have a clue. Obviously the boom was caused by the good policies of the Romans!
productivity growth not real in 90's
McCain's argument that productivity growth in the 90's was high isn't true. The productivity growth in the 90's was a bubble. Meaning, irrational exuberance made it seem high at the time, just like the stock market growth, etc...saying productivity growth was real is like saying the bubble never popped.
http://query.nytimes.com/gst/fullpage.html?res=9B04E0D9143DF931A3575BC0A961958260&sec=&spon=&pagewanted=all
A more sober analysis will conclude that computers have simply replaced repetitive jobs rather than increased overall population productivity. The internet has increased efficiency, not productivity. Unfortunately, realizing efficiency growth was real only means we get the same amount done with less people, rather than get more done with the same amount of people.
Front Page News
Wow, someone who seems to understand why things in an economy really happen, as opposed to most politicians who seem to want to give the media a sound bite and then move on to the free lunch.
It seems to me that economic change is a trailing one. Policies that influence how a market economy performs lag behind those changes, sometimes for a period of one or two presidential terms.
I have to wonder though at the lack of attention this will get. Seems like the Media in general likes it's sound bites, and time at the trough as well
Insightful.. and probably true
I am not voting republican this time around. However I do agree with the assessment. The lower taxes allowed for more money to be used in R&D with the same profit margins. The R&D allowed for rapid development of computer hardware/software which did lead to a bubble due to greedy speculators (Similar to our new found housing bubble).
Most likely the events of the 80's did impact the rate in which we developed, deployed, and initially caused us to be the world leader in information technology.
What makes both the Republican and Democrat so frustrating is they both have a lot of really good policies stances on different issues. However on hot topics the Democrats disagree with anything the Republicans state. These parties have turned into extremes instead of being more centric where compromise can occur. Our current government can get nothing substantial done because neither side will compromise. Its sad really.
Obama is our Savior. Barak and Reverend Wright are Right, God D*** america. Now is the time to rally around Barak and Michelle and make them proud! No more so called elections where typical white people vote! And news flash america, Barak is right, your typical white american is a racist! Obama will apologize to our Muslim brothers for arrogant american policies of hate and slavery. Only Obama can forgive an evil nation founded on slavery. REPARATIONS NOW!
typical GOP bs
the fact is that Clintonomics did work, as Allen Greenspan himself endorsed William Jefferson Clinton's economic plan http://query.nytimes.com/gst/fullpage.html?res=9F0CE0DE113BF933A15751C0A965958260
typical GOP talk
the fact is that Clintonomics did work, as Allen Greenspan himself endorsed William Jefferson Clinton's economic plan http://query.nytimes.com/gst/fullpage.html?res=9F0CE0DE113BF933A15751C0A965958260
Why the dems don't have a chance
The General Election for President of the United States is pretty simple. When you have a failing party in power, in a two party system, the other usually will take power in the next election. However, the Democratic party really doesn't "get it." The two candidates thus far are so unelectable it is getting worse as time goes on and they bicker back and forth. There needs to be that guy that you want to vote for. Hillary R. Clinton and Barack Obama just don't have a thing going for them.
http://riversofremembrance.blogspot.com/2008/04/why-democrats-will-fail-yet-again.html
guess ?
it is time to learn one more lesson my dear greek friend but i pray there is still hope for all of us ...
Savior ?
To "Obamamania of NJ" Why don't you join you Muslim brothers in Khartoum or Tehran. We "racist" don't need your help apologizing to the world for us.
If Obama hopes to wind he had better make more space between his own attitude and that of people such as yourself who live off of the society that you would like to see ruined.
The IT bubble was based on greed and innovation. The innovation part would have happened anyhow. Programmers and engineers would innovate for peanuts, given the chance. Software technology is being pulled from the fringes, not the result of well motivated CEOs.
Being conservative has come to be about mortgaging the future for the present. New tax cuts will be spent on new (imported) consumer spending unless the problem of competitiveness is address head on. That might mean enforcing environmental and labor practices on a global scale and implementing heavy tariffs for those that force workers to go 10-12 hours a day, 6 to 7 days a week in unsafe factories. How can the country that is our banker still be "developing".
Re: Savior?
"That might mean enforcing environmental and labor practices on a global scale and implementing heavy tariffs for those that force workers to go 10-12 hours a day, 6 to 7 days a week in unsafe factories. How can the country that is our banker still be "developing"."
Why should other countries be held to our standards? Sounds like a great way of throwing those people out of work. Those jobs, while unappealing to you or me, are the best bet those people have going -- if they had better alternatives they would take them. Their lower wages and longer hours are their competitive advantage, take that away and they have nothing. This is just a stage they are going through, as they get richer the workers will choose to work less and will opt for jobs at places with better conditions. Once upon a time we used to employ children. The reason this isn't done anymore isn't because we suddenly developed a conscience, it's because we became rich enough that we didn't have to anymore -- the parents earned enough to feed the family without employing the kids. Please, get some perspective on this.
As for why China is still developing, it has a per capita GDP that is only a fraction of our own, that's why.
reflecting
The surpluses in the 90s were due to less spending (no USSR, military cutbacks, etc), which Bill Clinton can take some credit for --- if he also wants to acknowledge these cuts helped terrorism go unchecked, as well.
They were also due to the tech-boom, which has nothing to due with the Clinton's policies. At best, one could say, that they did not get involved in them (via regulations).
However, many economic policies, which they either created or began pushing for (NAFTA, WTO-China) have lead to some of our problems today.
I'm no wiz in economics and Hillary isn't Bill, but I can say this --- Hillary ran on a platform for Senate here in western New York promising us 200,000 jobs. Not only did we not get those jobs, but we lost even more. (This began years ago, when the economy elsewhere was still good.)
To me, this is mediocre leadership by both of them at best.
what about the peace dividend?
Personally, WJC's draw down of our soviet-era military spending is my #1_most_not-Mentioned reason for the boom of the 90's. All those billions going into the general economy (chasing internet stock or housing) - still crashing around today.
Milken
The 80's did lay the ground work for the expansion of the 90's. Michael Milken is living proof. Without the junk bonds he invented (and for which he was wrongfully convicted) there would have ben no ATT, no MCI, no FedEx, or any other capital intensive but risky business in technology.
Garden Variety Republican Economist
How cliche of DHE to give credit for the 90s boom to Reagan policies of the 80s. Then to state the economy survived the tax increase and then turn around and dismiss crowding out - instead of saying that we are currently surviving massive deficit spending. This guy is more transparent than N. Greg Mankiw.
Add your thoughts
Your comment will be posted immediately, unless it is spam or contains profanity. For more information, please see our comment guidelines.advertisement
Left-wing ignoring the environment
I second your comment about the 50's.. people forget that Japan and Germany were almost substinence economies just a few years earlier, that China was a primitive dictatorship, that India was fighting for independance. America had it good because everyone else had it bad..and that mentality sowed the seeds of complacency (both in management and unions) that has killed the U.S. steel industry (mostly now brownfield sites) and haunted the auto industry (at the doorstep of bankruptcy).
Good back to the tax rates of the 50's is the first step to a massive recession.
Apr 03, 2008 15:35:55 PM [permalink] [report comment]