Capital Commerce
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McCain's Speech Shows He's a Pro-growth Populist, Like Reagan
Continue reading… 8 CommentsJohn McCain's big economic speech today was sort of one part Ronald Reagan (cut taxes, cut spending), one part Mike Huckabee (help for workers; Main Street is as important as Wall Street), and one part Teddy Roosevelt (criticism of "reckless CEOs and speculators").
The big policy-wonk news was that he called for some new initiatives, including doubling the personal exemption for dependents from $3,500 to $7,000, an alternative and supposedly simpler two-rate tax code, a one-year spending freeze for all government programs other than defense and entitlements, some sort of wage insurance for displaced workers, a summer suspension of the 18.4-cent gas tax, and making wealthier seniors pay more for prescription drugs under Medicare Part D. He also reiterated the need to do away with the alternative minimum tax, cut corporate taxes, and allow immediate expensing of business purchases. Here are my key takeaways:
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A Q&A With McCain Adviser Douglas Holtz-Eakin
Continue reading… 5 CommentsDouglas Holtz-Eakin is the director of economic policy for Sen. John McCain's presidential campaign. He's also a former director of the Congressional Budget Office. I recently caught up with Holtz-Eakin at McCain campaign headquarters and chatted with him a bit about taxes, the size of government, and energy policy. (To get his take on Clintonomics and the 1990s, see this.) Here are some excerpts:
Are we headed toward bigger government?
Senator McCain's position is that there is a role for government, and the primary thing is that you identify government's role and make sure that it does it well. The striking thing that has come out of the campaign is the degree to which the American people have lost trust in their government to pursue genuine national priorities, and there are three instances in which this gets voiced pretty clearly; probably the most vivid is the immigration debate, where people simply did not believe that the federal government [would secure the borders]...so Senator McCain made it his commitment that he will secure the border and have the governors of the border states certify that it is secure before any other steps on immigration are taken.... And earmarks have led to the undeniable perception that Congress is interested in taking care of their friends and not the nation, and [earmarks] have led to political corruption and in some cases criminal corruption. And the third is trade...where the perception is that trade deals are no better than earmarks, and that is really troubling and you have to fix that before you do anything else as far as getting the government's role in the economy correct. [People] want it to work, they really do. -
Obama Adviser Goolsbee Outlines Campaign Attack on McCainomics
Continue reading… 3 Comments"Barack Obama doesn't need to take a lesson in fiscal responsibility from a candidate who has called for $400 billion a year in additional high-income tax cuts and unlimited commitment to war in Iraq," is a choice moment from a recent chat I had with Austan Goolsbee.
Goolsbee is Barack Obama's main economic adviser, the University of Chicago prof who got in a bit of trouble over the perception that he told the Canadian government that Obama wasn't serious about reworking NAFTA. (And no, Goolsbee was not speaking to me from an undisclosed location; and rumors that the campaign stashed him away in the spot beneath the University of Chicago campus where they used to do atomic research are untrue. Well, I'm pretty sure they're untrue.)
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McCain Joins the Bailout Bunch
Continue reading… 1 CommentRegular readers of my blog saw this coming. As this AP headline from late yesterday puts it: "McCain Seeks Aid for Some Homeowners." First a few details from the AP and then my analysis:
McCain's plan would benefit the government and original lender by giving them certificates for part of the loan's original value. If the homeowner sold for more, he or she would benefit along with the government and the original lender.... In his new proposal, he says the home would have to be a primary residence and that the borrower would have to be able to afford a new mortgage.... "It is built on the reality that homeowners should have an equity capital stake in their home," he said. "Homeowners would end up with a 30-year mortgage and an equity stake in their home. The new lender would receive a federal guarantee of the mortgage.... There is nothing more important than keeping alive the American dream to own your home."
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The Housing Bailout Bunch
Continue reading… 1 CommentI am now going to start keeping track of notable people favoring some sort of massive, taxpayer-financed government bailout of the American homeowner. If I have missed anyone, please let me know: Rep. Barney Frank; Sen. Christopher Dodd; Sen. Hillary Clinton; Sen. Barack Obama; Sen John McCain; House Speaker Nancy Pelosi; FDIC Chairman Sheila Bair; former Federal Reserve Vice Chairman Alan Blinder; Simon Johnson, research director of the International Monetary Fund; Japanese Finance Minister Fukushiro Nukaga...with more to come, I am sure.
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Poll: The Economy Stinks—Blame Washington, Not Bush
Continue reading… 7 CommentsThe Pew Research Center just put out an interesting survey on the economic attitudes of America's middle class. I am still digesting it, but here is what really popped out at me:
When asked whether maintaining a middle class standard of living is more or less difficult today compared with five years ago, nearly eight-in-ten (78%) middle class respondents say it is more difficult. There are some partisan differences: Democrats (85%) are more inclined than Republicans (73%) or independents (67%) to deliver this negative assessment.
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The Cost of Not Liberating Iraq
Continue reading… 34 CommentsWas Iraq worth it? That's the economic question Democrats are again highlighting because of Gen. David Petraeus's congressional testimony this week. And implicit in that question is the assumption that even if the surge works and Iraq someday ends up as a democratic capitalist, antiterrorist ally of America, the price has been too high—whether that price is $500 billion, the amount currently spent on the war, or the $1 trillion to $3 trillion that some economists like Joseph Stiglitz are forecasting the conflict will eventually cost U.S. taxpayers. (Those high estimates include every possible related cost, such as higher oil prices and future medical care for our injured warriors.)
OK, the numbers are what the numbers are. But let me add some perspective. If the high number is correct, then the Iraq war will have cost as much as World War II, in inflation-adjusted dollars. Keep in mind, though, that WWII cost twice as much as the nation's total gross domestic product in the 1940s, while Iraq would be the equivalent of maybe a quarter of the modern U.S. economy. And as a pure matter of economic and scenario planning, this all strikes me as a bit simplistic, anyway. A few observations:
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Rahm Emanuel: Protect Workers or Globalization Dies
Continue reading… 1 CommentI had an interesting chat the other day with Rahm Emanuel. The Illinois congressman came off as more of a free trader than either Obama or Clinton. I mean, which of those folks would say the following: "The answer to our challenges doesn't lie with China changing its currency. The good news is that all the solutions lie here at home." Emanuel outlined many of views in a recent Wall Street Journal op-ed, in which he called for a "new New Deal" to not only help America better compete with Rising Asia but also to make sure that workers continue to support open trade: "Either you give people some help and some security, or they will call a halt to [trade]." A recent visit to McCain headquarters convinced me that the Arizona maverick understands that as well. His aides think that reorganizing our current retraining and unemployment systems, while perhaps adding a bit more taxpayer dough, can help restore the American consensus on trade.
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Is the Worst Over?
Continue reading… 0 CommentsA bit of cheer on the credit crunch from economist John Silvia over at Wachovia:
Bank credit default swaps have declined in recent weeks suggesting that perhaps the worst of the bank credit fears has passed....Commercial mortgage-backed securities default spreads also appear to have peaked. Perhaps here too we have seen the peak of the credit fears.
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Wisdom From the Blogosphere
Continue reading… 20 Comments1) John Tamny, editor of RealClearMarkets, has a lovely piece on misguided efforts to put a floor under the housing market.
2) Larry Kudlow gives a little straight talk about recessions and capitalism.
3) Mark Perry over at Carpe Diem documents America's failing tax competitiveness.
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GOP Source: Housing Bailout Still Likely
Continue reading… 0 Comments"It's like an 80 percent deal," is how one high-ranking Republican member of Congress, in a chat with me, assessed the odds of the Dodd-Frank housing bailout legislation successfully making it through Congress. Nor did this conservative GOP-er hold out much hope for a veto by President Bush, noting that the White House is cooking up its own version of a plan that would have the government buy the mortgages of struggling homeowners and refinance them at a lower principal amount.
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Condi for Veep?
Continue reading… 1 CommentThe Drudge Report is playing big the new chatter that Condoleezza Rice wants to be John McCain's running mate. Not only are pro-lifers unenthused about Rice, given that she has called herself "mildly pro-choice," but economic conservatives are wary as well—even though Rice recently reached out to them by attending a regular breakfast held in D.C. by those folks. Here is what one well-placed economic conservative leader told me this morning about the speculation: "It worries me. We don't have any idea at all where she is on economic policy." Gov. Mark Sanford of South Carolina or Securities and Exchange Commission Chairman Chris Cox are still probably the top choices of the small-government crowd.
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A Silver Lining in the Housing Collapse
Continue reading… 0 CommentsA little straight talk on housing from economist James Glassman over at JPMorgan Chase:
Today's credit market turmoil comes with a very big silver halo, at least when it comes to the very long-term outlook for the stock market. Prominent economists have complained over the years that US housing policies—mortgage interest deduction, the activities of housing agencies, and the favorable tax treatment of real estate capital gains—are distorting the allocation of capital in our economy. They don't dispute that homeownership fosters social stability and good citizenship. Yet, in their view, the US is encouraging too many financial resources to be plowed into the creation of houses that could instead be put to more productive uses like factories and technological tools that promote future economic growth.
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McCain Adviser Attacks Clintonomics
Continue reading… 16 CommentsIf 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):
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Where's President Stanton When You Need Him?
Continue reading… 1 CommentCan you imagine any Democratic politician giving the following speech?
Here's the truth. No politician can reopen this factory or bring back the shipyard jobs...or make your union strong again. No politician can make it the way it was. Because we now live in a world without economic borders. Push a button in New York and a billion dollars moves to Tokyo. In that world, muscle jobs go where muscle labor is cheap, and that is not here. So to compete, you have to exercise a different muscle: the one between your ears. The whole country must go back to school. We have to get smarter, learn skills. And I promise this: I will work hard for you. I will think about you. I will fight to make education a lifetime thing in this country to give you the support you need to move up. But you have to do the heavy lifting your own selves.
Those are the words of Jack Stanton, the fictional Democratic presidential candidate in the book and film Primary Colors. He's a fellow based not so loosely on Bill Clinton and his 1992 presidential campaign.
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Massive Housing Bailout Is Still Alive
Continue reading… 0 CommentsThe bipartisan housing bill now moving through the Senate is not the Big One. The big one is the $300 billion-$400 billion plan from Democrats Chris Dodd and Barney Frank for the government to buy troubled loans and rework them. Dan Clifton over at Strategas Research gives his two cents on its future:
Investors and the media seemed surprised the Frank/Dodd provision was not included in the legislation. The Frank/Dodd legislation is operating on a separate track (Financial Services Committee hearing April 9th) which will have lots of hearings over the next month. While Sen. Dodd attempted to include this provision in the legislation, the provision itself may not have the support to move forward, yet. We are also looking for a similar proposal from the Bush Administration.
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Bernanke Talks...and the Market Slides
Continue reading… 0 CommentsWhen Fed chief Ben Bernanke takes action, good things seem to happen. Like markets go up. But when he talks...not so much. Investors were heartened by the projected 8,000-job rise in March payrolls from ADP, as well as an upward bump in the factory orders report. Then Bernanke started giving his pessimistic congressional testimony. As consulting firm Global Insight interpreted it:
Bernanke delivered a short and very candid testimony on the state of the economy and the financial markets. The Chairman was more blunt and upfront about the prospects for the economy than what we heard in testimony earlier this year: "it now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly." Moreover, Bernanke believes that risks to the outlook remain on the downside. Bernanke's comments on the economic outlook presage another downward revision to the Fed's central tendency forecast at the upcoming semi-annual testimony in July, and bring the Fed's outlook more closely in line with Global Insight's expectation of a slight contraction in the first half of 2008.
Maybe it's time for the new chairman to call the old chairman—Alan Greenspan was noted for his opaque congressional testimonies—for some quick lessons on stupefying speechifying. Transparency turns out to be a huge downer.
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Adviser: McCain May Support Frank's Approach on Housing
Continue reading… 0 CommentsI just got back from a chat with Douglas Holtz-Eakin, John McCain's top economic adviser. Here are two big takeaways on housing:
1) Holtz-Eakin said the campaign did not have a position on the homeowner bailout/assistance bills being pushed by Sen. Chris Dodd and Rep. Barney Frank—"as a general rule, we do not take positions on bills"—but added that McCain's recent statement of principles on housing help—that it should not help speculators, for instance—could be found in those bills. "They're certainly in there.... There are some taxpayer-backed guarantees so there is some commitment on the part of the taxpayers. It's a voluntary mechanism. It's not overreaching; it's targeted. It is supposed to involve the lender and the borrower both giving something up."
2) I asked Holtz-Eakin about ideas such as the Treasury or the Fed buying up illiquid mortgage-backed securities or a Scandinavian-style nationalization of troubled banks. His answer: "That is [a] nonstarter.... The senator doesn't endorse the government stepping in to save institutions for the sake of saving institutions. The presumption has to be that the financial system as a whole was at risk, and the Fed did its job in preserving the safety and soundness of our financial system."
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Does Big Government Need to Rescue Big Money?
Continue reading… 1 CommentRemember how back after the tech-stock implosion in 2000, Congress passed all those new laws and regulations to prevent companies with fanciful business models and completely unrealistic profit projections from going public? You don't? Well, that's because it didn't happen. It didn't have to.
The market—meaning investors—finally smartened up and wanted no part of any future pets.coms. This is something to keep in mind as new rules are proposed to govern America's financial system. The marketplace has already begun the transformation process. Just take a look at these factoids from a new report on the financial industry from Morgan Stanley and consulting firm Olive Wyman (via Bloomberg):
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What McCain <i>Really</i> Said About a Bailout
Continue reading… 1 CommentJohn McCain's big speech on housing last week was portrayed by many as an almost libertarian take on the issue, that McCain was completely opposed to helping folks struggling with their mortgages. Sort of a "McCain to Homeowners: Drop Dead" kind of thing.
But that's not how I heard it. In fact, I heard McCain as saying just the opposite, that he would back targeted assistance. Either most of the media got it wrong or I got it wrong. So when I chatted with McCain economic adviser and former Hewlett-Packard CEO Carly Fiorina this morning, I asked her—among many other things—who got the story right. This is Fiorina's response:
You definitely got it right, and I think it got characterized that way by many in the media because they played one sound bite, and the Democrats mischaracterized his position purposefully to try and draw a contrast. Now the contrasts are very large between John McCain's position and the Democrats' position, but he does believe there is a role for government. In fact, in that speech he said three things: He said the role of government is to help the truly needy; the role of government is to make sure that appropriate reforms are enacted so this doesn't happen again; the role of government, however, is not to bail out bad actors and speculators. The role of government is to distinguish between those who are in trouble through no fault of their own and guys who just played the market and lost. That's what he said.
