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Gramm Remark Adds to McCain's Difficulty Addressing the Economy

By Michael D. Shear and Jonathan Weisman
Washington Post Staff Writers
Friday, July 11, 2008

BELLEVILLE, Mich., July 10 -- Sen. John McCain ventured to an auto-parts supplier in this hard-hit Detroit suburb to express sympathy for those affected by Michigan's economic malaise and to talk up his ideas for creating jobs in the region.

But a day after a top McCain economic adviser dismissed the nation's struggles as a "mental recession," the presumptive Republican presidential nominee's message landed with a thud, as workers sat in stony silence.

McCain was already running into a stiff headwind because of an ailing economy, and his task only became tougher after former senator Phil Gramm (R-Tex.) suggested that the United States has "become a nation of whiners."

Gramm, who has helped shape McCain's presidential campaign and is a close friend of the candidate, expressed no regret on Thursday for the comments he made in an interview with the Washington Times, saying: "I'm not going to retract any of it. Every word I said was true." But the McCain campaign quickly shifted into damage-control mode, distancing the candidate from his friend's assessment.

Gramm "does not speak for me. I speak for me. I strongly disagree," McCain said during a press availability here, which took place at the same time Gramm was wrapping up a discussion with the Wall Street Journal editorial board about the candidate's economic program.

"The person here in Michigan who just lost his job isn't suffering from a mental recession," McCain added. Asked whether Gramm would play a significant role in shaping economic policy in a McCain administration, the senator joked: "I think Senator Gramm would be in serious consideration for ambassador to Belarus, although I'm not sure the citizens of Minsk would welcome that."

Since saying last winter that economic policy is not his strong suit -- a comment that won him a pummeling from his primary-election opponents -- McCain has struggled to show voters that he understands their pain as they grapple with six months of steadily declining payrolls, a shaky market on Wall Street, soaring energy and food costs, rising home foreclosures and stagnant economic growth. But his missteps on economic policy still threaten to drown out his message.

McCain was roundly criticized in June for saying that the fundamentals of the U.S. economy remain strong. His campaign announced a week-long focus on jobs and the economy while he was in Mexico talking about free trade. On Monday, the senator from Arizona appeared to call the system that has financed Social Security since its inception "a disgrace." And Gramm's "mental recession" comment hung over him all day Thursday in Michigan.

The backdrop could not have been worse. The unemployment rate in the Detroit-Livonia-Dearborn area is 10.2 percent. The nation's next closest, 7.1 percent, is in the area around Lawrence and Salem, Mass.

For the first time since August 2002, the Labor Department said, every metropolitan area registered unemployment rate increases over the previous year, with Detroit-Livonia-Dearborn leading the way with a 2.1-percentage-point leap. The region lost 47,400 payroll jobs, nearly double the next highest job-loss total, in the Los Angeles-Long Beach area.

Over the past year, Michigan, with an 8.5 percent overall unemployment rate, lost 68,900 jobs.

McCain is hoping to put the state into play, but on Thursday, in this Detroit suburb, his efforts ran into a wall. He said repeatedly that he understands how much the Michigan economy had declined.

"America is hurting today. Michigan is hurting today. The automotive industry is hurting," he said at a town hall meeting. "We have to understand the urgency of the situation, and we should remind ourselves time after time."

But the 100 or so in the crowd sat on their hands throughout most of McCain's speech, especially during his remarks about the need for free trade -- a policy that is generally reviled in manufacturing areas. The first question McCain received was from a free-trade critic, who told the candidate that "what we need to do is control some of those trade issues going on. What we want is fair trade."

With most Americans blaming President Bush for their troubles, McCain faced an uphill climb even before his campaign's recent miscues. Macroeconomic Advisers, a St. Louis-based economic forecasting firm, will release a report next week that factors in such variables as the growth rate of real disposable income, unemployment rate, real oil price increases, the power of the incumbent party as well as the impact of party fatigue to forecast the outcome of the election. The result projects a victory of more than 10 percentage points for presumptive Democratic nominee Barack Obama, said Chris P. Varvares, the firm's president.

"How do you define a landslide?" he asked.

Gramm defended his statement, saying Thursday that the nation's economy was initially thought to have grown by an anemic 0.6 percent in the first three months of the year. That was revised up to 0.9 percent, and again to 1 percent.

"Look, the economy is bad. It is far below what we Americans have a right to expect, but we are not in a recession," he said. "We may or may not have one in the future, but based on the data, we are not in a recession. But that does not mean all this talk does not have a psychological impact."

But, the former senator added, "when I said we've become a nation of whiners, I'm talking about our leaders. I'm not talking about our people. We've got every kind of excuse in the world about oil prices -- we've got speculators, the oil companies to blame -- but too many people don't have a program to get on with a job of producing."

Obama seized on Gramm's comments.

"He said we're in a mental recession. I guess what he meant was it's a figment of our imagination, these high gas prices," Obama told a crowd of more than 2,000 at Robinson Secondary School in Fairfax. "It's not just a figment of your imagination, it's not all in your heads, when people are struggling with the rising cost of everything from gas to groceries."

Turning to his GOP rival, Obama said: "This comes after Senator McCain recently admitted his energy proposal for the gas-tax holiday will have mainly 'psychological benefits.' " He added: "Now I want all of you to know that America already has one Dr. Phil, we don't need another. When it comes to the economy, we need somebody who can actually solve the economy."

McCain was almost as harsh about his friend and adviser: "I believe the mother here in Michigan and around America who is trying to get enough money to educate their children isn't whining," he said.

Weisman reported from Washington.

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