What McCain Economic Policy?

By Harold Meyerson
Thursday, July 17, 2008

"Government is not the solution to our problem," Ronald Reagan told his fellow Americans in his first inaugural address. "Government is the problem."

For modern American conservatism, Reagan's words may as well have been inscribed on the tablets handed down at Mount Sinai. The market was god and Reagan was its Moses, and Republicans have sworn fealty to both for the past quarter-century. One invariable feature of the 2007-08 Republican primary debates was the effort of each candidate to cast himself as Reagan's one true heir. John McCain proudly recounted how he enlisted as a foot soldier in Reagan's revolution. How was he to know that government was about to become a solution again?

Over the past few months, George W. Bush's administration, which consciously modeled itself after Reagan's, has repeatedly been compelled to bail out private or semi-private financial institutions, re-regulate markets, and rescue beleaguered homeowners. Government, it turns out, is indeed a solution -- at times, the only solution -- for large-scale market failure, a problem not foreseen in the gospel according to Reagan.

Unfortunately for McCain and his fellow Republicans, it's the only gospel they've got. At the very moment when the economy looms larger in Americans' consciousness than it has in decades, McCain comes before the electorate doctrinally adrift.

By his own admission, McCain has never been a student of the economy -- but neither have any number of American presidents. When the economy is humming along, their economic illiteracy has been a problem they can elide. They take refuge in the economic bromides of the time. Their speeches are filled with reaffirmations of their party's economic doctrine.

But as McCain tries to balance the tattered libertarianism of Reaganomics with the financial exigencies of the moment, he and his campaign have moved beyond inconsistency into utter incoherence. He vows to balance the budget while also cutting corporate taxes and making permanent the Bush tax cuts for the rich -- even though the rich and corporations made out like bandits during the Bush "prosperity," while everyone else's incomes stagnated. McCain squares this circle by vowing to cut entitlements, a move that would reduce, rather than enhance, consumer purchasing power at a time of economic downturn (or any other time, for that matter).

Whether Americans are even experiencing a downturn has been a matter of some dispute in the McCain camp, since former senator Phil Gramm, until last week one of McCain's chief surrogates on economic issues, deemed America a nation of "whiners" mistaking subjective insecurity over the economy for an objective economic fact. For McCain, who had the misfortune to be campaigning in Michigan the day that Gramm's remarks dominated campaign news, Gramm's insensitivity was appalling. But McCain has never expressed any concern that Gramm wrote the legislation that enabled the $62 trillion credit default swaps market to remain unregulated, which, as David Corn documented in Mother Jones, meant that banks and hedge funds could accumulate liabilities that they could not cover if the markets -- most particularly, the subprime mortgage market -- went south. To the contrary, McCain has viewed Gramm as one of his economic gurus. "There is no one in America that is more respected on the issue of economics than Senator Phil Gramm," McCain declared in February.

Gramm hasn't been the only McCain economic adviser to sound dissonant notes of late. Bloomberg's Al Hunt reports that Carly Fiorina, the former Hewlett-Packard chief, has said that if a bipartisan coalition came up with tax increases on the rich, a McCain administration might embrace the proposal. On Tuesday, however, a campaign spokesman reiterated McCain's opposition to such tax hikes.

How to explain the McCain campaign's glaring contradictions on economic policy? Why do the policy mantras that every campaign uses and needs get so warped and so ignored? Why can't the campaign stay on message? The turmoil in management that has afflicted the campaign from the start surely deserves some of the blame, but I suspect the issues run deeper. One problem is that McCain himself has no real ideas about how to fix the economy, which leaves his tetherless surrogates free to roam the policy landscape. An even deeper problem is that standard-issue Republican economic policy has run out of plausible mantras. The ritual extolling of markets and denigration of government make no sense at a moment when a conservative Republican administration is rushing to save the markets through governmental intervention.

Or, to use Reagan's construction: Republican economics is not the solution to our problem; Republican economics is the problem -- for our nation, surely, and also for candidate McCain.


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