Back to Square One
If the events of recent days prove anything, it is that we cannot believe a word that John McCain or Barack Obama has said about what he will do as president. It's not that they have lied. Simply put, the underlying premise of everything the candidates have proposed -- that the economy is fundamentally sound -- is no longer operational.
The candidates know that the economy needs help. Obama in particular has made clear that he believes that average people are hurting and need additional government assistance. McCain has been less willing to say so lest it reflect badly on the policies of George W. Bush, whose party he represents.
Nevertheless, it is extremely unlikely that either man envisioned the magnitude of the economic problems that are becoming more obvious by the hour.
Now, federal officials are crafting an entity akin to the Resolution Trust Corporation to buy up bad debts and get them off bank balance sheets. That's how the RTC cleaned up the savings and loan mess in the early 1990s -- to the tune of about $125 billion. Today's problems will cost a lot more.
What this means is that we cannot afford either candidate's tax and spending plans. The money that Obama would like to spend on the poor will have to be used to clean up the financial mess. Similarly, the tax cuts that McCain would like to hand out are off the table. The federal government is going to need new revenue and fast. We cannot continue to cut taxes as if the budget deficit doesn't matter. The fundamental problem of the U.S. economy is too much debt. Fixing that will require belt-tightening from everyone -- including the federal government, which must get its fiscal house in order to help the financial sector heal.
Voters should insist that McCain and Obama throw out their tax and spending plans and offer something that reflects current economic realities. These new plans must be more than vague generalities and should commit the next president to a course of action that involves real spending cuts and real tax increases.
Of course, the idea of a candidate telling voters that they will suffer if he is elected runs counter to every political instinct. But it is not necessarily politically fatal. In 1992, Bill Clinton put forward a fairly detailed list of spending cuts and tax increases and was, nevertheless, elected.
The trick will be getting both Obama and McCain to put forward budget restructuring packages so one isn't unfairly penalized for his honesty. People deserve to know whether the next president thinks we only need to raise taxes on the rich or only need to eliminate earmarks in the budget to solve our fiscal problems. This will tell them whether the next president is a serious person or intellectually dishonest about the nature of the nation's fiscal problem.
It would be useful for both candidates to work from the same benchmark, such as reducing the projected deficit by $1 trillion over 10 years. That would pretty much eliminate the use of "smoke and mirrors" and unserious proposals. If one candidate wants to raise taxes by, say, $1 trillion, then he should say so and spell out how. If he thinks we can get $1 trillion out of the income tax without burdening middle- and lower-income workers, let's hear how. If he thinks we can cut spending by that much, he should explain how. If he thinks it can be done without significantly cutting popular programs such as Medicare, I for one would like to know how. Perhaps a consortium of think tanks would agree to jointly score the plans for honesty and accuracy.
Realistically, a deficit reduction package of the magnitude that I suggest would require a variety of tax increases and spending cuts, including cuts in entitlements and appropriated funds. It's probably realistic to assume that the balance would be roughly 50-50 between taxes and spending, though each candidate could offer a different balance. But if the proposed package is so one-sided as to make enactment by Congress impossible, this is also useful information for voters.
The time for free lunches is past. We must get McCain and Obama to put forward new economic plans. The people deserve to know what is really going to happen in January, and our next president should know whether voters support his vision. With an electoral mandate, quick action in Congress may be possible. And right now we need quick and decisive action if we are to right the economy.
The writer was deputy assistant Treasury secretary for economic policy from 1988 to 1993. Before that, he was a senior policy analyst in the White House Office of Policy Development and worked as an economist on Capitol Hill.