McCain’s Solution to our Financial Crisis… Seriously?
Once he locked up the Republican primary, Senator John McCain spent several months building a narrative for the general election. His operatives spent countless hours reciting Mr. McCain’s willingness to politically stand on principle. Television ads paired Senator Barack Obama with flimsy celebrities and mocked his followers as naïve idol-worshippers. In the process they cast their pitch for the election: Mr. McCain would take his duties seriously as President, and Mr. Obama wouldn’t.
But that was eons ago. Today we live in a state of financial emergency, and America cries out for someone who takes this crisis seriously in the White House. Yet thanks to McCain’s unsteady economic proposals over the last few months, the groundwork he laid to take advantage of this situation has crumbled.
The first hint that McCain’s economic proposals fell short of serious came this summer with his proposal of a “gas tax holiday” to offset high gas prices. Quickly the economist community, both right and left, reached the consensus that a “gas tax holiday” would not lower gas prices. The structure of the oil market insists that demand dictate the price of gasoline. Lowering the gas tax wouldn’t significantly change user demand, so gas prices would stay the same and oil companies would reap the difference in profits. The only explanation for McCain’s policy is that it sounded good to those of us uninitiated to the logic of the oil market – in other words, he was using policy as political posturing.
Granted, all politicians use minor policy gestures for political purposes. Yet McCain has since projected the dysfunctional nature of the “gas tax holiday” onto his entire energy platform.
Let’s be clear, offshore drilling is no solution to the coming global oil shortage. “Drill, baby, drill” obscures a very simple problem: the United States holds three percent of the world’s oil reserves and uses almost a quarter of the world’s oil consumption. Even if we doubled known U.S. reserves through offshore exploration – an absurdly rosy estimate – we would still be dependent on foreign oil. We need alternatives for gasoline if we want to become energy-independent, and while Mr. McCain voices sympathy for alternatives in his speeches, his platform strips ethanol subsidies and promotes nuclear power in its place. Sadly, nuclear power can’t run my car unless someone invents the flux capacitor.
For another example of McCain’s folly, consider McCain’s Homeowner’s Resurgence Act. In a nutshell, this plan would grant banks full face value for up to $300 billion worth of toxic loans, and then re-negotiate mortgage terms with those homeowners. While re-negotiating mortgage terms looks increasingly like a no-brainer if we don’t want the housing market to fall further than necessary, the consequence of buying toxic loans with tax dollars at full face value is staggering, both as a fiscal and moral hazard. Even if these loans are all successfully repaid, after re-negotiation they will only be worth a fraction of their original face value, which means a significant chunk of that $300 billion dollars will effectively be a taxpayer subsidy to malfeasant lenders and securities gamblers. That’s well beyond what we need to stave off the crisis, and it proves to these criminals that it’s OK to commit economic murder.
Also, consider McCain’s proposal to cut all non-defense/security-related government spending “with a hatchet” via spending freeze. This proposal may sound good to everyday people, since in hard times most families preach austerity. Yet the federal government is not anything like a family. Right now the government can borrow unlimited amounts, at virtually-zero-percent interest. Only the federal government is in a position to compensate for what appears to be a mid-to-long-term spending decline in the real economy as people adjust to living without easy credit. Even conservative monetarists will concede that the government should fill the spending gap, to some degree. Thus a federal spending freeze is a straightforward recipe to make matters worse.
It seems clear to me that McCain is making these massive proposals only for political strategy – because they sound superficially appealing. So perhaps he’s not serious about enacting them. But has he considered what will happen if he becomes President, and the conservative base pushes him to fulfill these disastrous promises? I no longer trust that McCain would make the right decision. He’s left the realm of seriousness. He’s offering a shelf-full of economic poisons as elixir, in abeyance to a political base that seems to have learned most of its economic theory not from respectable conservative economists, but rather from ignorant talking heads on the radio.
Many Americans understand what I’m saying; they proved it when Obama’s poll numbers rose and McCain’s plummeted in the midst of the financial meltdown. The message to future politicians was simple: don’t just say you’ll take the crisis seriously. Thoughtful policy also matters.
James Tanner is proudly attending the LBJ School of Public Affairs as a first-year public policy student. Prior to attending the LBJ School, he received a B.A. from the University of Texas and worked for five years as a case analyst and regulations expert for the First American Corporation, a Fortune 500 financial services company.
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