So, here’s a story to tell the grandkids around some future autumn kitchen table. Once upon a time, the American people, facing the greatest global economic crisis in a generation, headed to the polls to choose the next leader of the free world and custodian of the formerly free market. Their options were limited to the dashing young lawyer and the battle-tested combat pilot, two men who for all their appeal had never run a state, a town or a business - large or small.
It’s shocking to consider how Sens. John McCain and Barack Obama come to the challenges of the day with such little economic knowledge of their own. If both won their respective primaries thanks in the largest part to their positions on security issues - Mr. McCain elevated by his undeniable vindication on the Iraq troop surge, Mr. Obama fueled by a vibrant antiwar upsurge that now seems like little more than postwar bitterness and should change little about the outcome of the conflict - neither comes to the fray knowing more about the economy than what others tell them. And for advice, one has the banking lobby whispering in his ear while the other has the corrupt handmaidens of Fannie and Freddie holding his purse strings.
Both spent most of the last month pointing fingers consistent with their overall campaign narratives. One lays the blame for this crisis at the feet of President Bush, along with his other multitudinous sins, as if a tad more oversight in the 11th hour could’ve dissuaded millions of delusional Americans on all sides that housing prices would forever grow. The other candidate levels his accusation at the greed and vice of Wall Street - gotta maintain that maverick mystique - as if discovering in horror for the first time that the primary interest of individual actors in a capitalist economy isn’t to look out for the other guy or even the best interests of the nation.
For all their divisions, both candidates offer similar solutions to the financial crisis, albeit differing in degree of application. Both support the idea of writing down the amount owed by overmortgaged homeowners. Mr. McCain argued for his form of Miracle Castor Oil, allowing the Treasury Department to buy up $300 billion in bad mortgages. He presented it as if it was some new proposal at the debate in Nashville, despite the fact it was previously proposed by Rep. Barney Frank and Sen. Chris Dodd in March. It’s fitting that this idea arose from two politicians who might as well have the mark of Fannie and Freddie stamped on their foreheads, considering it’s one of the largest government interventions in the marketplace a Republican candidate has ever proposed.
Happy to play dueling Roosevelts as Franklin Delano to Mr. McCain’s Teddy, Mr. Obama’s answers to the financial crisis are, unsurprisingly, the exact same as his answers before the financial crisis: more regulation of the market, expansion of the federal government, more taxpayer money spent on programs, health care and education. And of course this would be offset slightly by that promise to go line by line through the federal budget in search of wasteful spending, which last I checked would require more time than the Constitution allows for one term of the presidency.
Choosing Mr. Obama’s “Patented Cure-All” has some nasty side effects, though. With the Democrats solidly entrenched in authority in Congress and the White House, no one will even entertain the idea of re-privatizing Fannie and Freddie, despite what the conservatorship agreement requires. The interest rates on all but federally guaranteed mortgages will be far too high for anyone to take them, bringing up the fearful possibility that the housing market hasn’t hit bottom yet.
As recently as March, the primary election version of Mr. Obama proposed nearly doubling the maximum capital gains tax to 28 percent. The general election version of Mr. Obama has backed off this hike significantly, but it’s still a near-certainty that he will raise cap-gains taxes sharply. It’s all part of that “fairness” argument that most liberals favor, based on the perfectly logical argument that those who work the hardest, pay their mortgage and earn the most success ought to be rightly punished for their audacity and for making the rest of us look bad.
Of course, assuming a cap- gains hike is part of President Obama’s first economic package, it’s likely to be retroactive to Jan. 1, 2009. That puts a hard half-life on today’s more favorable tax rules, and it’s sure to spark a selling spree across the burned-out crater we once called Wall Street - which the ignorant press will undoubtedly hail as a stock market rising after the election because Mr. Obama won.
There is one positive bit of news for the American people, having nothing to do with either candidate: Research reports indicate that the price of oil is expected to drop considerably next year, thanks primarily to the combination of removed speculative pressure from commodities markets and the worldwide slowdown. If elected, either candidate will doubtless claim that he had a hand in lowering the price at your local gas station, when neither the lawyer nor the war hero will have the faintest idea why those numbers came down.
When it comes to their economic solutions, whoever wins in November, the American people lose. It’d be an awfully funny story to tell the kids, if it weren’t true.
Ben Domenech is editor of The City.
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