The Recession Election
By Joe Klein
In an economic-policy speech on July 7, John McCain promised to balance the federal budget, sort of. Actually, he said he would "demand" a balanced budget, but he never quite got around to saying how he would balance it. This set off a reflexive think-tank hiccup of outrage of the sort we've been living with since the days of Ronald Reagan. McCain's claim that he could achieve balance by cutting government spending elicited an immediate and justifiable Yeah, right from the experts. As always, he was fixated on cutting little things, the so-called earmarks that our legislators put in to provide funds for museums commemorating the harmonica and to build bridges to nowhere. A worthy crusade, a hardy McCain perennial, but one that would net only about $20 billion per year. Meanwhile, McCain was also proposing to extend the Bush tax cuts and add others, including a significant corporate-tax-rate cut, which would subtract about $300 billion. "McCain has set a responsible goal," said Bob Bixby of the deficit-obsessed Concord Coalition, "but he has no plausible way to achieve it. His budget would actually move things in the opposite direction, away from balance."
Debates about budget policy have rested in this comfortable if unedifying rut for too long. In fact, the most striking thing about McCain's plan was how closely it mimicked the dismal debates of over 20 years ago, when Congress passed massive tax cuts and then pasted on Band-Aids like Gramm-Rudman-Hollings legislation to compel reductions in spending that never materialized. The mildewy whiff of McCain's economic policies intensified three days after the budget speech, when Phil Gramm himself appeared, in his capacity as McCain's economic guru, and pronounced that the country was in the midst of a "mental recession" -- i.e., not a real one. He was sent packing, posthaste.
And then, on July 28, Barack Obama held an economic summit with his covey of advisers -- people like Bob Rubin, Larry Summers, Warren Buffett, Bob Reich; experts who seemed a sedimentary layer more recent than McCain's crowd but still more a part of the past than of the future. They had cleaned up the Reagan-era mess. They had actually balanced the budget and created a surplus. They had -- contra voodoo -- raised taxes and yet produced an economic boom. There was a fair amount of argument behind closed doors, I'm told, between the two groups that sparred at the dawn of the Clinton era, the deficit hawks and the populists. In the end, though, there was a general agreement on the need for more government activism. Obama isn't even pretending to balance the budget. His claim to pay for the things he proposes rests on loaves-and-fishes premises, especially the prospect of a Congress mesmerized into acquiescence on controversial issues like raising taxes to Clinton-era levels and closing corporate loopholes. But Obama's economic proposals -- especially the $21 billion per year he wants to spend on alternative energy and infrastructure projects -- represent an acknowledgment that the economic conversation has to change, that the old order faileth.
I suspect that this debate, more than foreign policy, health insurance or low-information trivia, will be at the heart of the general-election campaign. We are at a moment of real economic peril, a recession different from most because it is happening at a hinge of history, as economic power becomes distributed more evenly around the world. It also is happening at the end of the political pendulum swing that began with Reagan's remarkably foolish statement in his first Inaugural Address: "Government is not the solution to our problem; government is the problem."
Reagan's nostrum has been the guiding philosophy of the past 30 years, a period of disdain for governance -- even Bill Clinton said, "The era of Big Government is over" -- that reached its nadir in the sloppiness of the current Bush Administration. It is an era that has been marked by a growing disconnect between the very rich and the middle class (median family income has dropped by an estimated $1,000 during the Bush years). And it is an era when even the most rudimentary responsibilities of government have been neglected -- like keeping up the country's infrastructure, and not just its roads and bridges but also its educational, energy, information and research infrastructures. "The American Society of Civil Engineers estimates that we're going to have to spend $1.6 trillion over the next five years to rebuild our infrastructure," says Janet Kavinoky of the U.S. Chamber of Commerce, an organization not known for its radical-leftist leanings. "We've let things lapse for 20 years. The pipes, wires, asphalt, bridges and radar systems are old, and everything seems to be falling apart at once."
Infrastructure is an ugly word -- unless the bridge you take to work just collapsed. In politics, it has become a euphemism for pork-barrel spending. In the pre-Newt era of Democratic congressional dominance, it smacked of payoffs to big city machines and construction unions. That is one of the reasons Democratic candidates for President have soft-pedaled this basic governmental responsibility in the Reagan pendulum cycle. In the 2000 campaign, Al Gore proposed a new sort of infrastructure spending: a massive alternative-energy program -- $15 billion a year for 10 years -- to replace the country's dependence on fossil fuels like oil and coal. You may not remember this plan, because Gore's political consultants decided it didn't "test" well. It has now been revived by Obama, who has been logging a lot of phone time with Gore. But Obama has changed the emphasis a bit to promote "green collar" job development, like programs to retrofit public buildings to conserve energy. Obama also has a new take on traditional infrastructure spending, designed to limit cronyism: a $6 billion-per-year federal infrastructure bank, where loans to states and localities would have to be approved by a bipartisan board of governors appointed by the President and confirmed by Congress.
McCain has acknowledged some of these problems -- especially the need for a new energy policy -- but he doesn't seem to have a comprehensive strategy. (McCain's economic adviser Douglas Holtz-Eakin didn't respond to my calls.) McCain's energy answers are often traditional -- drilling for oil offshore, building new nuclear-power plants -- and occasionally courageous. To the dismay of most Republicans, he supports a cap-and-trade program to limit carbon emissions, although the candidate himself seems not to fully understand that a hidden carbon tax is involved. McCain's opposition to disgraceful boondoggles like the farm bill, which Obama favored, is a real strength, as is his clarity about the economic advantages of free-trade agreements -- a weak dollar makes exports the most promising area of economic growth. But for every proposal, there is a conflicting counterproposal: McCain wants alternative-energy research and development, but he would freeze nondiscretionary domestic spending, which would limit the government's puny alt-energy efforts. "He hasn't talked very much about his vision for modernizing American infrastructure," says Kavinoky. "It's been a disappointment."
Obama's path certainly has risks. As conservatives always -- rightly -- warn, government isn't nearly as efficient as the market in figuring out the most effective new technologies. Spending money on infrastructure may prove inflationary given the current size of the deficit -- although $21 billion per year doesn't seem all that much after an Administration that spent $10 billion per month in Iraq. "You can argue that there's a need for short-term deficit spending," says one of Obama's economic advisers, "but in the end, he's going to have to get back to fiscal responsibility." Ultimately, the public's decision on Barack Obama won't rest so much on his race or exotic-sounding name as on the willingness to take a chance on a candidate who is promising a real break from the recent past -- a government that is part of the solution, not part of the problem.