A Brit surveys the economics of the US presidential race
I am going to America next week to report on the economics of the US presidential race. I'll be in the north-midwest (Wisconsin down to Arkansas I think) - so if you've a story to tell about the political economy of this election there, let me know. For now I'm cramming it all in like a final-year medical student - here's my impressions.
1. Obama's trying to "own" the economic issues, McCain to own "security" in its wider sense. So the economics plays a different role in the two campaigns. Both have produced bullet-point economic "plans". Read Obama's here and McCain's here.
2. Its as plain as a high school text book that this is a battle between market Keynsianism and "small state" neo-liberalism - as far as the rhetoric is concerned. McCain will slash public spending, cut corporate tax, cut social security and cap state health spending for the elderly and the poor. All with the aim of balancing the US budget by 2013 (it is 800bn in the red now)....(continues)
2a. Obama meanwhile is promising a $50bn spending splurge, half of it to fund road and bridgebuilding; his commitments on the budget are hazier and he's not really spelling out a way to reduce it. Instead he's combining tax cuts for the lower paid with a windfall tax on energy firms and a giveaway of $1000 per family to meet home energy bills.
2b. Nobody has quite come out and said it, for fear of being hounded or derided, but Obama's pitch is substantially to the left of the British Labour Party in economic terms. It is far more influenced by the US unions than Labour policy is here.
3. But neither candidate seems willing to go to the heart of America's economic problem: it is a superpower in relative economic decline. It's had an economic recovery where the tax take did not recover; but it's used that recovery to hike its defence spending massively: in 2005 the USA was responsible for 80% of the world's total defence spending increase and 46% of global spending full stop. It's nearest rival is Britain with 5% of world spending (a cluster full of details here)
4. As I've blogged before: the language to describe the ordinary Joe to whom the economic sell is being made has shifted decisively towards the phrase "working class". You still get "middle America" referred to in both documents, but Obama's speech mentioned the workers seven times (and even picket lines); Palin's speech namechecked the United Steelworkers union (which must have pleased Tony Woodley no end as he has just agreed to merge Britain's left-leaning Unite union with the USW) and slammed Obama for sneering at working class insecurity over religion and guns. This is the first election I can remember in a G7 country where the ownership of the "brand" working class has been a big issue (the last one was Britain 1979, where skilled engineers were the undeclared demographic battlefield - Mrs Thatcher won).
5. While the casual observer might think it is electoral suicide for McCain to soft-pedal economics in a year of near recession and job+repossession pain, it is not. The McCain-Palin pitch is cleverly designed to link military security, energy security, economic security and personal security. The subtext is "the democrats promise you stuff but we are like you and feel your pain".
6. In the end, for all the divergence in economic rhetoric, the fact is that the US public finances are far from neo-liberal in reality. They are massively unbalanced: net debt at 60% of GDP, borrowing at 6% - compared to 37.5% and under 4% here (depending on how you calculate it). Whatever the candidates say, from 20 January 2009 the next president is running an economy that is a) only growing because of a rabies-jab sized injection of market-Keynesian tax and interest rate cuts; b) massively overspending. Even if McCain balances the books by 2013, for the entire first term the dynamism of the US economy looks like it has to be driven by state initiatives, whether tax cuts or loose monetary policy. So the small state is not coming to America anytime soon.
7. Both candidates' public finance plans rely on a dividend from drawdown of operational spending in Iraq/Afghanistan - which has so far cost about $170bn on top of the $440bn defense budget. Obama terms it "withdrawal"; McCain "victory".
8. The long shadow of Huey P Long extends over the whole thing: I don't mean this pejoritavely (the preening speeches, tommy guns and graft): I mean the rhetoric of "the little guy versus the vested interests"; which McCain gave a masterclass in last night and on which Obama's entire pitch is based (though with a different cast of characters playing the bad guys).
9. The whole thing is a massive advert for the Presidential/Separation of Powers/Primary elections system, and fixed term administrations of the USA. It has proved virtually impossible for incumbent parties in Britain to change their economic policies, yet that is what McCain is doing to US conservatism. Likewise Obama has been able to carve out a popular centre-left programme that would have got him kneecapped by Brownite fixers if he'd tried it within the PLP.
10. With unemployment at 6.1% and 9% of all mortgage payers in trouble or facing repossession, America's economic pain will define the election.
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