Two sides of the American coin
As the faltering economy has catapulted to the top of the presidential campaign agenda, Republican John McCain and Democrat Barack Obama have both said they want to make healthcare more affordable, cut taxes and adopt a new energy strategy. But they have laid out far different paths to achieving these goals.
Obama is calling for government to do more to address the nation’s ills; McCain is embracing the traditional GOP faith in free-market solutions. The difference gives voters a stark choice.
It has also set the stage for a robust debate -- not about the kinds of nuances that distinguished candidates in the party primary contests, but over the fundamental balance between government intervention and free-market forces in managing the economy.
“When it comes to the economy, John McCain and I have a fundamentally different vision of where to take the country,” Obama said in a major economic speech in North Carolina last week.
McCain echoed that in his own economic speech last week: “We offer very different choices to the American people.”
Neither candidate has so far made a name for himself as an economic policy leader. Obama has built his public life in Washington around the cause of reforming a political system riddled with special interests. McCain has said he is not as well versed in economics as he is in national security matters. Until the 2008 campaign, McCain’s signature economic cause was fighting pork-barrel spending in Congress.
“Obama’s only been in the Senate for not quite four years,” said William A. Niskanen, a conservative economist at the Cato Institute. “McCain is picking up ideas and articulating them almost for the first time. He doesn’t have that much of a footprint on economic matters.”
But both are marshaling economic advisors and advancing policies with dispatch, because public anxiety about increasing gas prices, unemployment and mortgage foreclosures has risen sharply.
In a recent poll by the Pew Research Center for the People and the Press, 88% of voters said the economy would be a very important factor in their decision on election day -- more than any other issue, and up from 74% in June 2007.
The two candidates’ different tacks was in evidence as the mortgage crisis ballooned. Obama offered a plan that included aggressive regulation of financial institutions, relief for homeowners and a $30-billion economic stimulus package.
McCain initially criticized Obama’s plan as a “multibillion-dollar bailout for big banks and speculators.”
“There is a tendency for liberals to seek big government programs that sock it to American taxpayers while failing to solve the very real problems we face,” McCain said. Then he faced a barrage of criticism for downplaying a government role in responding to the crisis. Two weeks later, he changed his tone and proposed spending up to $10 billion for government-backed mortgages to “deserving” homeowners facing foreclosure.
On healthcare, Obama leans hard on government action to make insurance more affordable and, ultimately, universally available. He would make coverage mandatory for children, expand federal subsidies for the uninsured, and impose new funding requirements on employers.
McCain, in his health plan, shuns that infusion of government money and authority. He instead would rely on market competition to drive down costs. He would establish new tax incentives for individuals to get their own health insurance and reduce the incentives for people to get insurance through their employers.
McCain has called for mandated emissions limits to curb global warming -- an example of his embracing government regulation and parting ways with most fellow Republicans.
But he opposes most government incentives and subsidies to help meet those emissions limits -- steps that are favored by Obama and many other officials. Obama, for example, would invest $150 billion in subsidies over 10 years to develop alternative fuels.
McCain, discussing environmental issues last month, told voters in Washington state, “I’m a little wary -- I have to give you straight talk -- about government subsidies. When the government jumps in and distorts the market, then there’s unintended consequences as well as intended.”
He seems to make an exception for subsidies for nuclear power. McCain opposed a global warming bill before the Senate this month because it did not include enough government aid for nuclear energy.
The candidates’ tax policy differences are especially stark.
McCain wants to extend Bush’s signature income tax cuts, due to expire after 2010; Obama wants to let the tax cuts for upper-income people lapse. McCain wants to cut corporate tax rates and eliminate the alternative minimum tax; Obama’s tax relief plan aims at helping middle-income people.
Each candidate’s approach to the economy carries risks.
Public opinion surveys suggest the political climate is more favorable to increasing the government’s role in the economy. Fifty-six percent of respondents in a March Gallup poll backed more government steps to prevent people from losing their homes. The survey found even wider support -- 73% -- for government action to stimulate the economy.
Against that backdrop, a risk for McCain is that his laissez-faire approach will be out of step with anxious voters: That seemed the case when he initially downplayed a need for government action in the mortgage crisis. A risk for Obama is that some of his policies, such as his call for raising taxes on the wealthy while cutting them for the middle class, will be rejected by swing voters wary of redistributing wealth.
Both candidates have also altered some of their initial impulses on the economy to fall more in line with their respective party bases.
McCain’s tax plan is a departure from his record in the Senate, where he voted against both the 2001 and 2003 tax cuts. He said at the time that the cuts were too skewed to the wealthy and not accompanied by sufficient spending cuts.
Now he says the tax cuts should be extended because they have spurred economic growth. The change brought him in accord with the GOP’s influential low-tax advocates.
Obama has also been under pressure to fall in line with his party’s base -- in his case, on trade issues.
As Obama campaigned in Ohio, where expanding international trade is seen as a threat to U.S. jobs, he struck a newly strident tone, threatening to withdraw the U.S. from the North American Free Trade Agreement if Canada and Mexico did not agree to renegotiate terms more favorable to U.S. workers. But his Senate voting record has not been ardently protectionist. He has supported some free-trade agreements while opposing others. And in recently naming Jason Furman a senior advisor, Obama chose a centrist economist whose strong record in favor of free trade has infuriated labor and liberal activists.
Niskanen called Obama’s protectionist rhetoric in Ohio “pandering” to the Democratic left, which may be less influential in the general election. “One thing we have to look for carefully now is whether Obama drifts back to the center.”