The McCain Economic "Team"
Intellectual diversity, for better and for worse.
Feb 25, 2008, Vol. 13, No. 23 • By ANDREW FERGUSON
You probably have your own favorite, which is fine, but for my money the most revealing moment of the presidential campaign (so far!) came during the last debate among the Republican candidates, on January 24. Ron Paul briefly alighted on our fragile planet and challenged John McCain, if elected, to abolish something called the President's Working Group on Financial Markets, which Paul seems to think rivals the Trilateral Commission and the Knights Templar for sinister nefariousness. McCain didn't answer Paul's question, but on the more general matter of how he would make economic policy, he did say this:
Notice that phrase "people like." What makes it odd is that those people aren't like each other at all, at least when it comes to their economic views. A couple of them, if you put them in the same room, would set off an intergalactic explosion like the collision of matter and antimatter.
One adviser, Jack Kemp, is the man who talked Ronald Reagan into embracing supply side economics in the 1970s, which launched the Reagan boom of the 1980s. He's the world's bubbliest advocate of tax cuts, dismissing the traditional Republican fixation on balanced budgets as "root canal" economics. Another adviser, Peter Peterson, is root canal economics. He's a dour Jeremiah who called the Reagan boom a "mad, drunken bash" and thinks steep tax increases on income, gasoline, tobacco, and alcohol, on top of a 5 percent consumption tax, are necessary to put the government's finances in order. He and Rudman run the Concord Coalition, an advocacy group that regards the federal government's budget deficit as the country's foundational economic problem.
Let's stipulate that a president should seek advice from a wide assortment of counselors. And McCain's list may very well reveal a refreshingly nonideological approach to policy making that will prove popular in our post-partisan era of change, the future, causes-greater-than-your-self-interest, hope, and so on. Then again, it might reveal something else. You can't help but wonder: Does McCain know the unbridgeable philosophical differences among the men he mentioned, or are these simply the names that occur to him when someone asks about economic policy? There's good reason to think that in economic matters, John McCain doesn't know his own mind. He's even admitted as much, in off-the-cuff statements that Democrats will be repeating from now till November.
"The issue of economics is not something I've understood as well as I should," McCain told the Boston Globe late last year. He said that in choosing a vice president he'd look for a person with economic experience to compensate for his own shortcomings. "I'm going to be honest," he told Stephen Moore of the Wall Street Journal three years ago. "I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated." McCain has since tried, implausibly, to disavow all these statements, protesting that his knowledge of economics is perfectly sufficient for a president. But the zigs and zags of his 25-year career as a congressman and senator suggest that, when he said he didn't know much about economic policy, he was giving us some of that bracing straight talk.
McCain came to the House of Representatives in 1983. He was a standard-issue Republican of the day--an adherent of the newly minted Republican orthodoxy of Reaganism, which made rapid economic growth, rather than a balanced federal budget, the chief goal of fiscal policy. He supported deep cuts in the marginal tax rate on income and capital gains. At the same time (like Reagan himself) he maintained a mostly theoretical advocacy of a balanced budget, pushing such hopeless nostrums as a balanced budget amendment to the Constitution and a presidential line-item veto. When he bucked the party's leadership, it was on the side of a smaller government and lower taxes. After Congress approved Reagan's plan for a government-run catastrophic-care insurance program, financed by a tax increase on wealthy seniors, McCain led the successful effort to repeal the new tax a year later, in 1989. Like many Republican senators, he voted against President George H.W. Bush's 1990 budget because it contained multiple tax increases that violated Bush's famous read-my-lips campaign pledge. Three years later, he joined in his party's unanimous rejection of President Clinton's 1993 proposed increase in marginal tax rates on capital gains and income.
By the time McCain announced for president in 1999, he had built a consistent roll call of conservative votes on fiscal issues--a record that was, however, largely indistinguishable from those of his Republican colleagues. In an interview at the time, he said that "tax reform--i.e., a flat tax," would be one of his signal issues during his coming presidential campaign. But it was clear his intellectual interests lay elsewhere, in foreign policy and military affairs. In the interview he was asked which of the various flat tax proposals he favored.
"No preferences, really," he said. "We'd have to sort them out through a process of examination, discussion, and debate. If the American people thought we were serious about cleaning up the tax code, then we'd get a lot of expert advice. There are a lot of experts out there, you know. A lot of smart people. We could get the best and listen to them. I don't have the expertise really to be very knowledgeable about it. I read a lot about it, but it depends on who you read."
McCain's reading evidently led him in an unexpected direction, to a position opposite the one he'd held a few months earlier. By the time the 2000 campaign began in earnest, McCain had abandoned the flat tax in favor of a "deficit-reduction" plan that provided small tax breaks to middle-income taxpayers but otherwise left untouched the increases in marginal rates that had been imposed under Clinton and Bush the Elder. "In fact," he said in another interview in 2000, "the program that I have gives them [rich folk] a slight tax increase." From this revised position it was a short hop to what free marketers and tax cutters consider his most unforgivable act of deviationism: his vote against President George W. Bush's tax-rate cuts on capital and income in 2001 and 2003. He was one of two Republican senators to defy Bush in 2001, and one of three in 2003.
Today McCain explains those votes in terms that would please Pete Peterson's school of balanced-budgets-first. The Bush tax cuts were unacceptable, he says in hindsight, because the revenue lost wasn't matched by reductions in federal spending. Even Kemp, the happy supply-sider who considers federal deficits a mere annoyance, agrees that this line of reasoning has a long and honorable pedigree in traditional Republican economics. But in 2001 and 2003, McCain scarcely mentioned the budget deficit in interviews explaining his votes. Back then he said he opposed the cuts in marginal tax rates because they were "regressive" and "unfair," redistributing income from the poor and middle-class to the rich.
This was the reason nearly all Democrats gave for opposing Bush's tax cuts, of course, and at times it seemed as though McCain was simply reaching for the rationale nearest at hand, which happened to be the Democrats' rationale--though in his case it was framed, in typical McCain style, as a matter of his own scrupulosity: "I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us at the expense of middle-class Americans who need tax relief."
His public reasoning surprised even some of McCain's budget-balancing allies. Peterson's Concord Coalition opposed the Bush tax cuts, too, but not because they "benefited the rich." "Our argument was never about the distributional aspects," says Concord's executive director, Robert Bixby. McCain's opposition was particularly perplexing from someone who only two years before had advocated a flat tax--which entails a sharp cut in rates at the top of the income scale to encourage the flow of capital into private investment.
For that reason if no other, McCain's opposition blindsided his fellow Republicans. Bush's accountants, after all, had designed the tax cuts precisely to foreclose the fairness argument that McCain pulled off the shelf. Their reasoning was identical to the reasoning used by proponents of the flat tax. The income tax cut, they pointed out, was across the board: Most people got their income tax rates cut by the same number of percentage points. Any across-the-board cut in income tax rates means that in dollar terms rich people will get to keep more of their money than poor people will get to keep of theirs. This is because rich people have more money than poor people. Cut Bill Gates's income tax rate by two percentage points, and he gets to keep a few extra hundred million. Cut my income tax rate by two percentage points, and--peanuts.
But we got the same tax cut. That doesn't make the cut unfair, unless of course you consider it unfair that rich people have more money than poor people. And in that case your argument isn't with tax cuts but with capitalism.
There's no indication that McCain has ever thought his economic positions through this far. In economics, as in much else, he appears to operate on instinct. His professional experience--he's had a single job outside the government and military, working briefly for his father-in-law's beer distributorship in 1981--is unlikely to yield ideas about how the economy works in the way that a life spent, say, running a business or even practicing law would. He comes from money himself. His mother was heiress to an oil wildcatter, and his wife is wealthy, too. His most recent Senate financial disclosure form places his assets at between $20 million and $32 million, making him the seventh richest man in the Senate. Like a lot of rich people who've come into money rather than earned it--the heirs to the Kennedy and Rockefeller fortunes are the most famous examples--McCain seems less interested in how wealth is created than how it can be used, wherever it comes from.
Some of McCain's advisers offer another reason for his rejection of the Bush tax cuts: his festering resentment over the campaign Bush had run against him in 2000. Especially before the September 11 attacks, says one, "he couldn't stomach the idea of helping Bush." That's a more plausible explanation than the explanation McCain himself has offered--and certainly more in keeping with McCain's later Senate career, which consists of a series of regulatory crusades launched against persons and entities that have offended him. The tobacco legislation that McCain shepherded through his Commerce Committee in 1998, for example, was inspired by his revulsion at the seven tobacco executives who testified before Congress and famously refused to admit, under oath, that cigarettes caused lung cancer. "He just couldn't stand their lying that way," an aide said at the time. With its huge increase in cigarette taxes and its elaborate system of penalties, the legislation was one of the largest regulatory schemes ever cooked up on Capitol Hill. It was also a classic bill of attainder, designed to push the tobacco companies to the brink of bankruptcy without driving them out of business altogether.
McCain's method in domestic matters no less than in foreign affairs is military: He surveys a set of facts, identifies a villain, fixes him with his steely gaze, and then goes after him. McCain's longstanding efforts to tighten regulations on the campaign finance system also contain an important personal component. At first it was a reaction against the accusations of impropriety that dogged him in the Keating Five scandal of 1989, and then, after 2000, against the attack ads, paid for by Bush allies, that damaged his presidential campaign. Here the villains were PACs, lobbyists, and freelance partisans who bought political advertising during an election--and had to be stopped. More recently, he has championed a "patients' bill of rights" to tighten regulations on the HMOs, insurance companies, and employers he considers to be stingy with health benefits. Pharmaceutical companies should be reined in, he's said, because they're the "bad guys."
What's unsettling is that you can never predict who the next bad guy will be. No consistent economic principles can be extracted from McCain's grab bag of policy positions, and no amount of textbook baloney about the free market, deregulation, and limited government will deter him from bringing his malefactors to justice. McCain's economics aren't ideological but improvisational--a campaign with shifting fronts, running on indignation. And a very large number of voters, probably a majority, will find this approach appealing because they don't buy all this textbook baloney about the free market and limited government either. When President McCain finds his villain and pursues him however he can, they will likely cheer their president and egg him on--unless, of course, he fixes his steely gaze on them.
As for his team of economic advisers, they continue to see in McCain a picture of their own aspiration. "He's a deficit hawk above all," Rudman told me. "Has been since the day I met him."
"He understands that the solution to our long-term problems will involve some shared sacrifice," Pete Peterson says. "And I think his leadership skills will be very effective in putting this idea of shared sacrifice across."
"I tell him: 'Stop mentioning Pete Peterson!'" Kemp says. "And he gets that. You look at Reagan. He ran a conventional Republican campaign in '76: limit spending, balanced budgets. Then [supply-side economist] Art Laffer and I and some others managed to talk to him. And in 1980 he ran as a growth candidate. I see something similar happening with John.
"It's true he doesn't have the same historical interest in economics that Reagan had. Reagan got it instinctively. But when I talk about the Bush tax cuts and John says, 'I don't think we should give money back to people who don't need it,' I say, 'John. John. That's not why we cut tax rates. We do it to incentivize people to put their capital at risk for new investment and capital formation.' And he gets that. He gets it.
Andrew Ferguson is a senior editor at THE WEEKLY STANDARD.