The length of American political campaigns is a source of annoyance to those for whom there is a life other than sound bites, attack ads, and commercials extolling the virtues of their sponsors and the evils of opponents. And the cost of campaigns is a source of amazement to foreign observers. But the cost is trivial: The $1 billion President Obama plans to spend taking his case to the American people is a mere one-tenth of what we spend every year on cinema admissions, and one-twentieth of what we spend to get seats at sporting events. A small price to pay for the opportunity to learn what those who want to govern us think about the issues that concern us. And how each of them plans to get the country off the wrong track down which 74 percent of Americans see the country hurtling.
Start with taxes. The battle among the gaggle of Republicans seeking their party’s nomination has begun to produce real ideas about how to convert the current maze of provisions into a more coherent, more growth-oriented tax structure. Herman Cain finally won recognition as a real contender by unveiling his 9-9-9 plan – 9 percent taxes on incomes, consumption, and corporate profits. No high-priced accountants needed. Texas governor Rick Perry followed by proposing that taxpayers be given the option of the existing system or a flat tax of 20 percent. The details matter less than the fact that the campaign has produced a real debate over how to reform a tax system that has become so complex as to make it impossible for the average taxpayer to fill out his return unaided.
Then there is the problem of increasing inequality of income, one that troubles two-thirds of Americans, according to a new New York Times/CBS News poll. President Obama is in attack mode, the objects of his ire being “fat cat bankers, millionaires, and billionaires,” and, it turns out on closer examination, families earning more than $250,000 per year.
Never mind that much of this is pure campaign populism. The issue needs airing, and the problem needs solving if basic faith in free market capitalism is not to erode further. The president’s solution—raise taxes on families earning more than $250,000—can’t even garner enough votes in the Democratic-controlled Senate, which instead favors a 5 percent surtax on millionaires’ incomes. And his qualified support for Occupy Wall Street protesters—he might not feel their pain, as Bill Clinton would, but he does sympathize with it—could backfire if the protests take a turn that offends middle class voters. But every candidate will now have to address the fact that the inflation-adjusted median incomes—in the middle of the range of incomes—of American workers are $5 per week less than in 1979, and that median household income, according to Sentier Research, a Maryland consultancy, is down 10 percent since the end of 2007. And a recently released study by the nonpartisan Congressional Budget Office shows that between 1997 and 2007 inflation-adjusted incomes of the top 1 percent of earners increased by 275 percent, while that of the broad middle class grew by only 40 percent, and fell as a percentage of all after-tax incomes. I won’t bore you with still other data that suggest income disparities overstate living-standard differentials. Suffice it to say that it must be counted as a benefit of the protracted campaign that the political class is finally forced to confront an issue that it has so far chosen to ignore, or conceal in a thick rhetorical fog.
Trade policy is another issue that the current campaign has finally brought to the fore. Trade unions have long grumbled that imports from China and other low-wage countries are killing “good-paying American jobs.” Free traders have responded that our economic recovery depends in part at least on our ability to keep our markets open so that other countries will allow American companies access to theirs. The debate is so abstract as to make most voters reach for their television remotes when the subject comes up in the Republican debates or on news programs, and politicians to substitute speeches for action.
No longer. The Senate wants to impose tariffs on Chinese goods that benefit from the implicit subsidy provided by the regime’s currency manipulation, a move the administration says would violate World Trade Organization rules. Instead, the president wants to limit the ability of China’s subsidized state-owned enterprises that account for 50 percent of that country’s GDP to out-compete U.S. firms for business. Candidates opposing these measures will now have to do more than repeat the claim that a trade war induced by a U.S. tariff increase caused the Great Depression.
Perhaps most important is the issue of what to do about the nation’s 25 million workers who can’t find full-time employment, and are unlikely to do so soon if economists are right to be downgrading their growth forecasts. Never mind the president’s plan for the second stimulus—House Republicans won’t have it. The Republicans plan to grow the economy by cutting taxes and regulations—and although half of Americans say they favor the latter, Senate Democrats won’t have it. That fruitless and rather generalized debate is now being replaced by one over how to revive the housing market, which some see as the key to a more general economic revival.
Former White House economic adviser Larry Summers, now ensconced in Harvard at the Mossavar-Rahmani Center for Business and Government, points out in the FinancialTimes that declining house prices have wiped out about $7 trillion in consumers’ wealth over the past five years, reducing their willingness to spend. Worse, the overhang of unsold homes, including repossessed properties that sell at a 30 percent lower price than similar homes, is stalling a recovery in construction of new homes. Despite an increase in September, sales of new homes will hit a record low this year, while sales of existing homes resumed their decline after an up-tick in August. Summers wants credit standards relaxed, interest rates lowered for some homeowners, and thought given to reducing foreclosures. Dan Tarullo, a member of the board of governors of the Federal Reserve System, favors “the large-scale purchase [by the Fed] of additional mortgage-backed securities” to lower interest rates. Others prefer a hands-off attitude that would let the housing market find its natural bottom, but hands-off is not a specialty of campaigning politicians
The president knows two things. First, excessive kindness to those who can’t pay interest on their mortgages risks antagonizing homeowners who have scrimped to meet their mortgage obligations, never mind creating a real moral hazard problem. Second, no plan to revive housing can be effective soon enough to improve his reelection prospects. Only the Republicans can do that—by nominating an unelectable candidate.