Wednesday, October 15, 2008

Both Candidates Float Bad Ideas

Barack Obama and John McCain both unveiled plans to deal with the economic crisis this week. Unfortunately, if unsurprisingly, both plans had less to do with fixing the economy and more to do with winning the election.

Obama proposed several distinct ideas in his plan and most of them were unobjectionable. He wants to give a tax credit to companies that hire new workers, the kind of incentive our tax code should always have contained. He proposed a three month moratorium on home foreclosures, to allow families a little more time to try and find a way to keep their homes. And, the best part of his proposal, if the least popular, is to give states and cities more revenue sharing so that they do not have to cut back on infrastructure projects. This makes mayors and governors happy but to the electorate at large it appears like a government funding shell game, so Obama gets credit for proposing a policy with no real political value but a great deal of economic value.

But one of his ideas is a real clunker. Obama proposes that people be allowed to remove a percentage of their 401(k)s and IRAs up to $10,000. without facing any penalties. This does, as he claims, provide a little flexibility. But, why would you propose anything that would encourage people to sell stocks? Inviting millions of Americans to enter a slumping stock market with the intent to sell will only exert more deflationary pressure on the stock market. Not only does this hurt the market as a whole, but the rest of the individual’s retirement account would be harmed as well. This is Ben & Jerry’s economics: It tastes great but it is not good for your health. Americans need to save more and spend less and any policy that encourages the opposite should be viewed with suspicion.

This proposal is especially disheartening because one of Obama’s biggest applause lines has been that he will not lie to the American people, that he will tell us what we need to hear not only what we want to hear. Indeed, in the very speech in which he outlined his new proposals he ventured as far as a candidate dare in recognizing that the spending patterns on Main Street were not much better than those on Wall Street. “Part of the reason this crisis occurred is that everyone was living beyond their means – from Wall Street to Washington to even some on Main Street,” Obama said. “CEOs got greedy. Politicians spent money they didn’t have. Lenders tricked people into buying home they couldn’t afford and some folks knew they couldn’t afford them and bought them anyway.”

Not to be outdone, John McCain has argued for a reduction in the capital gains tax cut. But, you only register a capital gain when you sell your stock, so this is also a proposal that encourages people to do the single worse thing they can do to stabilize the markets. Additionally, there is a Never-Neverland quality to McCain’s suggestion: in 2008, it doesn’t appear that very many people will have a capital gain to be taxed in the first place. On the other hand, McCain’s proposal to stop taxing unemployment benefits only makes sense. Why should the government track a payment out and a payment in?

I suppose it is ridiculous to expect more than common pandering in the final weeks of a campaign. Still, it is disheartening especially from these two men who promised better.

Michael Sean Winters

1 comment:

Bobby said...

As the 2008 election rapidly approaches, the economy continues to be the most important issue for voters. After several big wall street firms went under and the largest drop in stock prices since the Depression, other issues such a abortion, healthcare, and foreign aid have faded into the recesses of everyone's minds. America wants a leader who will be able to turn this economic crisis around and bring back the booming economy we had five years ago.
Neither candidate proposes a flawless plan to correct the economy. Both plans take actions that would encourage the selling of stocks, causing the market prices to plummet even further. Clearly this would not be a desirable approach to the situation seeing as "the selling" is the reason behind the recent depreciation. But just as investors sell out of fear and desperation, they also will buy overpriced stocks in fear that they are missing out on the bottomed out economy, as we saw on Columbus Day, causing the market to climb almost as quickly as it was falling in prior days. The future president should have a plan that capitalizes on this human element of the stock market and encourages buyers to invest.
November 4th also proves to be the most important election day in the past several decades because the next president will control the most powerful federal government to date. After the recent events including the 700 billion dollar bailout, America looks more and more like a socialist republic. Our Founding Fathers warned against the government holding too much power and specifically set up the government to ensure that the people of the United States served as a system of checks and balances to the federal government. Now the next president will inherit a government with much more power than ever before, and we must hope that he will use that power responsibly.

Bobby Hausen
Regis High School