Wednesday, September 17, 2008

Is it the Economy, Stupid?

This article in British paper 'The Independent' spins on so many levels. First it says Obama and McCain have differing stances on the economy and their approaches to solve the current crisis. Then it says nothing that a president does actually affects the economy- it says President Bush's policies had little to do with the current crisis and that President Clinton's deficit reduction had less to do with the boom than the dot com euphoria did. It then goes on to say that the suprising 3.3 percent second quarter GDP growth (which is good by US standards) was the result of the $140 billion economic stimulus package that President Bush initiated.

Clearly what a President does has an effect on the economy. President Bush made serious mistakes in his deep tax cuts although these took time to show up in the stagnant growth we are seeing today. After all, spending, individual debt, public debt, unrealistic and unsustainable housing prices were all clearly brewing all this while, coming now to a head where the prices crashed, the bad debts swelled, bankruptcies and bailouts hiked, investors are poorer, jobs got (and are getting) axed and industrial spending low.

Mr. McCain's continuation of the tax cuts of President Bush's administration compared with Mr. Obama's focus on taxing the wealthy do stand out in stark contrast. Under both systems tax revenue will increase, and under the circumstances the ones that drive the economy are people who will go out and spend money- viz. the less wealthy, not the ones who will invest the money in China (where they actually produce something and thereby provide returns that are not based on speculation but hard goods or services) or in their retirement plans; but the people who need the money to spend on things they need to have- clothes, food, cars, gas, education, mortgages and so on. This article blames Mr. Greenspan for the ills we now face, but taking the blame of the Republican administration is clearly not cricket. The later tax cuts have stimulated the economy, but the earlier tax cuts simply made it grow faster than it should have. There is a time for deficit spending and a time for deficit reduction. This is not the time to continue deficit spending. This is also not the time to seek to continue a war indefinitely. Despite the fact that the US must do right by our knell in Iraq, it is important to have a plan to exit. Mr. McCain's plan to bomb, bomb, bomb Iraq is troublesome.

So how will the presidential policies not make an impact? The article ends by saying that the economic positions of the candidates will make an impact on the electoral results, that it's back to "It's the economy, stupid". What is scary is that the economy should matter in this election, but it may not matter enough to the voters. Some effects of recession such as job losses in predominantly blue collar states are only beginning to take place. The closure of banks and government bailouts of many financial institutions may not make sense until it hits one's own pocketbook.

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