There is just not enough space in this magazine to go into detail about both of the presidential candidates’ economic philosophies, and so I will only cover Senator Barack Obama’s economic epistemology. My research for this article comes both from my experience as an economics major, and the views expressed by The Economist in the October 4th- 10th issue. I will use Senator McCain’s positions as a foil for what I and others perceive to be the best and worst outcomes of an Obama Presidency, at least economically.
The Optimistic
Polls clearly display that most economists favor Barack Obama. And there are plenty of reasons to be optimistic about the economy under his leadership. In fact, most voters agree that Senator Obama would be an effective and just steward.
One of the most compelling arguments about Obama’s economic prowess is his ability to surround himself with those who are well educated about such matters. Having spent years as a constitutional lawyer at one of highest regarded schools for economists, The University of Chicago (home of the renowned Milton Freidman), Mr. Obama must have picked up some lessons on political economy. Furthermore, in the last debate, Senator Obama took a minute to explain that his advisers on economic issues would be both Warren Buffett and Paul Volcker. Personally, having the Oracle of Omaha (Buffett) and a former Federal Reserve Chairman at one’s side is an incredibly compelling reason to vote for Barack Obama.
His tax plans are also revolutionary and impressive. Joe the plumber aside, Obama’s plan would bridge
the historic gap between the extremely wealthy and those languishing in the shackles of poverty. Mr. Obama would lessen the gap while McCain would most certainly attempt to widen it with his tax policy. In terms of the deficit, which after the rescue plan is increasing by leaps and bounds, Obama’s tax plan would reduce the debt by an estimated $750 billion. Contrarily, Mr. McCain’s tax cuts would propel the national debt to further heights.
The Pessimistic
How free should the free market be? It is generally agreed between colleagues that more regulation of the market is non-desirable in the sense that it manipulates market forces to socially inefficient outcomes. An example of this can be seen with the price of gasoline, a commodity that is heavily subsidized by the government. The efficient price of gasoline would probably be much higher than it is currently. That price would reflect the costs that using gas inflicts on the environment, the rising costs of extraction, and the opportunity costs of using a resource now instead of saving it for later consumption. The implications of lowering the price of gasoline below the socially efficient level go beyond even these reasons. Think about what would happen if gas rose to $10 a gallon --- if we think beyond the volatility of the short-run, private entrepreneurs would now have an amazing incentive to tinker around in their basements, trying to find that new energy source that could revolutionize our lives. Overall, the price of government involvement in the markets can be disastrous.
I realize that in a time like this, government control is rather appealing. Was it not, in fact, the government that approved the plan to stabilize the credit markets? Yet, there is also enough evidence to suggest that government played an important role in creating this situation in the first place. Heavy-handed regulation may have generated non-desirable incentives that set the groundwork for how investors began their rapid cycle of securitization, expansion, and consumption. The appropriate regulation implemented in the correct manner may do wonders for the system – in chaining down the forces that propel the free market we risk a cycle of isolationism, protectionism, and ultimately, stagnation.
In this vein, one prime area where Senator Obama may be most inexperienced is in trade. Free trade is another area in economics in which there is general consensus. It is better for both the United States and the world, when the government refrains from imposing protectionist policies, such as quotas and tariffs. Without going into the strict economics of why free trade is considered nearly entirely beneficial, I will ask you to suspend visions of child-labor, blood diamonds, and arms trade. Certainly, free trade does draw with it the potential for extreme manipulation, subjugation and pain – yet, altogether we are lifted-up by trading with our neighbors, and likewise we aid our neighbors in opening our borders. However, while contesting Ohio during the primaries, Obama mentioned that he would like to renegotiate NAFTA. Further still, this disturbing piece of news was later contested by one of his leading economic advisers. Having faith in Mr. Obama’s willingness to extend the olive branch to international business may be a longer leap of faith than most are willing to take.
Likewise, Senator Obama has promoted the idea of increased subsidies to ethanol producers. This environmentally ambiguous product, ethanol, has not only deterred research into what may be more viable sources of energy, it has also helped to cause a food crisis that extended across the borders. This food crisis occurred this summer and hit hard countries like Egypt and Haiti. The reason for this food crisis derives from the fact that increased subsidies diverts corn from food production into fuel production, reducing the supply of food worldwide, ultimately causing the price to shoot up. The subsidy distorts the market and should be repealed, supporting such diversions is not only harmful to our own people, but to others around the world.
Conclusion
It is difficult to exactly measure how a candidate will do in office in terms of economics; the upcoming four years will certainly present new challenges with which the next President will have to contend. Many experts are no longer talking about whether we are in a recession, but rather how bad and how long this one will last. The economic situation will definitely hinder how far the President will be able to go with his plans for the future. For Barack Obama, he may have to shelve many of the plans that he has drawn up simply because of spending limitations. And yet, checking spending in a situation where his party controls a majority of Congress will not be easy, and it is difficult to tell whether Mr. Obama can stand up to his own party.
But, as always, there is reason to hope. Barack Obama has presented himself capable of being able to draw experts around him – regardless of their political leanings. I do feel that he is open to change on some of his policies. With his presidency I would expect to see a society of greater social safety nets, a shrinking of the gap between the poor and the impossibly affluent, and a return to service in our communities. What I and others are rightly concerned about is his ability to stand up to what may be inefficient projects from his own party, his stance on how the world and the US will trade, and fundamentally, if he respects the power of the free market.
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