WHEN IT COMES to economic policy, this is no race between Tweedledee and Tweedledum, although in some ways it is between Dumb and Dumber. Both President Bush and Senator Kerry have promised to halve the budget deficit in four or five years, although neither has a credible budget-balancing plan. Conservative George W. Bush talks like Ronald Reagan while spending like Lyndon Baines Johnson, and Boston Brahmin Kerry wants to soak the rich like a southern populist while hoping that upper-income spending and investment will somehow still grow and deliver an increasing flow of funds to the Treasury.
Nor is either candidate particularly coherent when it comes to the trade deficit. Kerry dug into the old union toolkit and came up with the idea of stopping outsourcing. But the scowl on Bob Rubin’s face when Kerry unleashed his protectionist idea was even more striking than the one on Bush’s face during the first debate. So Kerry now says he will change the tax code to discourage companies from expanding overseas, another way of saying he will make them less able to adopt the most efficient geographic mix of facilities. That should help our international competitiveness no end!
Bush, meanwhile, gets higher grades for resisting, with a few bows to electoral realities, the siren call of protectionism, even in closely fought and job-losing Ohio. But his continued pressure on the Chinese to allow their currency to float against the dollar is a good example of wishing for something you might be unhappy to get. The dollars China now earns by selling to U.S. consumers it reinvests in U.S. Treasuries. If the Chinese comply with the demands being relayed by Commerce Secretary Don Evans, they will earn fewer dollars, and therefore stop buying the huge amounts of our bonds that they have been accumulating. Interest rates will then rise and slow economic growth, not exactly what the job market needs at the moment.
Still, it is reasonable to give the edge on trade policy to Bush, despite his support for steel tariffs (a concession to wring from Congress authority to negotiate broader trade-opening measures), and his willingness to protect farmers. The Economist says it best: “The biggest prize . . . is the global trade round. . . . America . . . has been a prime force in pushing the Doha round of World Trade Organization (WTO) negotiations.”
In addition, the president and Bob Zoellick, his vigorous trade representative, have continued to press for trade opening agreements. The important if imperfect agreement with Australia has passed the Congress, and others, including one with Central America, are more likely to be approved if Bush is elected than if Kerry is. The Massachusetts senator has promised to review all existing agreements and to put a hold on new ones, to the applause of his union supporters. It seems logical that Bush, with no further political ambitions, will be less likely than Kerry to pander to the numerous interests that continue to clamor for relief from competition with imported goods.
There are other reasons to think that the economy would be better off if Teresa Heinz Kerry is denied the chance to replace Laura Bush’s Texas-style White House décor with something more congenial to the eye of her Francophile husband. Consider, for example, energy policy. Both candidates want to reduce reliance on foreign (especially Saudi) oil. Kerry once had the right idea–raise gasoline taxes–but scurried away from it when his constituency expanded beyond Bostonians whose pre-automobile-age narrow streets make the MTA the transportation of choice. Kerry now opposes all of the following: drilling for new oil in most parts of the United States; increased use of coal because it might contribute to global warming and make it tougher for him to adhere to the Kyoto protocol, which he plans to sign (relax: the Senate will reject it); the expansion of the nuclear industry lest it create waste which he has promised not to store in Nevada or anywhere else; and reliance on the Saudis, who must be chuckling in their tents as Kerry rules out every quantitatively significant alternative to continued reliance on their oil.
George Bush knows he cannot deliver independence from Saudi oil, his promises to do so notwithstanding. But he is more likely to press for a better balanced energy sector. His plan to store nuclear waste in Yucca Mountain, rather than leave it in hundreds of pools around the country, would permit both the safe storage of the stuff and the expansion of the nuclear industry. He is also more likely to issue the permits needed to expand, upgrade, and, with luck, build the new refineries we so desperately need. And he is more likely to keep restrictions on the burning of coal to those necessary to reduce pollutants, rather than set them at a level designed to satisfy the greens, for whom a comparison of costs and benefits is anathema.
Then there is Social Security. Bush is considering a plan that would allow newcomers to the system to invest some of their own money so as to increase the returns now earned on such savings. Kerry says “never,” and correctly points out that the president hasn’t yet figured out how to finance the transition costs created when some money is diverted from the current pay-as-you-go system into these personal accounts. But Kerry doesn’t have to worry about transition costs because he has no plan to transition to a new, viable system. He rules out reducing benefits (although he once proposed lowering the inflation-related increases) or increasing the retirement age (which he favored in 1996), leaving him only one option: to increase taxes. And taxes of the worst sort–on jobs.
Speaking of taxes, we have another reason for giving the president better grades than Kerry. The economy is doing well, but all experts agree that we can’t be sure of continued growth until we see what effect higher oil prices and Alan Greenspan’s decision to raise interest rates have on growth in the medium term. Most experts agree that the Bush tax cuts have added about one percentage point to growth since the middle of 2001, a stimulus that certainly was needed and may still be. Kerry plans to raise taxes on “the rich,” including hundreds of thousands of the small businesses that create many of the new jobs–not a good idea just now, and a plan that hardly seems to follow from the senator’s description of an economy growing so slowly that it is unable to create enough good, new jobs.
Bush has a more sensible plan: to overhaul the tax system in order to move some of the burden from incomes to consumption. Properly timed, this reform might provide the added revenues needed to close the budget gap by some combination of accelerating growth and increasing tax receipts. (Even Ronald Reagan followed his 1981 tax cuts with a series of tax increases. If it was good enough for Reagan…) And Bush might well be faced with a difficult trade-off: an offer by Congress to go along with major reforms that will stand the nation in good stead for decades, in return for something of a tax increase.
Health care is another economic policy issue in which voters have a choice, not an echo. Kerry would rely on a variety of tax-funded schemes to extend insurance coverage to many not now covered. Along with that coverage will come the inevitable regulations. He would also permit the reimportation of prescription drugs, in the hope of putting downward pressure on drug prices and reducing what he believes to be the excessive profits of the big pharmaceutical companies.
As with Social Security, so with health care: Bush would encourage individual tax-advantaged Health Savings Accounts (HSA) to provide consumers with the funds with which to purchase routine health care, combined with catastrophic insurance for major expenses. And he would free small businesses to join together to spread risk and reduce insurance costs. He also opposes drug reimportation.
Granting that these are all imperfect solutions to a probably intractable problem, Bush’s are the more reasonable. The upward spiral in health care costs will slow only when users are made aware of the cost of meeting their demands for medical services. If the president prevails, consumers will have to face the possibility of dipping into their individual HSAs to pay part of their bills, which just might make them think twice before using a visit to the doctor as part of a day out, as doctors tell me some seniors now do.
Bush scores, too, on the reimportation issue. For one thing, if domestic prices fall to the ceiling set by the Canadian government, some of the research that has developed drugs that shorten hospital stays (saving money) and improve the quality of life will be lost to us. For another, the Canadians have made it clear that they will not permit reimportation to denude their druggists’ shelves of supplies merely to save Americans some money. So Kerry is likely to find that supplies of prescription drugs from Canada are about as available as the French and German troops he is counting on to ride to his rescue in Iraq.
Perhaps the most important factor to consider in deciding which of these men is more likely to try to manage the economy in a sensible fashion is the broad philosophic difference between the Texan president and the Massachusetts senator. Faced with an economic issue, Bush instinctively searches for a solution that maximizes individual responsibility, effort, and reward.
Kerry is in the pre-Clinton mainstream of the Democratic party, left- rather than center-leaning. There is rarely a problem for which he does not see a government solution: higher taxes rather than individual Social Security accounts; government-funded health insurance rather than individual health savings accounts. When Kerry used the debates to thump his chest and repeatedly chant, “I’ve got a plan,” he was telling the truth.
In a better world, a third-party candidate, John Maynard Friedman, might be available to steer the American economy, using just the right mix of intervention and benign neglect. In the real world, it’s Bush or Kerry, with the president–a radical reformer confronting a status-quo challenger–getting the higher grade in applied economic policy.
Irwin M. Stelzer is a contributing editor to The Weekly Standard, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).
