Betting on John McCain – An Economist’s Perspective

From The Atlantic: Dispatch September 18, 2008

An economist explains why he thinks McCain’s economic policies make more sense

by Steven Landsburg

Betting on John McCain

 

My whole life I’ve been mystified by the concept of the “undecided voter.”  I’ve never had any problem choosing my candidates and didn’t see how anyone else could either. But this year, I’ve been genuinely on the fence, partly because I haven’t been paying close attention, and partly because there seemed ample reason to dislike all of the options.

But over the past few days, as McCain and Obama have ratcheted up their rhetoric over each others’ “disastrous” economic policies, I decided to do a little research.  Along the way, I had a few surprises about John McCain’s voting record, some but not all of them pleasant.  Now I don’t think I’m undecided anymore.

Here are some of the things that made my decision easy, and some that made it hard:

1. Free trade and immigration are my top issues, and McCain wins on both.

These are my top issues for several reasons. First, trade is the engine of prosperity not just for the United States but also for the poorest of the world’s poor. Nothing matters more than that. Second, the instinct to care about the national origin of your trading partner (or employer, or employee, or landlord, or tenant) is an ugly one, and the instinct to care about the national origin of other people’s trading partners—and on that basis to interfere forcibly with other people’s voluntary transactions—is even uglier.

Finally, protectionism, like creationism, requires an extraordinary level of willful ignorance. The consensus for free trade among economists is approximately as solid as the consensus for evolution among biologists, and it is a consensus supported by a solid body of both theory and observation. To ignore that consensus betrays a degree of anti-intellectualism that frightens me.

McCain is quite good on this issue, not just in terms of rhetoric (which I’ve known for a while) but in terms of voting record (which I’ve just recently researched). Obama, by contrast, promises to be our first explicitly protectionist president since Herbert Hoover. Some intervening presidents (Reagan, Bush I, and to a lesser extent Bush II) have been weak in their commitments to free trade, but none between Hoover and Obama has so explicitly rejected it.

2. McCain is not Bush. This came as a surprise to me. I’d been assuming, in my ill-read, uneducated way, that McCain had been complicit in most of the great travesties of the Bush administration and the execrable Republican Senate. I’ve learned that’s largely untrue. He voted (to my great surprise!) against the prescription drug entitlement, against the Farm Security Bill, against milk subsidies, against Amtrak subsidies, and against highway subsidies.

Obama, by contrast, is in many ways a continuation of Bush. Like Bush (only far more so), Obama is fine with tariffs and subsidies. Like Bush, he wants to send jackbooted thugs into every meatpacking plant in America to rid the American workplace of anyone who happens to have been born on the wrong side of an imaginary line. Like Bush, he wants a more progressive tax code. (It is one of the great myths of 21st century that the Bush tax cuts made the tax code less progressive; the opposite is true. If you are in the bottom 38% of taxpayers, you now pay zero income tax—and therefore have an incentive to support any spending bill that comes down the pike.) Like Bush, he wants more regulation, not less.

3. But there’s a lot about economics that McCain just doesn’t get. This shows up most significantly in his energy policies. Every economist knows that the best way to discourage carbon emissions (or anything else for that matter) is to tax them. But McCain rejects a carbon tax in favor of one slightly inferior policy (cap and trade) and one grossly inferior policy (direct regulation, such as the CAFE standards for fuel efficiency).

In a world of perfect capital markets and perfect information, a cap-and-trade system (provided the government auctions off the permits rather than giving them away) is exactly equivalent to a carbon tax – same effect on everything down to and including the prices of consumer goods. In the real world we live in, it’s inferior for two reasons: First, small firms might find it difficult to raise the necessary capital to buy a permit; this gives an inappropriate advantage to big firms over small ones. Second, I believe it will be harder (for technical reasons I won’t go into here) to calculate the efficient number of cap-and-trade permits than to calculate the efficient per-ton carbon tax. Aside from that, the two policies are equivalent in every way. McCain presumably doesn’t get this, or he wouldn’t have such a strong preference for cap-and-trade.

Worse, he endorses the CAFE standards, which are just a terrible way to control carbon emissions. While a carbon tax gets incentives right at every decision point, fuel efficiency standards give people no incentive, for example, to bike to work instead of drive (in fact, they flip the incentive in the wrong direction). Worse yet, they concentrate brainpower on improving fuel efficiency when there might be far more effective ways to control carbon emissions; with a tax, all innovations are rewarded.

In his support of CAFE standards over carbon taxes, McCain betrays a serious failure to understand how incentives work. The same problem shows up when he thinks you can simply mandate campaign finance limits, as if people who are competing for control of a $15 trillion economy won’t be creative enough to find some way to spend hundreds of millions in the effort, no matter how you write your laws.

4. McCain gets health care right. The reason poor Americans get too little health care is that rich Americans get too much. The reason rich Americans get too much is that they’re overinsured, and therefore run to the doctor for minor problems. The reason they’re overinsured is that employer-provided health benefits aren’t taxed, so employers overprovide them.

It has been clear for decades that the single most effective way to control health care costs is to eliminate the tax break for employer-provided health care. According to one careful study by my colleague Charles Phelps (admittedly several years old, but I’m not sure anything relevant has changed), this single reform could reduce health care costs by 40% with essentially no effect on health care outcomes.

Essential as this reform may be, I’d always assumed it was a political non-starter. I was therefore astonished to learn that it’s the essence of McCain’s health care reform. (At the same time, he would give each individual $2500, and each family $5000, to use for health care.)

I am astonished that I hadn’t heard about this, and particularly astonished that Barack Obama hasn’t thrust it in my face with a negative spin. Possibly he has and I just wasn’t paying attention.  In any case, this is just what the doctor ordered, and I am delighted that McCain has put it on the table.

Obama, by contrast, wants poor people to get more medical care without addressing the problem of overuse by rich people. Where is that extra medical care going to come from? If the answer is “nowhere,” then a primary effect of the Obama plan must be to raise prices, making doctors and hospitals the big beneficiaries.

Of course, there are other things that matter. Foreign and defense policy might matter more than anything, and if I were sure that one or the other candidate were far wiser about these issues, that might be enough to win my vote. But I have no expertise on these matters and no particular reason to trust my own judgment.

I’m sure I’m right about trade and pretty sure I’m right about taxes and health care, but that’s because I’ve thought long and hard about these issues for decades. It seems to me that we ought to be humble about the things we haven’t thought hard about, and for me that includes foreign policy. The best I can do is bet that whoever’s getting most of the other stuff right is getting this right too.

The bottom line is that I support John McCain. With trepidation.

The URL for this page is http://www.theatlantic.com/doc/200809u/mccain-economics.

 

Foreign Policy: Restoring and Replenishing the World’s Faith in our Nation and our Principles

Here’s a lengthy and excellent article in Foreign Affairs by Senator McCain on his foreign policy philosophy: a philosophy forged by years spent living with its consequences–in a North Vietnamese prison camp–and years spent crafting it in the Senate–currently the ranking member of the Senate Armed Services Committee.  No major candidate, certainly no GOP candidate, has Senator McCain’s experience, credentials or vision in foreign policy.

Here’s a taste of the article:

“Now it is this generation’s turn to restore and replenish the world’s faith in our nation and our principles. President Harry Truman once said of America, “God has created us and brought us to our present position of power and strength for some great purpose.” In his time, that great purpose was to erect the structures of peace and prosperity that provided safe passage through the Cold War. In the face of new dangers and opportunities, our next president will have a mandate to build an enduring global peace on the foundations of freedom, security, opportunity, prosperity, and hope.

America needs a president who can revitalize our country’s purpose and standing in the world, defeat terrorist adversaries who threaten liberty at home and abroad, and build enduring peace. There is an enormous amount to do. Our wars in Iraq and Afghanistan have been costly in blood and treasure and in other less tangible ways as well. Our next president will need to rally nations across the world around common causes as only America can. There will be no time for on-the-job training. Given the present dangers, our country cannot afford the kind of malaise, drift, and fecklessness that followed the Vietnam War. The next president must be prepared to lead America and the world to victory — and to seize the opportunities afforded by the unprecedented liberty and prosperity in the world today to build a peace that will last a century.”

You can find the whole article here.

It is refreshing to hear a candidate concentrate on the importance of our alliances and how vital it is that the US restore our standing as the leader of the free world.

 

A Man of Character

New York Times conservative columnist David Brooks busts out some extremely flattering words for the Senator.

From the November 13, 2007 edition:

The Character Factor

“About six months ago, I was having lunch with a political consultant and we were having a smart-alecky conversation about the presidential race. All of sudden, my friend interrupted the flow of gossip and said: “You know, there’s really only one great man running for president this year, and that’s McCain.”

The comment cut through the way we pundits normally talk about presidential candidates. We tend to view them like products and base our verdicts on their market share at the moment. We don’t so much evaluate their character; we analyze how effectively they are manipulating their image to appeal to voters, and in this way we buy into the artificiality of modern campaigning.

My friend’s remark pierced all that, and it had the added weight of truth.

Eight years ago, it was fashionable for us media types to wax rapturously about McCain. That vogue has passed, but I’m afraid my views are unchanged. I have seen McCain when his campaign was imploding, and now again when he’s rising in the polls. I have seen him shooting craps and negotiating in the Senate. I have seen him leading delegations like a statesman and bickering with his old Hanoi Hilton prison-mate Bud Day like a crotchety old lady.

And I can tell you there is nobody in politics remotely like him.

The first thing that still strikes one about McCain is his energy. In his book, “The Nightingale’s Song,” Robert Timberg runs through primal force metaphors to describe the young McCain. “Being on liberty with John McCain was like being in a train wreck,” Timberg wrote.

Prison in Vietnam gave him self-respect and a cause greater than himself, but it didn’t diminish his dynamism. His office in the Senate isn’t tucked away in a tranquil corner of his suite; it’s right in the vortex, and it’s always empty because he’s walking around. Campaigning last weekend in New Hampshire, he was his old restless self, never alone, craving contact, conversation and fun.

Timberg wrote that McCain fought against the system at the Naval Academy as if it were some hostile organism, “as if any compromise meant surrendering a part of himself that he might never retrieve.”

The years and the Senate have smoothed some of his rebelliousness, but he still fights a daily battle against the soul-destroying forms of modern politics.

If you cover him for a day, you’d better bring 2,500 questions because in the hours he spends with journalists, you will run through all of them. Last Saturday, we talked about Pervez Musharraf’s asceticism and Ted Williams’s hitting philosophy, the Korean War and Hispanic voting patterns.

He analyzed the debates he won and the times he was wooden. He talked about his failures as a fund-raiser and said he’d like to pick a running mate with formal economics training because he’s weak in that area. He won’t tell you everything, but there will never be a moment as the hours stretch by when you feel that he is spinning you, lying to himself or insulting your intelligence.

Telling the truth is a skill. Those who don’t do it habitually lose the ability, but McCain is well-practiced and has the capacity to face unpleasant truths. While other conservatives failed to see how corporations were insinuating themselves into their movement, McCain went after Boeing contracts. While others failed to see the rising tide of corruption around them, McCain led the charge against Jack Abramoff. While others ignored the spending binge, McCain was among the fiscal hawks.

There have been occasions when McCain compromised his principles for political gain, but he was so bad at it that it always backfired. More often, he is driven by an ancient sense of honor, which is different from fame and consists of the desire to be worthy of the esteem of posterity.

Other Republicans used to accuse him of kissing up to the news media. But when the Iraq war was at its worst, and other candidates were hiding in the grass waiting to see how things would turn out, McCain championed the surge, which the major Republican candidates now celebrate.

He did it knowing that it would cost him his media-darling status and probably the presidency. But for years he had hated the way the war was being fought. And when the opportunity to change it came, the only honorable course was to try.

And now he pushes ahead, building momentum, but desperately needing a miracle win in New Hampshire. Everyone will make their own political choices, and you might plausibly argue that the qualities John McCain possesses are not the ones the country now requires. But character is destiny, and you will never persuade me that he is not among the finest of men.

That human point seemed worth remembering, even amid the layers of campaign pretense.”

 

Prisoner of War

I don’t want to belabor this point as I think it cheapens his sacrifice for our country, but Sen. McCain, who was a naval aviator in the Vietnam War, was shot down on his 23rd bombing mission and captured by the North Vietnamese.  His five and a half years of beatings and deprivation (much of it spent in the “Hanoi Hilton”) left him unable to raise his arms above his head.  After being released, he sought reinstatement of his flight status and served as the commanding officer of a training squadron.

I make this a specific post (and an early one) to get it out there on the table.  By no means as important as legislative service, platform or judgement, it is an important demonstration of the Senator’s understanding of service to the country.  I believe it also prepared him well for the current debate over the military and intelligence communities’ use of torture.

I was amazed during Bob Dole’s 1996 run for the presidency that most people did not know he was severely wounded in World War II; he was not expected to walk again.  Indeed, not only did most people not know where his condition originated, his inability to use his right hand and arm were frequently spoofed.  While this may have been at the request of the very private senator, it was a significant misstep of his campaign.

There is a nice summary of the Senator’s experience on the campaign site and a link to a 20-minute video.

P.S. for you history/military buffs, Senator McCain was also on the USS Forrestall during its disasterous ordinance explosion and fire, the worst carrier disaster since WWII.  Indeed, it was his A-4 Skyhawk that was struck by an accidentially-fired missile and exploded, I believe with him standing nearby.  Sheesh.

 

Welcome to my blog!

Yes, I have finally taken the plunge and have a blog, albeit one focused just on the 2008 presidential race.  So, please explore the site and I hope you will join me in supporting John McCain for president.  If not, please follow the links to learn about the other candidates.  This election may be the most important in the last half-century, please get informed and get involved.  Your country and future generations are counting on you!