Less government: Sen. John McCain spoke about his economic plans in Cleveland Monday, surrounded by his economic advisors including influential Stanford economist John Taylor (far left). (Brian Snyder/Reuters)
Who advises candidates on economic crisis?
Both pick mainstream experts, but Obama’s are more interventionist.
By Mark Trumbull | Staff writer/ October 30, 2008 edition
Reporter Mark Trumbull talks with CSMonitor.com's Pat Murphy about the economic advisory teams each presidential candidate has assembled.
Barack Obama can boast that he has an eminent former Federal Reserve chairman on speed-dial, no less than the man credited with dousing the flames of 1970s stagflation.
John McCain can point to a worldly-wise finance expert – one whose name is synonymous with an interest-rate formula that helps guide central bankers – at his side.
They are among the key advisers poised to serve as guiding lights to whichever candidate wins the election next Tuesday.
Economic advisers are perennially important to presidential policymaking, but rarely more so than now. Neither candidate has a background in economic policymaking, and the worst US financial crisis since the 1930s has evolved into a global storm.
On Thursday, the challenge was confirmed in a government report that America’s gross domestic product shrank in the third quarter at a 0.3 percent annual rate. More ominously, consumer spending took an unusually sharp dive, even for a recession.
When it comes to building a postcrisis foundation for jobs and growth, any new president will be expected to preside over a significant bolstering and rethinking of financial regulation.
But economists say that Senator McCain and his core economic aides would tilt toward fewer government prescriptions and less government spending.
Senator Obama and his team, by contrast, argue that America’s free-market economy will thrive best with a more visible government hand and with more policies aimed at people with modest incomes – what Obama calls a “bottom up” approach to growth.
A more immediate post-election task, however, is one in which many financial experts expect policy to be driven less by ideology than by financial-market exigency: trying to control the still-unfolding crisis in credit markets. In recent weeks, this has proved to be a daunting task.
“Both campaigns have moved to bring in more experienced hands,” says John Silvia, chief economist at Wachovia Corp. in Charlotte, N.C. “You need to call in people who have … some gray on their temples.”
The roster of advisers for Obama includes former Treasury secretaries from the Clinton administration: Robert Rubin and Lawrence Summers.
In the final presidential debate earlier this month, the Illinois senator also emphasized his ties with a billionaire investment whiz from Nebraska and the man who jacked up Federal Reserve interest rates two decades ago to end 1970s inflation. “Let me tell you who I associate with,” Obama said. “On economic policy, I associate with Warren Buffett and former Fed Chairman Paul Volcker.”
McCain has tapped into the wisdom of people such as John Thain, the head of Merrill Lynch, and John Taylor, a Stanford University economist who developed the influential “Taylor rule” for setting central-bank interest rates at an appropriate level. In the early years of Mr. Bush’s presidency, he also served as undersecretary of Treasury for international affairs.
Such picks are designed both to reassure the voting public and to seek answers to a crisis that has defied solutions for more than a year, says Mr. Silvia, who is on the roster of economists who openly support McCain.
Teams share similarities
“The big difference between the groups [counseling McCain and Obama] is probably not what they do this week or next week,” says Timothy Taylor, managing editor of the Journal of Economic Perspectives (no relation to John Taylor at Stanford).
He says either team is likely to focus on a quest already under way – using federal resources to help the banking system purge bad loans and rebuild reserves to revive normal lending.
“The big difference kicks in a year down the road when we confront the question of how are we going to reform our banking regulations to make sure that this doesn’t happen again,” says Mr. Taylor, the managing editor, who is not advising a campaign.
He says the Republican advisers lean toward mandating more transparency and disclosure by financial firms, “but not necessarily a lot of rules.”
The Democratic advisers, by contrast, are prone to impose tighter limits on the risks that financial firms can take.
The contrast may be one of degree. “Both [candidates] have chosen smart mainstream people” for counsel, Taylor says.
In fact, the two policy teams have some significant similarities. Both include seasoned thinkers from universities or business.
Yet both also rely on young policy experts who are inclined toward the ideological center, and well versed in the ways of Washington despite their relative youth. In the McCain camp, the economic policy portfolio has rested heavily with Doug Holtz-Eakin, who was known as a nonpartisan straight shooter in making fiscal forecasts as head of the Congressional Budget Office.
Obama’s answer to Mr. Holtz-Eakin is Jason Furman, who worked under President Clinton. In recent years, he roiled some liberals by writing a positive assessment of Wal-Mart’s impact on the US economy.
Austan Goolsbee, a University of Chicago economist who has advised Obama from the earliest days of his campaign, also has a centrist orientation.
“If I had to describe [Obama’s] approach to economics, I’d say pragmatic balance,” says Jared Bernstein, who has been consulted by Obama and who works at the liberal Economic Policy Institute in Washington. “He surrounds himself with many different views,” including those of some Republicans such as former Bush Treasury Secretary Paul O’Neill, he says. “My view is that he cherry-picks the very best ideas.”
In discussions about economic growth and income inequality, he says, Obama will want to make progress on both fronts, not one or the other.
Similarly, McCain adviser John Taylor says in an e-mail interview that the Republican candidate actively solicits advice from a range of advisers.
McCain consults prominent academics, such as Harvard University’s Martin Feldstein and Kenneth Rogoff, and business leaders such as eBay’s Meg Whitman.
Different views on regulation
Taylor says the overall philosophy of McCain and his team contrasts sharply with Obama’s on several fronts, most notably taxes. He says Obama’s plan to boost taxes on upper-income Americans, including many job-creating small businesses, is “the exact opposite of a stimulus” for the ailing economy.
One close McCain adviser who has stirred particular controversy is Phil Gramm, a former senator from Texas. A long-time McCain associate, he lost his campaign co-chair role recently after he called America a “nation of whiners” and in a “mental recession.”
“In my view Phil Gramm is largely responsible for this whole mess,” since he was a key proponent of financial deregulation in the 1990s, says Lawrence Mitchell, author of “The Speculation Economy.”
The problem embodied in the thinking of Mr. Gramm and others such as the Fed’s Alan Greenspan, he says, was an ideologically driven view that markets can function without regulation. He worries that such views will persist in a McCain White House.
Obama’s team includes many people who served under President Clinton and signed those very deregulation efforts. But in Mitchell’s view, these advisers do not view regulation through the same lens as Gramm.
Keith Poole, a political scientist at the University of California, San Diego, notes the choice of advisers or campaign positions only goes so far in predicting what the next president will do. And whoever wins, he says, is “going to run into very rough water.”
Comments
3. John Charles Webb | 10.30.08
The President has very little control over the economy. The ultimate controlling power rests with Congress. This scheme, it seems, is by constitutional design.
A McCain presidency would have McCain being a, type of, lame duck from the inaguration because of a Democratic controlled Congress. McCain would only have ‘veto power’ that can be voided by 146 senatorial votes.
With a strong Democratic majority in Congress, McCain would be little more than a figure-head president who could only obstruct any congressional attempts to rectify the current economic crisis.
McCain is ’scrappy’ (belligerent) so it is going to take the smooth hand of President Obama and a Democratic Congress to attempt to regulate and expand U.S. trade in the world. In other words, McCain is writing checks (campaign promises) that he is unable to make good on. McCain has also stated that the economy was not his strong point.
(Quote) “Democratic presidents have consistently higher economic growth and consistently lower unemployment than Republican presidents. If you add in a time lag, you get the same result. If you eliminate the best and worst presidents, you get the same result. If you take a look at other economic indicators, you get the same result. There’s just no way around it: Democratic administrations are better for the economy than Republican administrations.” (end quote)
Source: http://www.washingtonmonthly.com/archives/individual/2005_05/006282.php
In this election, voting for McCain is a form of economic suicide.
.
4. H Nugent | 10.31.08
The article did not discuss the roles that Sen. McCain played in the 1985 S&L crisis, and the 2008 financial crisis. Sen. McCain confessed that he is ignorant about economics. He also believes that financial firms need no regulations. Sen. McCain was one of the Keating-five senators tainted in the 1985 S&L crisis. Keating was jailed, many depositors lost money, taxpayers lost $150 bil to bail out the S&L, and Sen. McCain was reprimanded for violating Senate’s ethics.
25 years later, McCain committed similar error. Sen McCain helped Phil Gramm to push laws to deregulate banks. Gramm was McCain’s chief economic advisor until last month, when he disputed the seriousness of the 2008 financial crisis and called the U.S. a nation of “whiners”. Gramm and McCain’s deregulation of the financial sector helped causing the current economic crisis, costing the U.S. taxpayers more than $700 billion. Gramm’s Commodity Future Modernization Act of 2000 allowed the Credit Default Swap market to go unregulated, a leading cause of the failure of Bears & Stearn and AIG, and the current financial crisis. Sen McCain until recently also supported Pres. Bush’ agenda, and considered Bush economic policy as great success.
5. theemailman | 10.31.08
I have the firm belief that: John S, McCain will appoint Joe the plumber to be the chairman of the Federal Reserve and he will flush the economic crisis down the drain. AND every thing will be all RIGHT. We are doing that now but they are using your and my money to do the same. The fix, you know if you can’t repair it, fix it, in place now is to allow more BORROW and SPEND, what happened to the mantra EARN and SPEND? What are we going to do when the Credit Card Cos. ask for a bail out?
We must teach both the people and the government to live with wast you take in. AND only barrow when it will pay of in the long run. OR, are we too far along that we need to start a new economic plan??
3. John Charles Webb | 10.30.08 is correct but the President MUST have the BEST AND BRIGHTEST working with him like JFK did.
6. Russell Hellein | 10.31.08
I think this reflects the basic reality that despite his attempts to paint himself as differing from Bush, McCain follows the core assumptions that have dominated Republicans since Reagan. That government should largely stay out of private markets and that lower and lower middle income will either grow faster in free markets, or that is not a signficant issue. While that has been the dominant paradigm for decades(including under Clinton), very slow median wage growth in the last decade and the collapse of credit markets has servely undercut it among both the mass public and many experts. As with the thirties and seventies, when the public loses confidence in business, regulations grow and the government becomes more active.
7. John | 10.31.08
Reading these comments on all the websites talking about “McCain is out of touch with the economy” is kind of surprising… Here’s some facts…
John McCain’s warning 05/25/06 about a possible financial crisis -
http://www.govtrack.us/congress/record.xpd?id=109-s20060525-16&bill=s109-190
Franklin Raines which was an advisor to Obama according to this article is part of the reason why the economy is as it is at the moment - http://www.washingtonpost.com/wp-dyn/content/article/2008/07/15/AR2008071502827.html
But, facts are not important now days. It’s all about the smooth talk and promises. No one cares about how a persons voting record shows or who they associated with or lack of experience. I realize who will be elected, it’s kind of obvious, but I don’t understand it a bit. Obama talks about non-partisan politics, yet he’s rated as the most liberal senator due to his partisan votes. WOW!
8. Peter Christiansen | 10.31.08
With all due respect, McCain’s team of “distinquished economists” is distinct for it’s lack of anyone of any real dinstiction as an economist. I presume this is just the best he could do.
9. Jim Campbell | 10.31.08
The economy is bad and may get worse. The jobs situation may possibly continue to deteriorate. Who knows what else looms? Don’t just accept whatever’s thrown your way.
10. Vicki | 10.31.08
McCain did have Phil Gramm as his economic expert and would have given him the job as Treasury Secretary. This is very disturbing considering that we have learned what Gramm and McCain both believe in - deregulation. Republicans have been very vocal for years about regulations being the problem. When you have anyone wanting to take away oversight it should be a red flag.
11. Matt S. | 11.01.08
I like Obama, I’m an Obama Supporter, However he’s not perfect, and I don’t think he’s as anti free market or pro regulation as both camps would like to portray. Robert Rubin, one of his advisors taken from the Clinton Administration is partly to blame for this financial crisis as well, probably more than any other advisor listed. I’m surprised there hasn’t been more reporting on this.
He removed regulation that could have protected against many of these Problems.
“… critics credit Rubin with helping create the conditions for the Financial crisis of 2007–2008, as a result of the policies he pursued as Treasury Secretary. Together with then-Federal Reserve chairman Alan Greenspan, Rubin strongly opposed the regulation of derivatives, when such regulation was proposed by then-head of the Commodity Futures Trading Commission (CFTC), Brooksley Born. Over-exposure to credit derivatives of mortgage-backed securities - or credit default swaps (CDS) was a key reason for the failure of US financial institutions Bear Stearns, Lehman Brothers, Merrill Lynch, American International Group, and Washington Mutual in 2008.
Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, has said in explaining Mr Rubin’s strong opposition to the regulations proposed by Ms Born that Mr. Greenspan and Rubin were “joined at the hip on this.” “They were certainly very fiercely opposed to this and persuaded me that this would cause chaos.” [7]
According to the New York Times, “In November 1999, senior regulators — including Mr. Greenspan and Mr. Rubin — recommended that Congress permanently strip the CFTC of regulatory authority over derivatives.” [8] This advice was accepted and derivatives were kept clear of regulation by the CFTC.
Warren Buffett later called derivatives “financial weapons of mass destruction”, and the lack of regulation of derivatives played a key role in the 2008 financial crisis.
Other competent critics of Rubin’s philosophy and policies include Kevin Phillips.[9][10]”
“…Mr. Rubin joined Citigroup. Of note, the supermerger between Travelers Group and Citicorp was facilitated by the repeal of the Glass Steagall Act (Gramm-Leach-Bliley Act). This legislation was passed under the Clinton administration, days before Rubin’s resignation. Consolidation of investment, commercial banking, and insurance services as practiced by Citigroup under the direction of Rubin, has been implicated in the subprime mortage crisis.”
12. Matt S. | 11.01.08
Robert Rubin, one of Obama’s advisors taken from the Clinton Administration is partly to blame for this financial crisis as well, probably more than any other advisor listed in the article. I’m surprised there hasn’t been more reporting on this.
Rubin removed and prevented regulation that could have protected against many of these Problems. He prevented regulation ofcredit derivatives, or credit default swaps (CDS), morgate backed ones are at the heart of the crisis. Additionally he oversaw the removal of the Glass Steagall Act, a law put in place after the Market Crash of 29 to proctect banking crisis.
http://en.wikipedia.org/wiki/Robert_Rubin has more details.
I’m pro Obama, but he’s not perfect and I doubt he’s as pro regulation and anti free market as either camp would portray him.
13. Cheryl Myers | 11.01.08
Reagan was a Republican and he had left office with a low unemployment rate and a booming economy.
14. Dred Scott | 11.01.08
Jennifer Granholm as an economic adviser???
Check out that vibrant Michigan economy.
15. Matt S. | 11.01.08
I will counter my last argument a little by stating that when the Glass Steagall Act was loosened in ‘87 and ‘99 it was prodominately by replublicans. In ‘87 Volcker now with Obama, then under Reagan, opposed it for the very reasons that have occured today. In ‘97 when Clinton signed a bill to reduce Glass Steagall’s protections, the initial vote was along party lines, with replublicans who controlled the Congress pushing for it. Finally they negotiated a veto proof Bill, that Clinton would have no choice but to sign.
Interestingly, it was Citi Bank That pushed for the removal of the law, in both time periods and Rubin was head of CIti company after he left the Treasury, just before the removal of the the Glass Steagall Act in ‘97.
See below for timeline:
http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html
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1. Roderick St John | 10.30.08
McCain accessorizes himself with former eBay CEO Meg Whitman. He repeatedly mistakenly calls her the “founder” of eBay and - WHITMAN LETS HIM DO IT!.
Whitman is the designer of the ongoing, rapid and complete destruction of the once loved and viable eBay marketplace. Keep her away from Washington and Sacramento. She has caused enough damage.