(Ben) Warning: This post is about 3 times longer than I anticipated. This may be my first and last post ever on the subject of politics because in general I'm not interested in it. But when the Harvard Econ department held a panel discussion about McCain's and Obama's economic policies last Wednesday, I made the oh-so-tough decision to quit studying statistics and attend, and I thought I'd throw a few thoughts up here for anyone who's interested. I'm not trying to advocate a particular candidate here, but rather pass on what a couple of smart economists think about their policies.
There were two discussants, both professors at Harvard: Gregory Mankiw, who specializes in Macroeconomics, and David Cutler, who studies health care. Mankiw was Chairman of the Council of Economic Advisors under George W. Bush and after that was an economic advisor to Mitt Romney during his campaign. Cutler served in the Clinton administration, was an advisor to John Kerry, and is currently an advisor to Obama. Despite the fact that they obviously don't agree on much politically, they didn't argue at all about the policies. In fact, they probably agreed more than they disagreed. Here's what they talked about:
Tax Policy
McCain's Policy: Keep the Bush tax cuts, and reduce corporate taxes.
Obama's Policy: Increase the tax rate for people making over $250K/year, and let Bush's tax cuts expire in 2010.
Mankiw's Take: Nearly all economists agree that cutting corporate taxes stimulates the economy, so cutting these taxes makes a lot of sense right now. In fact, some argue that the optimal corporate tax is 0%; we should tax only people, not businesses. Politically, this is a hard sell, because the public generally hates "big corporations" and therefore loves to tax them. But remember that, in the end, firms don't pay taxes, people do. The more we tax firms, they more they will (a) raise prices, (b) lower wages, (c) lower dividends and/or (d) reduce production. All of these things result in effective taxes on people in the end.
Cutler's Take: Over the past 30 years, the rich have been getting richer and the poor have been getting poorer in the US. So, it makes sense to tax the richest and then use that money to help out the poor (specifically, provide health care). Essentially, this policy is a redistribution of wealth from the haves to the have-nots.
My Take: It isn't clear to me that the government would do a better job of distributing wealth than the market does, so I'm not sold on Obama's plan. While I do think the income disparity is a problem, I don't really think that taxes are the right way to fix it (more on that below!). So for me, McCain wins here. However, I'm undecided about what should happen to the Bush tax cuts.
Energy Policy
There really is very little difference between the candidates on this issue. Both of them are in favor of pursuing alternative energy sources and both recognize that our current situation is untenable. From and economic standpoint, energy policy will be one of the biggest drivers of economic growth over the next 30 years, so this is a big one that we need to get right.
Health Care
McCain's Policy: Give a $5,000 tax rebate to everyone, in place of the tax break that employers get for providing health care for their employees. People could use this money to buy whichever policy they choose.
Obama's Policy: Offer an alternative federal health plan to everyone. This policy wouldn't be mandatory (you could keep your current policy if you like it better), but would provide universal health care even to those who are unemployed.
There were two discussants, both professors at Harvard: Gregory Mankiw, who specializes in Macroeconomics, and David Cutler, who studies health care. Mankiw was Chairman of the Council of Economic Advisors under George W. Bush and after that was an economic advisor to Mitt Romney during his campaign. Cutler served in the Clinton administration, was an advisor to John Kerry, and is currently an advisor to Obama. Despite the fact that they obviously don't agree on much politically, they didn't argue at all about the policies. In fact, they probably agreed more than they disagreed. Here's what they talked about:
Tax Policy
McCain's Policy: Keep the Bush tax cuts, and reduce corporate taxes.
Obama's Policy: Increase the tax rate for people making over $250K/year, and let Bush's tax cuts expire in 2010.
Mankiw's Take: Nearly all economists agree that cutting corporate taxes stimulates the economy, so cutting these taxes makes a lot of sense right now. In fact, some argue that the optimal corporate tax is 0%; we should tax only people, not businesses. Politically, this is a hard sell, because the public generally hates "big corporations" and therefore loves to tax them. But remember that, in the end, firms don't pay taxes, people do. The more we tax firms, they more they will (a) raise prices, (b) lower wages, (c) lower dividends and/or (d) reduce production. All of these things result in effective taxes on people in the end.
Cutler's Take: Over the past 30 years, the rich have been getting richer and the poor have been getting poorer in the US. So, it makes sense to tax the richest and then use that money to help out the poor (specifically, provide health care). Essentially, this policy is a redistribution of wealth from the haves to the have-nots.
My Take: It isn't clear to me that the government would do a better job of distributing wealth than the market does, so I'm not sold on Obama's plan. While I do think the income disparity is a problem, I don't really think that taxes are the right way to fix it (more on that below!). So for me, McCain wins here. However, I'm undecided about what should happen to the Bush tax cuts.
Energy Policy
There really is very little difference between the candidates on this issue. Both of them are in favor of pursuing alternative energy sources and both recognize that our current situation is untenable. From and economic standpoint, energy policy will be one of the biggest drivers of economic growth over the next 30 years, so this is a big one that we need to get right.
Health Care
McCain's Policy: Give a $5,000 tax rebate to everyone, in place of the tax break that employers get for providing health care for their employees. People could use this money to buy whichever policy they choose.
Obama's Policy: Offer an alternative federal health plan to everyone. This policy wouldn't be mandatory (you could keep your current policy if you like it better), but would provide universal health care even to those who are unemployed.
Mankiw's Take: Mankiw didn't say much on this topic; he mostly deferred to Cutler, who is the expert. He did mention, however, that McCain's $5,000 rebate would actually be more of a tax break than folks currently get for health care via their employer. The other point he made was that health insurance is completely different from all other insurance in that it covers everything, instead of just catastrophic events. For example, auto insurance doesn't cover an oil change, but health insurance covers a physical. In his opinion, health insurance should just be for catastrophic events, and we should pay out-of-pocket for small stuff.
Cutler's Take: The most important point he made was that, although we need large reforms in the system, we can't blow it up and then try to put it back together. The system would collapse if we tried to change it too fast. He likes Obama's plan because it involves gradual changes, whereas McCain's would cause huge shifts in insurance plans very quickly. He also argued that a good health care plan will encourage preventative care, since that is much cheaper than fixing problems after they occur. Pure catastrophic health insurance might be a bad idea since it would make people less willing to get a check-up.
My Take: Obama has the better plan, but a mixture of the two would be ideal. It really makes no sense for health care to come through employers, so I'm all for shifting it straight to consumers. But, effecting that shift all at once would be a terrible idea, and it would leave many, many uninsured people who never bothered (or were unable) to find their own plan. If Obama could put together a federal health care option that is efficient (it works well and it's cheap), his plan would be better. That's a big if, but it's better than a sure miss. Also, I think pure catastrophic health insurance is a terrible idea.
Free Trade
McCain: He's for it.
Obama: He's against it.
Mankiw: This is the biggest difference between the candidates. Neither of them talk about it much, but according to the voting record, what I wrote above is basically true. Nearly all economists believe that free trade is a good idea for every nation.
Cutler: In theory free trade is good. It definitely makes society as whole better off. But there are winners and losers. The winners in the US are educated, skilled workers, and the losers have been low-skilled blue collar workers. Hence the growing wedge between the rich and the poor that I mentioned earlier.
My Take: I'm completely pro free trade. I freely admit that there are winners and losers, but there a lot more winners than losers overall. McCain wins on this one.
Education
I've been disappointed that we've heard so little about public education all campaign. Cutler mentioned that education is one of Obama's top priorities, but not much else was said about it during the discussion. If it really is something that Obama would tackle, that alone would give him my vote. An efficient education system is absolutely critical to continued economic growth and stability. Education is the way to help those who lose their jobs to gain the skills to find new ones. Education is what will assure us that productivity continues to grow. Education will ease the income gap. I really feel like fixing the education system would be the single greatest thing the next president could do for the nation.
So there you have it. Share a comment if you made it to the end!
That little rascal!
