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March 15 / 16, 2008
But Which Advisers Have the Candidates' Ears?
It's Still the Economy, Stupid
By ROBERT POLLIN
"It's the economy, stupid" was the one memorable slogan to have emerged out of Bill
Clinton's successful first run at the presidency in 1992, and it became the overarching
theme of his eight years in office. As the U.S. economy has continued to spiral
downward in the first months of 2008, the economy is again emerging as the single
most important question of the presidential campaign, even eclipsing the Iraq war as a
concern among voters.
What do Barack Obama, Hillary Clinton, and John McCain have to say about our current
reality of financial crisis and recession, and the generation-long stagnation in average
living standards that has preceded the crisis of the moment? There aren't significant
distinctions between Obama and Clinton in terms of their campaign platforms, while
both Democratic contenders share huge differences with McCain. But the most
important question is not where these candidates stand during the campaign; it's what
they would actually do while in office. And this is more a matter of political power-
which social groups can exert pressure within a new administration-than of economic
philosophy.
This point was highlighted in dramatic fashion near the end of the March 4 primary
campaigns in Ohio and Texas when Austan Goolsbe a professor at the University of
Chicago and Obama's chief economic advisor, was reported to have told Canadian
diplomats that Obama was far more sympathetic to free trade measures such as
NAFTA than he was letting on in his campaign speeches. Goolsbe denied saying this.
But the fact is, we can't know what Obama will really do on NAFTA and related
measures until he becomes president, facing a whole range of pressures. These will
include big business continuing to seek free access to Mexico's vast pool of low-wage
workers.
In terms of public platforms, McCain advances an uneasy combination of the two
strands of thinking that have long been dominant among Republicans-Reaganesque
tax cuts that "supply-siders" claim will stimulate economic growth, along with old-
school anti-New Deal positions opposing social spending and supporting a balanced
federal government budget. It should not be surprising that McCain's approach is a
mushy amalgam. McCain openly admitted in late 2007 that "the issue of economics is
not something I've understood as well as I should." This is true, despite the fact that he
has been a member of Congress for 26 years and a two-time presidential candidate.
Obama and Hillary Clinton are increasingly advancing an agenda focused on job
creation, affordable health care, greater equity in the tax code, limits on free trade,
and combining economic growth with environmental protection-so-called "green
growth." These are certainly desirable goals.
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But we must keep in mind that Bill Clinton advanced similar goals in 1992, under his
economic program of "Putting People First." Yet Clinton's economic program changed
drastically even during the two-month interregnum between his November election
and his inauguration in January 1993. During this time, Clinton decided that the first
priority of his administration would be to serve the interests of Wall Street. The Clinton
years were defined by across-the-board reductions in government spending as a share
of the economy's total spending, virtually unqualified enthusiasm for free trade, tepid
and inconsistent efforts to assist working people in labor markets, and the deregulation
of financial markets.
Bill Clinton even conceded during the period before his inauguration that with his new
policy focus, "we help the bond market and we hurt the people who voted us in." Either
Hillary Clinton or Barack Obama could easily fall into this same trap if they aren't faced
with intense pressure from progressive forces to maintain their campaign
commitments. Such a concern was certainly underscored by the reports of Goolsbe's
comments to the Canadians on NAFTA.
We get some insights into the likely economic policy approaches of McCain, Clinton and
Obama-probably more than by reading their respective platforms-by considering whom
they are listening to now, and who would be likely to serve as high-level advisors in a
McCain, Clinton, or Obama White House.
McCain has said he will call on people like Pete Peterson and Jack Kemp. Peterson is a
billionaire Wall Street investor and a former Commerce Secretary under Richard Nixon.
He has long favored cutting deeply into Social Security, Medicare, and other welfare-
state policies as a means of maintaining balanced federal government budgets. Not
surprisingly, Peterson also believes that Wall Street titans like himself should continue
to enjoy lower tax rates than teachers, firefighters, nurses, and waitresses.
Jack Kemp was a congressman during the 1970s and 1980s, and was an original
advocate of deep, across-the-board tax cuts as a tool for stimulating economic growth.
He was thus instrumental in helping define Reaganomics even before Ronald Reagan
took office in 1981. Kemp argues that fiscal deficits are not a serious problem and that
Republicans like Peterson practice "root canal" economics by harping on such matters.
Kemp portrays himself as a populist who wants to unshackle the entrepreneurial
energies of the American people by lifting their tax burdens. But the Reagan tax cuts,
like those under George W. Bush, heavily favored the wealthy. These tax cuts therefore
meant more money in the pockets of the rich, with less government revenue to spend
on social programs. This created pressures for cuts in social spending. Here is where
the Peterson and Kemp politics converge. In both cases, we almost certainly end up
with major attacks on social spending, whether the federal budget is in balance or
running a deficit.
The economic policy debate should therefore be wide open for either Hillary Clinton or
Obama to push hard on an egalitarian agenda focused on jobs, tax fairness, affordable
health care, financial regulation, and green growth. At the same time, Obama has said
that the people he will want to listen to on economic policy, beyond Goolsbe, include
Robert Rubin, Alan Blinder, and Robert Reich. All of them were major economic
advisors to Bill Clinton and they are all likely to be recycled by Hillary Clinton.
Rubin, in particular, was Bill Clinton's closest economic advisor as well as Treasury
Secretary for four years. And it was Rubin who, even before Clinton's first inauguration,
explained to the more populist camp within the newly forming administration that the
rich "are running the economy and make the decisions about the economy."
Under a Hillary Clinton or Obama administration, there will almost certainly be a replay
of this struggle between Wall Street Rubinites and the working class and middle class
people who will have voted a Democrat into office.
Under Bill Clinton, working people and the middle class lost out to Wall Street. But I
think the chances are higher for a major shift in direction under a new Democratic
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administration, particularly one under Obama. My hunch on Obama-and it is only a
hunch-follows from how he stacks up as a political figure, compared to Hillary Clinton.
Obama is obviously not bound up with the history of Clintonomics. His campaign also
emerged as a widespread popular movement that has energized a new generation of
voters.
But more important than hunches by me or anyone else is the economic reality before
us-that conditions for all but the wealthy have stagnated for a generation, under
Reagan, Clinton, and the two Bushes; and that in the short term, we are staring a
recession and ongoing financial crisis in the face. The pressures for a viable
progressive agenda focused on financial stability, a jobs stimulus, universal health
care, and green growth have correspondingly grown. Neither Clinton nor Obama can
avoid this reality.
After all, Robert Rubin himself, who has been a director and chair of the executive
committee of Citigroup since leaving the Clinton administration in 1999, has been
humbled by the massive losses at Citigroup tied to the subprime mortgage crisis. Alan
Blinder, who was on Bill Clinton's Council of Economic Advisors when the Clinton
administration rammed NAFTA through Congress, is now expressing serious concerns
about the effects of globalization on middle class living standards.
In short, a new Democratic administration may well offer possibilities for a dramatic
shift in U.S. economic policy, even if some of the same old Bill Clinton crowd is brought
back in as advisors. But if such a major policy shift does occur, it will not be primarily
because a Democrat-either Hillary Clinton or Obama-will be sitting in the White House.
It will rather be because the people who put one of them there will have gathered
sufficient political strength to make them stick to their campaign promises.
Robert Pollin is professor of economic and founding co-director of the Political
Economy Research Institute at the University of Massachuesetts-Amherst. His
groundbreaking book, Contours of Descent: US Economic Fractures and the Landscape
of Global Austerity, has just be released in paperback by Verso with a new afterward.
