Economist: Obamanomics

Dr Obama's patent economic medicine

[rquoter]Is Barack Obama a populist, or just pretending to be one?

BUILD a better mousetrap and the world will beat a path to your door. The chap building inferior mousetraps, however, will go bust. Many people want the benefits of technology and trade without the disruption. Politicians often feed this delusion. Barack Obama is no exception.

He is not against technology, of course. That would sound stupid. Nor is he against Americans trading with other Americans. Nor, even, does he oppose trade with foreigners. But he has found an artful way of signalling to those who do that he agrees with them: he denounces NAFTA (the North American Free-Trade Agreement).

To many ears, this sounds like shorthand for denouncing globalisation—though that is not what Mr Obama actually says. More important, because NAFTA was signed by Bill Clinton, Mr Obama can blame his wife for it.

He does so in a reassuring tone of voice but in hysterical terms. During a debate this week in Ohio, where Mr Obama was wooing working-class whites before the state's primary on March 4th, he spoke of “entire cities that have been devastated as a consequence of trade agreements that were not adequately structured to make sure that US workers had a fair deal.” To workers in a cold warehouse, he claimed that NAFTA has destroyed 1m American jobs, “including nearly 50,000 jobs here in Ohio”. As president, he vowed, he will not “stand idly by while workers watch their jobs get shipped overseas.”

Mrs Clinton finds this hard to parry. During the debate, she said she had been “a critic of NAFTA from the very beginning” but didn't say anything publicly out of loyalty to her husband's administration. No one believes this, not least because she publicly praised the deal several times. Mrs Clinton now says NAFTA was bad for America, that she always thought so and that Mr Obama is lying when he suggests otherwise. “Shame on you, Barack Obama,” she added.

Mrs Clinton was right in the 1990s and is wrong now. Trade hurts some people, but helps many more. It raises overall income and allows Americans to buy a wider range of better goods more cheaply. And NAFTA has helped make Mexico less poor, which has contributed to its stability and democracy—something that should matter to Americans.

Mr Obama understands economics better than he lets on. In his book “The Audacity of Hope”, he recognises that a tariff on imported steel may provide temporary relief to American steelmakers, but it will also make every American manufacturer that uses steel, from carmakers to housebuilders, less competitive. When put on the spot and asked whether he would repeal NAFTA, he says that would cause more job losses than gains.

So what would he do? Like Mrs Clinton (who calls for a “time-out” on trade deals, whatever that may mean), he is maddeningly vague. He would use the threat of pulling out of NAFTA, he says, to force Mexico and Canada to renegotiate. This is alarming them (see article) and raises wider worries about America's reliability as a trading partner. In all trade deals, he would demand tougher labour, environmental and safety standards. Whether this means small tweaks or the wholesale shutting out of imports remains to be seen.

Optimists shrug that politicians always talk populist claptrap during primaries and that Mr Obama has actually committed himself to very little. Pessimists reply that his eloquence encourages protectionist sentiment. Polls show that a majority of Americans believe that more foreign trade hurts American workers. One reason why they believe this is that politicians such as Mr Obama keep telling them that free trade means sending American jobs to China and getting toxic toys in return.



At best, it is hard now to imagine a President Obama using his golden tongue to revive global trade talks and push them forward. More likely, during the general election he will out-argue John McCain, a stout but not especially articulate free-trader, and nudge global opinion in a depressingly protectionist direction.

Mr Obama's other economic policies defy easy categorisation. His chief economic adviser, a respected young academic called Austan Goolsbee of the University of Chicago, is sensible and pragmatic. His plan to save millions of people from struggling to fill out their tax returns is a gem. Anyone who earns only a salary and bank interest, both of which are automatically reported to the taxman, will be sent a tax return that has already been filled in, which they can accept or reject. At a stroke, countless headaches would be averted. Mr Obama's health-care plan is more gradualist than Mrs Clinton's and may be more realistic (see article).

Influenced by Mr Goolsbee, Mr Obama offers a more measured response to the housing crisis than Mrs Clinton does. She would freeze interest rates on subprime mortgages for five years, which would hike rates for everyone else, accelerate the collapse of house prices and deter banks from lending to the impecunious. Mr Obama is content merely to set up a $10 billion fund to help homeowners avoid foreclosure, and to subsidise mortgage-interest payments for those who miss out on the existing tax break because they do not itemise their interest payments.

Mr Obama seems to approach economic questions with a keen intellect, an open mind and an aversion to radicalism. But he sometimes lets politics trump good sense. Last year, hoping for the support of Tom Harkin, a senator from the early-voting state of Iowa, he co-sponsored the Fair Pay Act, which would have obliged firms to pay men and women the same wages, not for the same work, but for work the government deemed “equivalent”. That bill failed but Mr Obama supports an almost equally bad one, the Patriot Employers Act, which would reward American companies for not expanding overseas.

Another concern, often raised by Republicans, is that Mr Obama would raise taxes. Mr Obama retorts that he would cut taxes for the middle class, and that he would pay for his health, infrastructure and other programmes partly by pulling American troops out of Iraq and partly by increasing taxes on the rich. Sceptics doubt that pulling out of Iraq will be easy, however. And they fret that Mr Obama's tax hikes for the rich, who already pay nearly all the income taxes in America, would have to be so high that the economy would suffer. By letting the Bush tax cuts expire, Mr Obama would hike the top rate of income tax from 35% to 39.6%. If he were to let the payroll tax apply to high incomes, too, he would add another 12.4%, split between employee and employer. Add state and local taxes, which are over 10% in New York City, and marginal tax rates for the well-off would be steep indeed.
[/rquoter]

 

ask the economist editors- they put it in.

 

and it's particularly interesting that his supporters are so quick to excuse this type of pandering, when they'd excoriate Bush, Clinton, or McCain for doing exactly the same thing.

 

reposted for effect:

by any means necessary, n'est ce pas?