Where Is the Economy Headed? A View From the Presidential Campaigns
Michael J. Boskin and Leo Hindery, Jr.
October 22, 2008
4:30 - 6:00 p.m.
Milken Institute
Worries about the economy have dominated the home stretch of this year's presidential campaign. As voters head to the polls, the Milken Institute hosted a lively debate between Michael J. Boskin, professor of economics at Stanford University and a key adviser to Senator John McCain, and Leo Hindery, Jr., an experienced media executive who is an economic and trade adviser to Senator Barack Obama.
Their discussion produced a few sparks — and revealed two starkly different visions of America's economic future.
Obama's economic plan centers around restoring the "shattered contract with the middle class," said Hindery, who emphasized that income equality now rivals levels last seen in 1928. He listed Obama's priorities: a true manufacturing policy, infrastructure investment, better government oversight, a more measured embrace of free trade and a fair tax system. The nonpartisan Tax Policy Center, he noted, estimates that 95 percent of households and 98 percent of small businesses would see tax reductions under the Obama plan.
Boskin's response was rooted in a deep belief in smaller government. He cautioned against moving toward European levels of taxation, regulation and government spending, which he feels will lower the U.S. standard of living. His prescription called for keeping taxes (including corporate tax rates) relatively low and avoiding regulation that would micromanage the economy. He warned that Obama's plan could lead to a majority of voters collecting more from the government than they pay in taxes, a scenario he described as "an unhealthy political dynamic in a democracy."
Boskin and Hindery repeatedly squared off on the topic of free trade. Boskin charged that Obama was "blazingly protectionist" during the primaries, with "radical and dangerous ideas, like unilaterally tearing up NAFTA, which has worked well." Hindery disputed the success of NAFTA, insisting that it has cost a million U.S. jobs and that Boskin's proposal to simply retrain displaced workers won't work. "You can't retrain your way out of this. It's a head-fake."
Moderator Peter Passell of the Milken Institute asked the speakers to outline how their candidates would jumpstart the economy. Boskin dismissed the last stimulus bill as ineffective; he also cautioned against the large increase in government spending proposed by Congressional Democrats, arguing that infrastructure projects take too long to initiate. Hindery countered that Senator Obama believes that America urgently needs to restore its infrastructure and that targeted projects will create new jobs.
As for intervening in the mortgage markets, Boskin noted that Senator McCain has proposed allocating $300 billion of the $700 bailout plan for refinancing troubled mortgages. He predicted that housing prices will have to continue falling to unwind the effects of the tremendous bubble. "We need damage control for now, but when it’s over, we need to get the government back out," he stated.
Hindery emphasized that the government must address distressed homeowners, not just institutions. He proposed buying mortgages at par from institutions and ending the era of deregulation. While conceding that the government may make mistakes, he insisted that the current predicament is so acute that it demands action.
Boskin warned against taking Obama's approach in this volatile environment. "A crash and a recession were turned into the Great Depression by tax increases, protectionism and bad monetary policy," he observed.
But Hindery remained unmoved. "A continuation of the same tax policies is not going to fix this."
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