The McCain and Obama Economic Advisers Debate

…at the UW-Madison. Ike Brannon spoke on behalf of the McCain-Palin campaign and Austan Goolsbee on behalf of the Obama-Biden campaign. Here’s the link to Proposals for Change (Adobe Flash required).

For me, of greatest interest is the excellent question by Dean Knetter of whether the current financial crisis is to be attributed to too much government intervention (e.g., it’s F&F, CRA, etc.) or insufficient regulation of the appropriate type.

Surprising to me was the response to the question about income inequality. While Goolsbee doesn’t take a stand on how to apportion the causes between trade, technical change and other factors, Brannon attributes greatest importance to technical change.

On the issue of international trade, Goolsbee views the current account deficits as a sign of weaknesses, rather than a problem in and of themselves. In addition, Goolsbee asks if free trade agreements are truly pro-free trade, a question I myself have asked. Brannon was unabashedly in favor of free trade — preferably via multilateral agreements, rather than free trade agreements — but viewed there being little argument for any regulatory impediments. I thought the idea of wage insurance, if properly implemented (I’m not sure how it’d be paid for given the current budgetary conditions) was a good way in which to make an open trading regime sustainable.

I may have mis-characterized some positions, but it’s all online.

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13 thoughts on “The McCain and Obama Economic Advisers Debate

  1. Anonymous

    Ludwig von Mises “Causes of the Economic Crisis”
    All attempts to emerge from the crisis by new interventionist measures are completely misguided. There is only one way out of the crisis: Forgo every attempt to prevent the impact of market prices on production. Give up the pursuit of policies which seek to establish interest rates, wage rates and commodity prices different from those the market indicates. This may contradict the prevailing view. It certainly is not popular. Today all governments and political parties have full confidence in interventionism and it is not likely that they will abandon their program. However, it is perhaps not too optimistic to assume that those governments and parties whose policies have led to this crisis will some day disappear from the stage and make way for men whose economic program leads, not to destruction and chaos, but to economic development and progress.

  2. spencer

    Read David Warsh this week .
    He present a great history that bubbles and crashes appear to be inherent to free market capitalism.
    I take that view and one of the key explanations of long waves analysis is that it is a generational thing that happens when the generation that suffered the last crash retires, the new generation will go right back to the same behavior that caused the last crash.
    The time the 1930s crash was so bad that government regulations were greater than in the past and prevented the next crash long than the historic norm.
    But we started deregulated around 1980s and guess what, the savings and loans crises followed as soon as deregulated allowed them to lend long and borrow short even when the slope of the yield curve was negative.
    This crash is the natural product of allowing financial capitalist to be financial capitalist.
    History presents this lesson time after time.
    Remember, David Warsh’s other point is that main stream economics ignores this history.

  3. Buzzcut

    Another “other factor” that is a huge impact on the lower ends of the wage scale: mass illegal immigration.
    Contrast this to the H1B situation, where H1B visas “sell out” within hours of the first day that they’re offered.
    Increased mmigration of skilled workers (doctors, lawyers, etc.) is not something that we think of to address income inequality.

  4. don

    We certainly have nothing like free trade now. Currency mercantilists have the equivalent of very high tariffs against their imports. Yet, this topic is absent in trade agreements, which instead focus on relatively minor, unimportant trade distortions. The currency mercantilists include Japan – the carry trade would really die if participants had to worry about exchange risk and couldn’t count on intervention in case the yen started to climb seriously (say, to 80 to the dollar).

  5. algernon

    “For me, of greatest interest is the excellent question by Dean Knetter of whether the current financial crisis is to be attributed to too much government intervention (e.g., it’s F&F, CRA, etc.) or insufficient regulation of the appropriate type.”
    The regulation issue is important but not the essence of the credit bubble, which is the heart of the boom-bust phenomenon this time as previously. Certainly numerous financial innovations boosted credit beyond the regulated fractional reserve banking system, outrunning backward looking gov’t regulations. This happens every few generations. But the seed of the credit bubble, its sine qua non, is what was done by those gov’t entities, central banks…prominently our Fed cutting interest rates to 1% to try to assuage the dotcom recession. Asian & petro-state banks added fuel to he fire.
    Sarbannes-Oxley, anti-redlining pressure, the Fed & SEC not being better mothers to banks & brokers–all these things certainly matter, but this crisis would exist without those mistakes.

  6. DickF

    Spencer wrote:
    Read David Warsh this week .
    He present a great history that bubbles and crashes appear to be inherent to free market capitalism.
    I take that view…
    While this may be Warsh’s claim his article and even a cursory study of “bubbles” proves that they are not inherent to the free market but are inherent to government interference with free market discipline.
    Let’s simply look at the first bubble he mentions …the Kipper-und-Wipperzeit debasement…
    Spencer, debasements are not a part of free market economics. Debasements are attempts by monetary authorities to accumulate wealth by preventing free market discipline. If he is arguing that the free market caused this bubble he has defeated his own argument before the debate begins.
    Your statement about crashes being generational is true, but misapplied. Each generation has to relearn the dangers of government intervention with free markets. Each generation has to deal with a new “king” who attempts to increase his wealth through debasement only to drive his subjects to poverty and often revolution.
    The latest credit crisis is a great example of the disaster of government interference with free market discipline creating a bubble followed by a crash. The cedit crisis was actually initiated in 1992 when the Boston FED published a booklet based on a flawed study by Alicia Munnell that led to institutionalizing reduced lending standards.
    The actions of congress under the guise of “affordable housing” accelerated the demise of lending standards as institutions were force to loan to unqualified candidates. But the final blow came when the FED along with Fannie and Freddie accomodated of the real estate orgy. None of this came into being because of the free market, rather each action attempted to thwart the discipline of the free market, discipline that would have prevented this disaster.
    Understand lending standards are driven by self interest. Lending institutions protect themselves from the discipline of the free market by limiting their credit risk. Government institutions, the Boston FED, Fannie and Freddie, and congress itself all attempted to thwart the discipline of the market by assuming the credit risk themselves, freeing the lending institutions from market discipline. The institutions cannot be blamed for following government dictates to maximize their profits.
    But as always happens the accumulated risk was allowed it to grow until the infliction of market discipline could no longer be deferred, and the crash was much more severe and much deeper.
    even now, contrary to what the Bush administration believes, you cannot cure the excesses of government intervention by more government intervention. The free market will discipline no matter how much intervention. Our choice is simply how much pain and suffering we ultimately inflict on ourselves before we are forced to yield.

  7. Rich Berger

    It should be noted that the first time we had massive government we had the longest downturn. Contrary to Spencer’s view that deregulation in the 80’s led to the S&L crisis, it was the increase in FDIC insurance limits that spurred the crisis.
    From what I can gather, the current crisis is directly traceable to subprime mortgages – lending to borrowers who should never have gotten loans. This lending was largely caused by pressure from Democrats and the loose money policy of Easy Al. Of course, Wall Street wizards helped things along with new investment vehicles that masked the risk.
    Why should I trust the government to fix things?

  8. Menzie Chinn

    Rich Berger: As someone who’s taught money and banking for years, I’ve got to suggest that you read any money and banking textbook (Mishkin, or if you prefer, Glenn Hubbard’s text — remcalling Hubbard was GW Bush’s first CEA Chair) to get your history right. Raising insurance limits might have been part of the problem, but regulatory forbearance must bear much, much more of the blame.

    If I recall correctly, the “ownership society” was pushed primarily not by Democrats, but Republicans. I think you should also consult Mark Thoma‘s various compendia on why F&F and CRA are at the heart of the the crisis is fallacious (recalling the key offenders of the subprime crisis were not subject to CRA).

    On this I agree — securitization of loans, in the absence of regulation-of-loan-originators, and the failure to regulate OTC derivatives like CDS’s bear much to blame. Let’s examine who pushed that legislation (in addition to the ever-present Phil Gramm).

  9. Richard A.

    “Surprising to me was the response to the question about income inequality.” “Brannon attributes greatest importance to technical change.”
    Technical change has been occurring in Japan at a faster rate than in the US but yet wage inequality has not been increasing to the same degree.

  10. Rich Berger

    Here’s a concise summary of the causes of the S&L crisis – He agrees with you that raising the limits was not the main cause, but points to non-risk adjusted deposit insurance as a key ingredient.
    You very conveniently sidestep the role that subprime mortgages, pushed by Democrats and the denial of any problems at the FMs by the execrable Barney Frank and his ilk. You claim that failure to regulate CDS bears much of the blame. I see that as a symptom of the larger problem which started with subprime mortgages.
    What burns me is that the Democrats are getting a free pass and that the mendacious Rep Frank and his allies are going to be “fixing” things for us. Given their track record, I fear for our country.

  11. DickF

    Supply side Nobel Laureates oppose Obama Plan:
    Hundreds of Economists Sign Letter Opposing Obama’s Tax Plan
    Hundreds of economists (including Nobel Prize winners Gary Becker, James Buchanan, Robert Mundell, Edward Prescott, and Vernon Smith) have signed letters opposing Barack Obama’s economic and tax plans (here, here, and here):
    We are equally concerned with his proposals to increase tax rates on labor income and investment. His dividend and capital gains tax increases would reduce investment and cut into the savings of millions of Americans. His proposals to increase income and payroll tax rates would discourage the formation and expansion of small businesses and reduce employment and take-home pay, as would his mandates on firms to provide expensive health insurance.
    After hearing such economic criticism of his proposals, Barack Obama has apparently suggested to some people that he might postpone his tax increases, perhaps to 2010. But it is a mistake to think that postponing such tax increases would prevent their harmful effect on the economy today. The prospect of such tax rate increases in 2010 is already a drag on the economy. Businesses considering whether to hire workers today and expand their operations have time horizons longer than a year or two, so the prospect of higher taxes starting in 2009 or 2010 reduces hiring and investment in 2008.

  12. Gilbert Kamiyala (Malawi)

    There is a thread of sense in the need for Obama to go back on the drawing board with his economic advisory team to hint prudently on the tax plan he is selling out. An impending economic crisis of a leading country like US still needs sound fiscal plans skewed towards taxes.
    Biden and friends have to show the world their economic expertism as was the work with Clinton a decade ago.

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