Hillary v. Obama: The Economy

Editor's Note: The views expressed in the article below are those of the author and do not necessarily reflect those of EconomyInCrisis.org. The commentary is presented to encourage an open debate on important economic issues and create a more informed electorate during this election year.

As the U.S. slips unquestionably into recession, “the economy” is now the leading issue in the 2008 presidential campaign—at least for Democrats Barack Obama and Hillary Clinton.

Obama and Clinton are proposing a far more activist role domestically in the economy. The symptoms of distress they are citing include loss of manufacturing jobs, income stagnation, high levels of individual and household debt, soaring home foreclosures, and the damage done to the federal budget by the Bush tax cuts for the wealthy.

But while the proposals of the two are similar, Obama goes further in pointing in the direction of the underlying causes of why the economic outlook is so bleak for so many people.

The U.S. economy is failing due to a system-wide collapse of purchasing power among the general public. Three-fourths of the economy is based on consumer spending, but people can no longer afford to buy the amount of consumable goods needed to keep stock prices and employment up—even in an anemic service economy—without constantly digging themselves deeper into debt. This is especially the case as individuals undergo the whammy of declining real income combined with inflation which has been led in recent years by housing and fuel.

The failure of purchasing power is reminiscent of the Great Depression, and it has long been believed that the way to restart a faltering economy is through an expansion of credit. The trouble is that today credit has been maxed out—the cumulative burden of societal debt in the U.S. is enormous.

Clinton’s proposals are to expand the social safety net by a national health insurance system, to impose curbs on predatory lending, encourage business investment, and roll back the Bush tax cuts. Job-creation is also high on Clinton’s list. The trouble is that new jobs which result in more domestically-manufactured products depend on the ability of consumers, either at home or abroad, to buy what is being made.

This is where industry runs into the same old problem. If consumers can only buy through borrowing, the debt burden becomes too great. This is the vicious circle we are locked into today. It differs little from the failed supply-side approach of the Reagan administration in the 1980s. In fact what we are looking at is the long-term failure of that approach. In this respect there has been little significant difference among the economic policies of Reagan, Bush I, Clinton, and Bush II. Clinton II would likely follow the same pattern.

Focusing now on what is different in Obama’s proposals; let’s look at the speech he gave on February 13 at the General Motors assembly plant in Janesville, Wisconsin. In this speech and other policy pronouncements Obama has come out for 1) financial assistance, including tax credits, to homeowners struggling against foreclosure; 2) penalties for mortgage fraud; 3) a permanent middle-class tax cut—not just a one-time rebate—plus tax elimination for any senior citizen making less than $50,000; 3) affordable universal health care; 4) a $4,000 annual tax credit for college tuition and fees; 5) expansion of the child care tax credit and the Family Medical Leave Act; 6) annual increases in the minimum wage; 7) federal matching for mandatory retirement savings over and above Social Security; 8) making it easier for individuals to declare bankruptcy; 9) tax incentives for businesses that create new domestic jobs; 10) investment in green energy; and 11) a new National Infrastructure Reinvestment Bank.

The questions to be asked are: Would it work, and should more be done?

These are the most far-reaching proposals to bolster income for workers, families, students, and seniors, in a generation. They would start to reverse what began in Reagan days, when the legacy of economic democracy left from the New Deal was dismantled and the economy turned over to the deregulated and out-of-control financial magnates of Wall Street and the huge banking conglomerates which dominate the Federal Reserve System.

It would work only if an electorate clamoring for change not only elevates Obama to the White House but gives him a Congress he can work with. Obviously a Congress that continues to be controlled by the Democrats is imperative, but even so, more truly progressive political figures are needed, especially in the Senate.

Obama has not yet won the Democratic nomination or shown how long his coattails would be. But his sudden emergence as the front-runner at least shows that a fundamental political realignment in the U.S. is possible.

Copyright 2008 by Richard C. Cook

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared on numerous websites. His book entitled We Hold These Truths is in preparation. He is also the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age. He can be contacted at his website http://www.richardccook.com/

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