Candidates' Economic Plans Don't Add Up

Some Economists Find Presidential Contenders' Economic Policies Lacking


March 27, 2008 —

Between the housing crisis, the plummeting dollar and the credit crunch, Americans may be going to the polls in the fall with their money on their minds.

The presidential candidates talk a great deal about the economy yet none of the candidates have been able to gain the upper hand on the issue, and some economists find their economic proposals lacking.

"I don't think any of the three candidates have come up with anything that comes close to matching the size of the problems we're facing," said economist Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington, D.C.

"We have an unprecedented housing meltdown that is spilling over into the financial sector and I'm not sure any of the three candidates really appreciates the enormity of this problem," Baker said.

"We are facing the most traumatic economic crisis that we have faced since 1929, " said Peter Morici, business professor at the University of Maryland. "None of the three candidates are addressing the tough trade and banking problems the country faces."

Obama to Deliver Economic Speech

Hoping to change that today, Democratic candidate Sen. Barack Obama delivered an economic speech at New York's Cooper Union for the Advancement of Science and Art. New York Mayor Michael Bloomberg is expected to introduce him. He called for immediate relief for homeowners hit by the housing crisis, modernization of the regulatory framework, and an additional $30 billion stimulus package.

"Under Republican and Democratic Administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices," Obama said. "We let the special interests put their thumbs on the economic scales. The result has been a distorted market that creates bubbles instead of steady, sustainable growth; a market that favors Wall Street over Main Street, but ends up hurting both."

Presumptive Republican nominee Sen. McCain's touted his "major" economic speech Monday and Democratic Sen. Hillary Clinton also touted her economic plan Thursday, unveiling a $2.5 billion dollar proposal yearly job training program.

But none of the candidates appear to be on course to matching the 1992 political success then-candidate Bill Clinton enjoyed with his effective campaign motto: "It's the Economy, Stupid."

"They're not explaining their economic plans in a compelling and thematic way that gives people confidence that they'd be the best person to deal with the big problems that the country faces," said Mark Halperin, ABC News political analyst, writer and author of "The Way to Win: Taking the White House in 2008."

"Bill Clinton was the master at this," he said, "It was connecting up his life story, the place America was at the time, along with an explanation of how the government was going to meet the challenges the country faced."

Voters Undecided About Who Would Best Manage Economy

Halperin said none of the candidates have so far convinced voters they truly feel their pain in a time when some say the United States is on the verge of a new Great Depression.

Voters were split between Clinton and Obama when asked which candidate would be better able to improve the economy, according to a Newsweek poll this month. In a new Wall Street Journal-NBC poll this week, Clinton held a narrow lead.

Voters have cited the economy as their top issue in every Democratic contest so far, except the Iowa caucuses, where it tied with Iraq as the top issue.

Housing Crisis

In an effort to gain the upper hand on the issue, both Democratic candidates have announced plans to combat the subprime mortgage crisis that has led many homeowners into foreclosure.

Clinton and Obama have blasted McCain for arguing against widespread government intervention in dealing with the home mortgage and foreclosure crisis.

McCain said Wednesday his differences with Obama's plan are a "classic contrast between a far left, liberal Democrat and a conservative Republican."

"Sen. Obama believes that the government should do everything, I believe that the government should do as little as possible," he said Wednesday.

Obama has proposed a $10 billion fund to help lenders rework existing subprime loans into 30-year, fixed loans and crack down on mortgage fraud and predatory lenders.

Clinton has proposed a $30 billion emergency fund to help states combat home foreclosures as they see fit. She has called for a 90-day halt on subprime foreclosures and a five-year freeze on subprime interest rates.

"In March of last year she was out saying that this was a much more serious problem that was going to have greater spillover effects and calling for very specific policies including modernizing the Federal Housing Administration, including a foreclosure timeout, including measures to deal with predatory lending," Clinton's economic adviser Gene Sperling told ABC News. "She was ahead of the curve."

'Too Late to Be Effective'

However some economists argued Clinton's moratorium on home foreclosures would come too late to be effective, and said none of the candidates have a concrete plan to fix the banking system and the regulatory regime.

"In order to understand Obama's economic policies, you have to be a mystic," said Morici.

"There's a lot of beef in Clinton's policies but she wants to take us back to the '70s -- free medical care, tax the big corporations," Morici said. "If you add up what all her proposals are going to cost, it's just not possible."

So far, Clinton, a self-described policy wonk, has the most detailed economic plan, including proposals for universal health care, a universal 401(k), health- and child-care credits, green jobs, college tax credits and increased paid family leave by 2012.

"Our goal was to show that we could have a progressive agenda for American working families while moving back towards balance," Sperling told ABC News.

McCain to Unveil Economic Plan

A senior adviser to McCain said the presumptive Republican nominee will roll out more details about his economic policy over the next two months with a series of speeches on economics, education, environment and energy.

"Sen. McCain's basic approach is to have a reliance on the capacities of American workers and firms and small businesses to make sure the government remains relatively small," McCain's senior domestic and economic policy adviser Douglas Holtz-Eakin told ABC News.

McCain has acknowledged in the past that he knows more about foreign policy and national security than economics. Both Democratic candidates have blasted McCain for quipping that economics is not his strong suit.

"He has this wonderful self-deprecating sense of humor and out of his months comes things sometimes like ' yeah, I'm not that good on the economy' in an effort to make a small joke," Holtz-Eakin said, noting McCain has been the chair of the Senate commerce committee, and ran the largest squadron in the Navy.

Holtz-Eakin said McCain's policy will be focused on reining in congressional spending, forging trade agreements, reforming job training programs for blue-collar workers and advocating the expansion of the No Child Left Behind Act to allow parents to "take their money with them" to shop around for schools.

"Sen. McCain wants to make sure that every parent can take their child to a successful school, take the money with them and use accountability, transparency and choice as the foundation for competition, so that the child gets the education they deserve," Holtz-Eakin said.

Despite initially voting against Bush tax cuts, McCain wants to make the tax cuts permanent, give additional tax cuts to corporations and eliminate the alternative minimum tax.

"He's saying he's going to do pretty much what President Bush has done," Baker said. "I don't think that kind of head-in-the-sand approach to follow the policy of tax cuts and sort of hope for the best, that has not turned out very well."

Both Democratic candidates would roll back the Bush tax cuts for families making more than $250,000. Obama would use that tax revenue money to give low- and middle-class families a $1,000 tax cut. Clinton would offer new child-care and health tax credits.

Both Democratic candidates have suggested they would renegotiate the North American Free Trade Agreement to add environmental and labor protections.

"We're getting a lot of anti-free free talk from the Democratic candidates yet the policy positions of all of the candidates do suggest that they're probably all pro-free trade," said Michael Englund, chief economist with Action Economics, a consulting firm.

"It's not NAFTA that's the problem, it's the trade deficit with China and that's not something any of the candidates have concrete plans on," said Morici, the University of Maryland business professor.

The candidates have been criticized for not having a plan to deal with the $9.3 trillion-plus national debt.

"Not one of the major candidates for president has a plausible plan for stopping much less reversing it," said Robert E. Wright, business professor at New York University and author of new book "One Nation Under Debt," this month in a Los Angeles Times Op-Ed.

Economists say that while none of the candidates advocate a balanced budget, the Democratic candidates have gone much further than the Bush administration in offsetting spending proposals.

"You go through each and every proposal she's had and we put forward how we're going to pay for it with more specificity than Barack Obama and dramatically more than John McCain," Sperling said.

"When they announce a new plan they announce a way to pay for it," agreed Jason Furman, a director of the Hamilton Project at the Brookings Institution who has advised both Democratic presidential candidates.

But, Furman said, neither Clinton nor Obama have a plan to combat the deficit.

"Unless there are changes in their positions, whomever becomes president will preside over a period of economic malaise," Morici said.

With files from ABC News' Sunlen Miller and Bret Hovell.