On the Economy Debate, The Gloves Come Off

Monday in Raleigh, North Carolina, Illinois Sen. Barack Obama opened [1] the general election fight, taking the gloves off against the "tired and misguided [economic] philosophy that has dominated Washington for too long," and offering a clear challenge to the Bush-McCain economic misrule. In Washington before the National Federation of Independent Business, McCain counterpunched [2], suggesting the choice was between low taxes and "the largest tax increase since World War II."

This argument will be the big kahuna in this election. Despite ritual boosterism, soothing rhetoric and quiet prayers by Wall Street pundits, the economy is foul and likely to get much worse. We've lost jobs for five months in a row. Gas, food, health care costs are soaring. For workers, the mess is worse than the stagflation of the 1970s. Then, growth was stagnant while prices and wages were spiraling up. Now we've got stagflation squared; growth and wages are stagnant and prices on basics are soaring, while the value of homes, the largest investment Americans have, is plummeting.

Many aren't making it. Home foreclosures are the highest since the great depression. One in six homes in America is worth less than the mortgage. With prices down 14 percent from last year, Americans have seen $2.5 trillion in wealth erased. No wonder credit card debt has soared, and workers are rifling retirement accounts.

President Bush and John McCain say the "fundamentals are strong," so the downturn is a "rough patch." As the president left for Europe, he once more celebrated [3] our "open and flexible" economy, with "some of the deepest and most liquid capital markets" [he's apparently been AWOL the last months], arguing that the "long-term health and strong foundation of our economy will shine through and be reflected in currency values."

Bush and Republicans in Congress have been resisting any new stimulus measures, arguing that the $600 rebate checks going out in the stimulus package are just kicking in, and that things will get better.

Not likely. Gas prices will chew up the rebates — while racking up rising trade deficits. And beginning in July, states and localities will be laying off teachers and police, deferring construction projects as they struggle with rising deficits. And the banks staggered by the collapse of the financial bubble are now about to face the rising credit card, auto loan and mortgage defaults that come with an economic downturn.

Why are we in this mess? Obama put the blame for this directly on the Bush-McCain economic strategy. The current crisis, he argued, wasn't simply "some accident of history," or "an inevitable part of a business cycle." It was the "logical conclusion" of a "worn dogma" that has failed this country.

Obama called for a second, short-term $50 billion stimulus; for aiding homeowners facing foreclosure through no fault of their own; and for extending unemployment benefits for those workers caught in the economic ebb tide. Bush and Congressional Republicans have resisted these measures.

But he also began to contrast his longer-range strategy for rebuilding America to the failed trickle-down, market fundamentalism and fiscal irresponsibility of the past years:

"For eight long years, our president sacrificed investments in health care, and education, and energy, and infrastructure on the altar of tax breaks for big corporations and wealthy CEOs -- trillions of dollars in giveaways that proved neither compassionate nor conservative."

And with McCain pledging to sustain that same course — top end tax cuts and cuts in domestic spending — Obama draws the contrast:

John McCain and I have a fundamentally different vision of where to take the country. Because for all his talk of independence, the centerpiece of his economic plan amounts to a full-throated endorsement of George Bush's policies. He says we've made great progress in our economy these past eight years. He calls himself a fiscal conservative, and on the campaign trail he's a passionate critic of government spending, and yet he has no problem spending hundreds of billions of dollars on tax breaks for big corporations and a permanent occupation of Iraq — policies that have left our children with a mountain of debt.

In contrast, Obama calls for a "bottom-up prosperity," based upon his version of putting people first. He wants to invest in education and training. He'd generate millions of new jobs in a concerted drive for energy independence. He'll create a national investment bank to rebuild and modernize our aging infrastructure, and put people to work. He'll help make college more affordable. He'll offer middle-class families (generously defined as making under $150,000) a tax break, while raising taxes on the wealthy, shutting corporate tax loopholes, imposing an excess profits tax on the oil and gas companies, and using money saved from ending the Iraq war to invest here at home.

McCain scorns this as the old "tax and spend" policies that Americans can't afford, arguing that "Sen. Obama says I'm running for Bush's third term, seems to me he's running for Jimmy Carter's second." (Great line, except the stagflation is already here.) In his speech before the conservative National Federation of Independent Business, he called for not only sustaining the Bush tax cuts which he once opposed, but also adding new cuts (an estimated $300 billion a year) for corporations and the wealthy. He bizarrely emphasized "the estate tax," as "one of the most unfair taxes on the books," presumably because it applies primarily to the wealthiest 2 percent of America's fortunes.

McCain paints himself as the change largely by posing as the sheriff policing wasteful pork-barrel spending, in contrast to the wastrel ways of the Republican Congress and the Bush administration.

His plans earned Obama's scorn: McCain, he said:

is now calling for a new round of tax giveaways that are twice as expensive as the original Bush plan and nearly twice as regressive. His policy will spend nearly $2 trillion on tax breaks for corporations, including $1.2 billion for Exxon alone, a company that just recorded the highest profits in history. ... At a time when we're fighting two wars, when millions of Americans can't afford their medical bills or their tuition bills, when we're paying more than $4 a gallon for gas, the man who rails against government spending wants to spend $1.2 billion on a tax break for Exxon Mobil. That isn't just irresponsible. It's outrageous.

I have a different vision for the future. Instead of spending $12 billion a month to rebuild Iraq, I think it's time we invested in our roads and schools and bridges and started to rebuild America. Instead of handing out giveaways to corporations that don't need them and didn't ask for them, it's time we started giving a hand up to families who are trying pay their medical bills and send their children to college. We can't afford four more years of skewed priorities that give us nothing but record debt — we need change that works for the American people.

In this exchange, McCain is in trouble. Here, as on Iraq, he is arguing for carrying the Bush agenda forward, while three-quarters of Americans think we're on the wrong course. As Obama puts it, "We have tried it their way for eight long years and it has failed. It is time to try something new. It is time for a change."

We haven't witnessed this clear an ideological division since the 1964 Johnson-Goldwater face-off. For those who feared Obama couldn't throw a punch, he showed both a good jab and a decent left hook in pounding McCain on the economy. That's why the Republican posse is likely to scorn sparring about policy and turn this election into an alley fight, taking out the knives around patriotism, pastors and race.