Flunking Economics

Eugene Robinson
washingtonpost.com
09/19/08

John McCain was telling the truth when he said that economics wasn't his strong suit. In response to what many economists have called the worst financial crisis since the Great Depression, the Republican nominee has sounded — and let's be honest here — totally, embarrassingly and dangerously clueless. His now-famous remark Monday about how "the fundamentals of our economy are strong" would almost by itself be enough to justify my assessment.

But he committed what was probably an even worse gaffe on Tuesday when, as the behemoth insurance company AIG teetered on the brink, McCain took a stand. "I do not believe that the American taxpayer should be on the hook for AIG," he said. "We cannot have the taxpayers bail out AIG or anybody else."

 Within hours, the federal government had bailed out AIG to the tune of $85 billion. Treasury Secretary Henry Paulson and others who know how Wall Street works understood that if AIG were to collapse, much of the financial system might follow. McCain quickly changed his tune, saying the government was "forced" to rescue AIG because of "failed regulation, reckless management and a casino culture on Wall Street." That sounds OK, but wait a minute. If he had any idea of what he was talking about — if he had any inkling of how big AIG is, or how central the company has become — then why on earth would he have taken a stand against a bailout in the first place?

 Doesn't he have economic advisers who could fill him in? Oh, I forgot. McCain's top economic guru, Douglas Holtz-Eakin, was busy explaining to reporters that McCain, as chairman of the Senate Commerce Committee, "helped create" the BlackBerry. The McCain campaign quickly dismissed Holtz-Eakin's remark as a "boneheaded joke," but it was delivered with an awfully convincing deadpan. The blogosphere lit up with comparisons to Al Gore's alleged claim to have invented the Internet. Adding insult to injury, one of McCain's most vocal campaign surrogates — former Hewlett-Packard chief executive Carly Fiorina — volunteered that McCain wasn't qualified to run a major corporation.

 She gave the same assessment of Sarah Palin, Barack Obama and Joe Biden, but the McCain campaign's high command was so piqued that it canceled Fiorina's planned television appearances. In an attempt to get back on message, McCain released new television ads Wednesday on the subject of the economy. "I'll meet this financial crisis head on," he says in one. "I won't tolerate a system that puts you and your family at risk. Your savings, your jobs — I'll keep them safe." In fairness, Obama hasn't come up with a magic bullet to solve the financial crisis, either. There are differences, though.

For one, Obama's proposals for action — a stimulus plan, protection for homeowners in peril of foreclosure, increased regulation — are more specific than McCain's. For another, Obama blames the crisis on "an economic philosophy that sees any regulation at all as unwise and unnecessary." McCain now calls for better regulation, too — after enthusiastically playing a major role in the frenzy of deregulation that helped create this awful mess. In other words, McCain is running against his own record.

To cite one example, McCain backed landmark legislation in 1999 that removed the walls between banks, investment firms and insurance companies. That bill allowed a company like AIG to expand beyond its traditional insurance business — which is still profitable — into exotic new products that ultimately brought the company down.

McCain, who told The Wall Street Journal in March that "I'm always for less regulation," now asks voters to believe he will be a champion of tough, unblinking oversight. He's shocked and outraged that Wall Street's preening Masters of the Universe threw a drunken toga party and smashed all the furniture — but he helped buy the beer and told the cops to look the other way. 

Here's something that really ought to grab everyone's attention: McCain supports George W. Bush's idea of channeling at least some Social Security funds into "personal accounts" that individuals would invest on Wall Street. Some of that money would have been entrusted to firms such as Bear Stearns (failed), Lehman Brothers (failed) and Merrill Lynch (sold at a fire sale). Imagine what this crisis would be like if Americans' Social Security benefits were evaporating along with their housing values and their 401(k) accounts. This is the man who's going to reform the economy? 

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