7 Days: Is The Election Over, Economically Speaking? w/ Bernstein, Huffington, Reagan & Green

06/15/2008 10:02 pm ET | Updated May 25, 2011

Forget the relative skills, races, proposals and funds of Obama and McCain. Does an awful economy doom the nominee of the party in power, short of a calamity for the challenger? Probably yes, as Air America's 7 Days panel discusses. Events are in the saddle.

Political economist Edward R. Tufte of Yale has posited a simple model that has predicted every presidential election since 1980 except one - if the economic growth rate is greater than 3% in the year of the election, the party controlling the White House wins - and if it isn't, it doesn't. (The exception was 2000 when Bush somehow hung Lewinsky around Gore.)

It's John McCain's misfortune to inherit a weak economy that's growing at under 2% but that also endures:

--gas prices at $4-$5 a gallon due to international speculation and inadequate conservation;

--home foreclosures up 50% over last year, due to lender fraud and borrower exuberance;

--unemployment rising last month more than at any time in the past 20 years, as high energy prices ripple throughout the economy;

--a level of wealth & income inequality not seen since the 1890s and 1930s, due to the decline in unions and tax policies shifting the tax burden from capital to labor;

--millions losing health care insurance as employers drop coverage;

--climate change creating weather extremes because we're hooked on a carbon-based economy;

--the collapse of Bear Stearns and near collapse of other investment banking firms;

--and a falling dollar and rising trade deficits as American live beyond their means and can no longer make up the shortfall by using credit cards or borrowing against their shrinking home equity or getting spouses to work for second incomes.

It may not be 1932 but this describes a split-level economy that numerous authors and books - by 7 Days headliner Jared Bernstein, Robert Kuttner, Stephen Greenhouse, Holly Sklar, Barbara Ehrenreich, Thom Hartmann -- have documented. Because real personal income has been essentially flat for 35 years (other than 1999-2000), middle class families feel as if they're sprinting faster after an ever-accelerating bus called prosperity.

And now comes along John McCain who a) argues that the economy is fundamentally sound, b) admits doesn't really know much about economics, and c) reveals that his party has no policy prescriptions other than hoary homilies.

Fundamentally sound is McCain channeling Herbert Hoover. And an economic platform that focuses on earmark and tax cuts are band-aids on cancer. Ending all evil congressional earmarks, for example, would save some $18 billion - or .005 percent of the federal budget - not quite enough to offset McCain's proposal to eliminate the several hundred billion dollars annually generated by the AMT (Alternative Minimum Tax). More Bush-like tax cuts for the top brackets and biggest businesses make it impossible for McCain to deny that he's little more than Bush's third term. And rhetoric about laissez faire economics in a global 21st century economy will not impress voters who watched how well that philosophy worked when it came to home foreclosures, imports of dangerous Chinese toys and drugs, e coli bacteria and Enron.

When it comes to the economy, McCain has both bad luck and bad answers. He has no plausible answer to this challenge in a debate: "If you like the Bush recession and tax cuts for the rich, vote for John McCain. But if you want more jobs and tax cuts for the middle class, it's time for a change." Nor does there appear to be a social issue that can trump families' economic insecurity and then produce a book after November with a title like, hypothetically, "What's the Matter with Ohio?"

So short of an Eagleton or worse, Obama shortly has to figure out which of his economic proposals to push on taking office -- i.e., picking among tax cuts for the middle class; a windfall profits tax on energy firms; labor reform; health care reform; "cap-and-trade"; green collar jobs and renewable energy; labor law reform and minimum wage insurance; a credit card bill of rights; and trade pacts with enforceable environmental and worker standards.

Come December and January, a president-elect Obama should adopt one indispensable tactic and then choose between two policy approaches. The tactic is to replicate David Stockman's chicken-little "Dunkirk" memo to president-elect Ronald Reagan. It was shrewdly leaked to convince the public and congress how terrible the economy was in order to successfully tee up Reagan's early tax cuts.

Then the president-elect has two strategic approaches to choose from. The Reagan School of 1980 tells him that you need to marshal your political capital and spend it on one or two initiatives only. The LBJ Pedal-to-the-Metal School of 1964 tells him that you win an early legislative victory and then keep exploiting momentary majorities in the congress and executive branch to fundamentally enact a progressive, inter-connected program. Will it be incremental, sequential reform or transformational reform?

Jason Furman, start your engine!


Listen to the show here.

BERNSTEIN: Q: Jared, can inequality of wealth and income be a successful progressive or democratic issue?
"It can only be a successful political issue if we talk about it the right way, and this is not a matter of clever framing, this is a matter of capping basic American values. By the way, the way I talk about it as a card carrying wonky economist is not the right way on the political framework."

BERNSTEIN: Q: What do you think Obama should or will focus on in the economic arena?
"The two things that I think he oughta do first are, rebalance the tax code and push for universal health care. I think that if he were able to accomplish those two goals in his first of two terms that would be really starting things out the right way."

BERNSTEIN: Q: This week Obama has named Jason Ferman as his top economic advisor, what's your view of his appointment?
"First of all, what Jason Ferman is, is an experienced and very capable top level economic staffer of Democratic campaigns. So it's not Jason Ferman or Bob Rubin that are going to be setting economic policies, it's Barack Obama and Jason will be an extremely effective sales person of that agenda, because, a) he's good at it, but b) he believes in it. If you look at Jason Ferman's agenda, it's a very progressive agenda, with a few serious differences that he's had with people that are criticizing it, including myself by the way."

HUFFINGTON: Q: Do you think that it is nearly impossible for McCain to win simply because of the reality of a sluggish economy?
"I think that's one of the reasons why it's impossible for him to win. But as I was looking at him this week Mark, I begun to feel more and more that John McCain is morphing into Bob Dole. I know we're all talking about how he's going to give us the third George Bush term, and that's absolutely true. But the way the two men seem to be completely out of sync with the times, is the main sense I get from McCain.
REAGAN: "Well it needn't be a fatal albatross to him I don't think, but Arianna makes a brilliant point here which is that McCain seems completely out of touch with what's going on. He like George Bush is calling the economy fundamentally strong. I don't think most Americans when they look at their own pocket books and look at the economy think of it as fundamentally strong."

Q: Is Jim Johnson a big or real issue? Does it matter?
"It matters in the sense that we are seeing how different the climate is doing this election cycle. That wasn't raised when John Kerry appointed him to be in charge of his vice-presidential search, something different is happening now, and I think that's going to affect also who Obama chooses to be in his cabinet, he may have to choose 25-year-olds. Can you be 25 and be in the cabinet? Maybe it is the generational shift that Jefferson talked about. To use a Greek metaphor, it's like we are cleaning out the Augean stables here and we are going to have people who are not lobbying, who are not benefiting from their connections in Washington, the circle is going to shrink substantially."

Q: Arianna, what is your opinion of Jim Webb as a vice-presidential nominee?
"I love Jim Webb. I think Jim Webb has an enormous amount that he would bring to the ticket, including the fact that he's a vet, the fact that he speaks with passion about the military and that he was in the Reagan administration to the extent that Obama is talking about bipartisanship that could be real bipartisanship."

REAGAN: Q: Could the feelings of Clinton supporters of sexism towards here become a problem during the general election or is it just a momentary spasm?
"I'm not going to say that there weren't isolated incidents of sexism in the coverage, I'm sure that there were, and I'm sure you can find incidents of race based coverage as well in regard to Barack Obama... Hilary did not lose because she was a woman and because coverage was sexist, she lost for strategic and tactical reasons, for reasons that have to do with who she is as a candidate and as you say as a Clinton.