"I'm very well versed in economics."
- John McCain, January 24, 2008
Senator McCain may think he knows a few things about economics, but his latest comments show an increasingly widening gap between reality and his version of reality. This is one of those "Oh. My. God" moments.
The presumptive Republican presidential nominee regularly asserts that 1.3 million people worldwide ``make a living off EBay.'' He holds up the figure as evidence the world's largest Internet auctioneer is a model for job and economic growth.
Something tells me that selling beeny babbies on EBay isn't a real economic plan. In fact, the idea of selling used stuff online is some sort of economic model that we should aspire to as a country shows such a complete lack of understanding of fundamentals that it should scare you.
This affection for EBay as an engine for job creation, however, confounds economists such as Betsey Stevenson, a professor at the University of Pennsylvania's Wharton School of Business in Philadelphia.
"In terms of jobs, there's no net increase in GDP that comes from trading stuff that's already made,'' said Stevenson, author of a study on the Internet and employment levels. ``New people selling stuff out of their closet on EBay isn't growing the economy."
"It's an example of good old-fashioned U.S. ingenuity, but selling used products is a limited business model,'' said Ethan Harris, the chief economist at Lehman Brothers Holdings Inc. in New York. San Jose, California-based EBay transformed what was an ``incredibly inefficient market for junk and turned it into a very efficient market for junk."
If the economy was humming along this would still be important, but not as important. However, eight years of mismanagement by George Bush has left the economy in a precarious state that requires a intelligent and competent touch.
McCain, OTOH, can't even stay on the same economic page as his own campaign web site and failed to acknowledge the current economic downturn as late as this January.
His "big plan" to reinvigorate the economy basically amount to big tax cuts for the rich and large corporations.
Here's the gist of it: Despite his earlier opposition, he now wants to make the Bush tax cuts permanent. Price tag: more than $2 trillion over 10 years. He wants to repeal the alternative minimum tax. Price tag: "up to $2 trillion" according to the Center on Budget and Policy Priorities (CBPP). He wants to keep the war going ad infinitum, at a cost of between $100 billion and $150 billion per year, according to CBO estimates.
Then there is his health-care plan, which ends the employer tax exemption for the cost of covering employees, and uses the proceeds to subsidize the purchase of health coverage in the private market. The costly part has to do with the poor, the old, and the sick. As health economist Jon Gruber noted, "his plan will require huge subsidies he's not talking about."
Oh, and did I mention he wants to cut the corporate tax rate too, from 35 percent to 25 percent, and allow businesses to fully write off capital investments as soon as they make them?
Bob Greenstein, the director of the CBPP, is not prone to hyperbole. But he called McCain's program "one of the most fiscally irresponsible plans we've seen by a presidential candidate in a long time." According to Len Burman of the Brookings Institution's Tax Policy Center, McCain's tax cuts would shrink federal revenues by 25 percent over 10 years, at which point they would account for about 15 percent of GDP, compared to 19 percent last year.
Now in case you didn't notice, we are already on our way to the largest budget deficit in America's post-WWII history. So you would think that getting that deficit down would be a little more important to McCain.
However, maybe "deficits don't matter" to McCain.
On the other side of the ledger are McCain's spending cuts. Like every other politician, he wants to cut earmarks.
Most estimates score them at around $20 billion per year, though the McCain folks say they can get up to $60 billion. That's a few months in Iraq, John.
Of course his big cuts would come in entitlements, but he has yet to give us any numbers. And that should clue you in on how sensitive those cuts would be.
McCain's top economic adviser is economist Doug Holtz-Eakin.
As Holtz-Eakin put it a few years ago in an opinion piece for The Washington Post, a serious fiscal approach "should rethink the package of support for old-age medical care, long-term care services and retirement income."
But here's the rub: words like "reform," "rethink," and "making tough choices" sound a lot different than words like "cut, and cut deeply." Holtz-Eakin has integrity, and he likes his numbers to add up. He knows that they can't do what they say they're planning to do without going after entitlements big time. As he put it the other day in The Wall Street Journal, "You can't keep promises made to retirees" (to be fair, he also noted that "you can pay future retirees more than current retirees").
McCain's base is the elderly. What do you think would happen if the elderly got the news that McCain wanted to cut their entitlements?