It's the Economy, Stupid (and your vote)

I think one could argue that the economy is the #1 issue in this election. I would then add that the #1 problem to be addressed in the economy is what role the government will play in "fixing" it.

Government will certainly play a role, and they certainly should, but what role they should play is neither obvious nor clear.

It is important to remember where blame should be placed for the problems that are going on.
#1: Consumers - People who borrowed too much money, for houses and on credit cards, who don't save enough, and who bet that "real estate prices can't go down" bear the largest responsibilities.
#2: Banks - Banks should share almost equally in the blame. It takes two to tango. Banks made bad loans and they are now paying for it. Unfortunately, we're paying for them paying for it, too.
#3: Regulators and Government - In some ways, the regulation scheme failed (see my earlier post about debt swaps, for example). Also, the "ownership society" President Bush promoted is partly responsible for the eagerness to buy homes (and to qualify people for home loans).

Government has 2 roles to play in the recovery:
A) Changes to regulatory schemes and rules.
B) Fiscal and monetary policy, in terms of interest rates, bailouts, stimulus packages, and general macroeconomic policy.

(A) is going to happen. The banking industry will be largely re-regulated. We should solve problem #3, above, through government regulation. We should *NOT* solve problems #1 and #2 above. Doing so is called socialism. If the government starts deciding how consumers should spend their money or how banks should offer their products, then it is encroaching on personal liberties and on capitalism. The government can effectively update the rules for banks without having to become so large and invasive so as to *be* the banking industry.

(B) is also going to happen. Interest rates will be lowered. Stimulus packages may be passed. Measures like this are great because they're temporary. They take effect soon, and that matters to the economy now, and then they end, which is good.

The concern with Obama is along both (A) and (B).

Along line (A): Obama is far more likely than McCain to see the current crisis as an opportunity for government to get more involved in figuring out how poor people finance their houses, for example. This, however, would be a huge mistake. It would be the same form of market distorting government policy that Bush's "ownership society" was, which is a part of what got us into this mess in the first place.

Along line (B): Obama has promised massive government spending which will likely worsen the deficit. McCain has much more of a history of rejecting wasteful government spending and trying to keep the budget deficits in line. Also, Obama has promosed long-term infrastructure projects as a form of economic stimulus. Not only does the research show that this doesn't work (it doesn't take effect quickly enough), but in reality, it's just an expansion of government programs. It just makes the goverment more directly involved in long-term attempts to "build" things.

McCain is exactly the right kind of person for the current economic climate, because he's a pragmatist and willing to compromise, in the short run, but there is little danger of him allowing any slow drift toward a more socialized state, in the long run.

This is the most powerful argument for McCain and against Obama, right now, and it's probably the most important issue in this election (and ironically, it wasn't an issue until about the last 2 weeks).