The New York Times has made available on their website a preview of this weekend's magazine with an article by David Leonhardt attempting to clarify Obama's economic ideology, which Leonhardt sees as a new synthesis of Milton Friedman-style, market driven solutions and New Deal-type, welfare projects. The two prongs of this synthesis, and their assumed contradiction, Leonhardt argues, have made Obama open to attacks from both sides, but if Obama can square the economic circle, the results may be nothing short of genius. Of course, that is a big "if," but with McCain committed to a failed Republican orthodoxy of "low taxes, smaller government," that big "if" is our only hope.Obamanomics, as some have called it, is complex, and even Leonhardt admits that he has had to piece the philosophy together from various sources, as Obama has yet to find a good way to package and advertize it. Obamanomics begins with taxes. For those with annual incomes less than $250,000, Obama would cut taxes more than McCain by going beyond the usual income tax breaks to also lower the payroll tax, which funds Social Security and Medicare. For those making more than $250,000, Obama would raise income taxes to Clinton-era levels (from the current 34% to just over 40%), and he would make the payroll tax applicable to income over the $250,000 mark (currently people do not have to pay into Social Security or Medicare on income over $102,000). Some of the tax revenue from the quarter-million-plus bracket would be invested in things like infrastructure and energy technology development, which would, in theory, create jobs for the middle class. The rest would be used to reduce the deficit in order to "soothe the bond market and bring down interest rates."So far, then, Obama helps the middle class with greater tax breaks than McCain and the promise of more jobs, and he helps stimulate market forces by reducing the national debt. This won't all be paid for by increasing taxes, as Obama also intends to "wind down the Iraq war" thus freeing up a significant chunk of government funds. Matters get significantly more complicated and problematic, though, when Obama moves beyond the tax-based part of his plan to discuss the economic implications of social programs like healthcare, education, and housing. Here, again, there are two prongs: One involves enacting the proper government regulations to keep down costs in order to ensure access and the other has to do with Obama's faith in the wisdom of consumers.On the regulation side, Obama's Friedman-esque faith in markets makes him very cautious about supporting government interventions, and as a result, he has been loath to talk specifics. Leonhardt points out that in a speech in March entitled "Renewing the American Economy," Obama mentioned several areas where market regulation might be required including the mortgage industry, "complex financial instruments like hedge funds and non-bank financial companies," the telecommunications sector, etc. Obama continues to stress that a 21st century market needs new and innovative 21st century regulations. True enough. But, his entanglements with the heads of these industries make one nervous that the access "bought" by their contributions to his campaign will significantly hamstring any effort he puts forth to regulate them. And, as I described in my last post, it seems that he has already missed several opportunities to vote in favor of legislation that would do just that.Sufficiently regulating the market is important for the other prong of Obama's social programming plan, which is also infused with Friedman-esque assumptions. His healthcare plan, for example, assumes that if people have the money and costs are low enough, they will buy health insurance. The low cost can only be achieved by appropriately regulating pharmaceutical and medical supply companies, physician's salaries, hospital charges, malpractice legislation, etc. This means contending with powerful lobbies funded not just by the heads of corporations directly represented by this list, but also by those who invest in the healthcare industry. Thus, Obama's ties to Goldman Sach's, and the like, could threaten to undermine his promises to significantly cut into healthcare profits and lower price. (For more on Obama's potential debt to business interests see the following Times pieces: "Big Donors," "The Hands That Feed," and "Dems get Big Gift") Even if he is able to bring health insurance costs down, will they be low enough that those who receive tax breaks will use their refunds to buy the services they need?This is the biggest question. Obama's faith in the free market includes a faith in the ability of the average consumer to make smart, well-informed financial decisions. How many Americans took their stimulus refund this year and bought health insurance, invested in a college or retirement fund, or purchased quality childcare? My hunch is that many used it to pay off debts accrued in the acquisition of goods they bought by spending outside their means, to pay for necessities like food or gas that are quickly turning into luxuries, or to simply purchase more stuff. The first may indicate some post-hoc fiscal responsibility, the second has to do with bare necessity, and the third seems to be a potential continuation of the spendthrift habits that undoubtedly contributed to some of the mess we're already experiencing. Thus, the biggest test of Obamanomics, if it makes good on its promises to lower taxes and sufficiently regulate markets, will come down to the ability of Americans to do their part. It will be a test of our economic skills. Are we ready?
