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Change the economy? Change? How about some specifics?

ASK THIS | June 11, 2008

It's time reporters got Obama and McCain to go beyond calls for 'change' and spell out their positions on deregulation, deficits, the plight of the middle class, taxes and energy.

By Martin Lobel

Now that both major political parties have presumptive nominees devoted to “change” it is time for reporters and editors to probe beneath the sound bites and explore their fundamental views of how the economy works, how they explain our current circumstances, and what specific changes they actually advocate. After that, the media need to help the public understand whether those positions make any sense.

Q. Should the government change its current policy of deregulating our financial markets?

Do you believe we should continue the policy of deregulating our financial markets or do you believe they need to be more regulated to maintain confidence in them? Do you believe that the regulatory agencies have the resources and power to police the markets? Do you believe the regulatory agencies need to be restructured to better police the markets? Do you believe that appointees to regulatory agencies should be willing to regulate the markets to make them more transparent and lessen the risk of failure? Do you support the Fed’s decision to bail out the Bear Stearns investment bank? Do you support the decision of the Controller of the Currency to allow Citibank to keep billions of dollars of derivatives off its books by using a Structured Investment Vehicle after what happened at Enron?

Do you believe that derivatives pose serious risks to our economy because they are not transparent and the market cannot accurately value them? Should the government try to make sure our entire financial market isn’t threatened by faulty risk assumptions? Should derivatives be regulated? Should hedge funds be regulated? If so, how? Are there other financial instruments in the market that pose a serious risk to the market? What other things are needed to make sure that mistakes about risk don’t put the entire market at risk?

Q. What do you propose to do to lower our national deficit?

Do you believe that deficits matter? Do you believe that the value of the dollar has declined significantly because we funded our increasing deficits by selling so many dollars to so many foreign countries? Do you believe that we need to take steps to support the dollar now?   If so, what would you do about these issues? Push the Fed to increase interest rates? Would you increase taxes? Reduce spending? Because oil is priced in dollars, the dollar’s decline has substantially contributed to the increased price of crude oil. And because of the difference between the price of the Euro and the dollar, the EU buys oil for about 20% less than we do in the United States. Do you believe that, like the EU countries, we should impose a high tax on fuel to discourage consumption and recycle the money into improving our infrastructure?

Q. What do you propose to do to help the middle class?

Why has the middle class been losing ground economically for over a decade even though productivity has increased? Isn’t it true that the middle class helped drive the US economy by working harder, longer and borrowing against the value of their homes on the assumption that home prices would continue to increase? Do you believe that this trend was exacerbated by financial institutions that  encouraged people to spend more on homes than they could afford because the institutions earned huge fees by packaging these mortgages into derivatives and selling them and the risk of default to others? What proportion of the problems in the housing market are attributable to failure of regulation? Will the problem get a lot worse when the adjustable rate mortgages reset at higher rates? How do you propose to deal with the housing problems?

How do you explain that almost all the growth in income over the last decade went to the top 1% of the population? Is it possible that the entire growth in productivity was accounted for by less than 1% of the population? What role should the government play in dealing with economic inequality, besides the usual call for better education?

Q. Do you believe we need to reform our tax code?

Do you believe the tax code is too complicated, impossible to police, and contains subsidies that cannot be justified but distort the market? Do you believe the ethanol subsidy has contributed significantly to the rise in food prices? Do you believe that the environmental benefit ethanol provides justifies its cost? Do you believe we need to change the tax code to prevent multinational corporations from shifting profits to tax havens? Do you believe we should require hedge fund managers who live in the US to pay ordinary income tax rates on the billions of dollars a year they earn, rather than continue to pay a 15% rate on their income only when they “repatriate” it into the US?  What role do you believe the tax code plays in the disparity of income earned by the top 1/10 of 1% of Americans and the middle class? What plans do you have to simplify the tax code? To ameliorate the economic disparity? To level the playing field for domestic companies to compete against multinationals? And to make it easier to collect taxes so we can lower tax rates?

Q. What is your energy policy?

Do you believe our current energy policy has contributed to our economic problems? How do you account for the recent sudden increase in oil prices when supply and demand have not changed that much?  What proposals do you have to make trading in oil more transparent and less likely to be subject to speculative pressures? Do you believe the oil companies need over $15 billion a year in tax subsidies when, for example, last year Exxon earned $40.6 billion in profits, a return on capital of 32%, but it spent about twice as much to buy back stock ($31.8 billion), as it spent on exploration and development ($15.7 billion)? Do you think we need to give the oil companies new domestic opportunities for exploration and development when they have only explored 20% of the leases they already have? Do you believe the government should assist the oil companies in opening up foreign sources of supply? How do you propose to deal with the oil companies’ cutbacks in the supply of products in the system which guarantee that even minor supply disruptions will cause major price spikes?  What proposals do you have to deal with high gasoline, diesel and jet fuel prices? Do you think it is possible to make American energy independent?

It is up to the media to ask the candidates how they propose to deal with these and other important issues. It is also up to the media to evaluate the proposals and inform the public when they are mere slogans. Falling back on the “he said, she said” form of journalism would be a dereliction of duty.

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