Fireside Chat, Panel, Conference Presentation, Interview
Where Is the Economy Headed? A View From the Presidential Campaigns
Milken InstituteMichael J. Boskin, Leo Hindery, Jr., John McCain, Barack Obama, Mike Clouden, Peter Purcell
- Upcoming events include the State of the State Conference on October 28th at the Beverly Hilton, a breakfast with Frank Luntz on the election, a Milken Institute breakfast with Mack McLarty on November 13, and a forum with Sam Wiley and Mike Milken on November 12.
- Leo Hendry predicts U.S. economic recovery driven by manufacturing policy, infrastructure investment, measured free trade, and tax reform, citing Tax Policy Center data that 95% of households and 98% of small businesses would pay less tax under Obama's plan, which is projected to reduce the federal deficit by $748 billion by 2018 compared to a $750 billion increase under McCain's plan.
- Trade deficits are projected to reach $800 billion next year if unfixed, with cumulative deficits with Mexico at $454 billion over 14 years and an annual deficit with China at $350 billion consisting entirely of manufactured goods.
- Current unemployment is calculated at 10.96% when including part-time and marginally employed workers, with cumulative household net worth dropping from $59 trillion in late 2007 to $50 trillion.
- Michael Boskin warns that shifting to European-style taxation and regulation could permanently lower the U.S. standard of living by 30% and that the current recession is steeper than 2001 and 1990 due to credit crunches and financial panic.
- A shift toward a model where a growing fraction of citizens pay more in taxes to the government than they receive is predicted to cause economic harm, with Boskin noting 30% of the population currently pays zero income tax or receives more in transfer payments than they pay in taxes.
- Future government spending on infrastructure in a second fiscal stimulus is predicted to be ineffective as spending peaks three years after funds are distributed, and the Treasury's capital injection proposal with a November 14th deadline aims to slow the contraction of lending.
- The financial crisis is attributed to social engineering and loose monetary policy rather than deregulation, with Bear Stearns, Fannie Mae, Freddie Mac, and Lehman Brothers holding gross leverage ratios in the 30s, while losses are estimated at $1.5 trillion to be absorbed by the economy.
- Housing prices rose 50% above personal income over the last five to six years and are expected to fall significantly, with construction expected to continue contracting and no economic basis for a return to 2002 net worth levels.
- Corporate tax proposals include McCain's plan to reduce the rate from 35% to 25% costing $200 billion annually, while Obama's plan would restore tax levels to 2001-2003 Clinton-era rates for the top 5% of earners.
- Executive compensation, currently 400 times the average employee wage, is predicted to be regulated by the market rather than government intervention, with previous caps on tax deductibility shifting pay to non-deductible equity.
- Education and retraining are dismissed as insufficient short-term solutions to the employment crisis, with Boskin arguing that government attempts to redistribute income raise marginal tax rates on benefits, reducing work incentives.
- Health care, pharmaceutical, and energy mandates are characterized as commercially unviable long-term, with Boskin warning that mismanagement similar to the housing market could emerge in these new government proposals within a decade.
- The current system of trade adjustment assistance is described as 100 bureaucratic programs that rarely result in job placement, while Boskin suggests a sabbatical program for regulators to work in industry to improve understanding, despite anticipated conflicts of interest.