Economics: Who’s the Real Democrat?

I think my favorite part of this video of ABC’s This Week, aired Sunday, is when Paul Krugman throws his face in his hands as George Will is delivering one of his stern school-of-hard-knocks lessons.

Barack! You’ve gotta stop copying Hillary’s homework:

Last Thursday, Senator Clinton called for a “second stimulus package” with $30 billion to help states and localities fight foreclosures. One week later, Senator Obama announced a “second $30 billion stimulus package”. … (Press release, March 27, 2008)

Next, Krugman’s NY Times column on “Loans and Leadership“:

On Friday, March 28, the campaign issued this press release, devoted entirely to Paul Krugman’s column:

***MUST READ***

NYT’s Krugman: Loans and Leadership

Excerpts follow below:

When George W. Bush first ran for the White House, political reporters assured us that he came across as a reasonable, moderate guy.

Yet those of us who looked at his policy proposals — big tax cuts for the rich and Social Security privatization — had a very different impression. And we were right.

The moral is that it’s important to take a hard look at what candidates say about policy. It’s true that past promises are no guarantee of future performance. But policy proposals offer a window into candidates’ political souls — a much better window, if you ask me, than a bunch of supposedly revealing anecdotes and out-of-context quotes.

Which brings me to the latest big debate: how should we respond to the mortgage crisis? In the last few days John McCain, Hillary Clinton and Barack Obama have all weighed in. And their proposals arguably say a lot about the kind of president each would be.

Mr. McCain is often referred to as a “maverick” and a “moderate,” assessments based mainly on his engaging manner. But his speech on the economy was that of an orthodox, hard-line right-winger.

It’s true that the speech was more about what Mr. McCain wouldn’t do than about what he would. His main action proposal, as far as I can tell, was a call for a national summit of accountants. The whole tone of the speech, however, indicated that Mr. McCain has purged himself of any maverick tendencies he may once have had.

…

But I was even more struck by Mr. McCain’s declaration that “our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.”

These days, even free-market enthusiasts are talking about increased regulation of securities firms now that the Fed has shown that it will rush to their rescue if they get into trouble. But Mr. McCain is selling the same old snake oil, claiming that deregulation and tax cuts cure all ills.

Hillary Clinton’s speech could not have been more different. [NO QUARTER READERS: I’ve excerpted part of her speech below. — Susan]

True, Mrs. Clinton’s suggestion that she might convene a high-level commission, including Alan Greenspan — who bears a lot of responsibility for this crisis — had echoes of the excessively comfortable relationship her husband’s administration developed with the investment industry. But the substance of her policy proposals on mortgages, like that of her health care plan, suggests a strong progressive sensibility.

Maybe the most notable contrast between Mr. McCain and Mrs. Clinton involves the problem of restructuring mortgages. Mr. McCain called for voluntary action on the part of lenders — that is, he proposed doing nothing. Mrs. Clinton wants a modern version of the Home Owners’ Loan Corporation, the New Deal institution that acquired the mortgages of people whose homes were worth less than their debts, then reduced payments to a level the homeowners could afford.

Finally, Barack Obama’s speech on the economy on Thursday followed the cautious pattern of his earlier statements on economic issues.

I was pleased that Mr. Obama came out strongly for broader financial regulation, which might help avert future crises. But his proposals for aid to the victims of the current crisis, though significant, are less sweeping than Mrs. Clinton’s: he wants to nudge private lenders into restructuring mortgages rather than having the government simply step in and get the job done.

Mr. Obama also continues to make permanent tax cuts — middle-class tax cuts, to be sure — a centerpiece of his economic plan. It’s not clear how he would pay both for these tax cuts and for initiatives like health care reform, so his tax-cut promises raise questions about how determined he really is to pursue a strongly progressive agenda.

All in all, the candidates’ positions on the mortgage crisis tell the same tale as their positions on health care: a tale that is seriously at odds with the way they’re often portrayed.

Mr. McCain, we’re told, is a straight-talking maverick. But on domestic policy, he offers neither straight talk nor originality; instead, he panders shamelessly to right-wing ideologues.

Mrs. Clinton, we’re assured by sources right and left, tortures puppies and eats babies. But her policy proposals continue to be surprisingly bold and progressive.

Finally, Mr. Obama is widely portrayed, not least by himself, as a transformational figure who will usher in a new era. But his actual policy proposals, though liberal, tend to be cautious and relatively orthodox.

Do these policy comparisons really tell us what each candidate would be like as president? Not necessarily — but they’re the best guide we have.

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Read all of Paul Krugman’s New York Times column, “Loans and Leadership.”

Of special note: Here is the speech to which Paul Krugman referred — “Hillary Clinton’s Remarks on Halting the Housing Crisis.” Hillary gave the speech this past week in Pennsylvania. Perhaps Hillary should have read the speech personally to George Will:

[…]

In today’s economy, trouble that starts on Wall Street often ends up on Main Street. Sometimes within minutes, sometimes over the course of months or even years. When there’s a run on mortgage-backed securities and the bottom falls out for investment banks, the bottom falls out for families who see the value of their homes, their greatest source of wealth, decline. When our credit markets freeze up, that doesn’t just cause panic on our trading floors, but in small businesses that can’t get the capital they need to survive. And on college campuses like this one, when the student loan for next semester falls through.

When we continue to persist in brain dead energy policy as confidence in our currency erodes, that means gas prices so high you feel like it costs more to commute to work than you make when you get there. It means rising food prices that strain household budgets. It means having less left over for savings or ever dipping into savings to make ends meet. It means more challenges for the mayor because property tax revenues drop, businesses don’t have the same ability to make that profit that benefits the city. It means more problems for the governor who has to look across a complex state economy trying to figure out how to keep what has been a remarkable string of real budget balances and surpluses. It causes problems for our country.

Ultimately the true currency of today’s American economy is confidence. When people lose confidence in the economy and our president’s ability to manage it, problems become crises and crises lead to more crises. So we need a president who can restore our confidence, a president who is ready to confront complex economic problems with comprehensive solutions, a president who will act at the first signs of trouble, working with experts to identify the problem, with agencies to adapt regulations, with congress to pass necessary legislation, working to prevent crises rather than just reacting too little too late.

We need a president who is ready on day one to be Commander-in-Chief of our economy. If you give me the chance, I will be that president. I will start by facing our economic situation as it is, not as we wish it would be.

That means acknowledging that our economic crisis is, at its core, a housing crisis, a crises caused in part by unscrupulous mortgage lenders and brokers and unregulated transactions in mortgage-backed securities, in part by speculators who were buying multiple houses to sell for a quick buck and other buyers who didn’t act responsibly. And in part by a president and administration who failed to anticipate and continue to downplay the problems we face.

Unlike what happened here in Pennsylvania, when Governor Rendell started seeing problems - and I remember those articles we had in the newspaper, governor, where the housing supply was being, you know, expanded and people were putting zero money down and they were trying to once again get the American dream, they were commuting sometimes two hours to be able to afford that house. Well, those warning signals went unheeded in Washington. But thankfully, not in Harrisburg. And what we have to do now is to look at our housing crisis in greater detail. And I’d like to outline my plans to address it.

2.2 million foreclosure notices went out last year - up 75% from 2006. Communities of color have been especially hard hit. Subprime loans are five times more common in predominantly African American neighborhoods than predominantly white ones. And 41% of loans to Hispanics are subprime compared to only 22% to whites.

But this crisis isn’t just about the more than 2 million households at risk of losing their homes and, of course, 2.2 million foreclosure notices means many more people than that because obviously you have homes where anywhere from two to ten people live. It’s about the tens of millions of families who have lost value in their homes.

When I talk about the home foreclosure crisis, sometimes people, I can tell, look at me a little skeptically because they, I can tell, they’re thinking to themselves, I didn’t buy one of those mortgages, I don’t have an ARM, I’m not at risk. But, in fact, that is just not the case. Home prices dropped almost 9% last quarter. Home prices for everyone.

If you have paid off your home, if you have a fixed rate mortgage with a manageable interest rate, you have suffered the steepest decline on record. That means families have lost at least $1.9 trillion in housing wealth so far, nearly two-thirds of the size of the entire United States government budget. And today, nearly 9 million families are struggling with mortgages that are under water. They actually owe more for their mortgages than their homes are worth. So what was once their biggest financial asset is now a financial liability.

The housing crisis is also a crisis for our cities, our towns and our neighborhoods. …

Read all of Hillary’s speech. It’s quite remarkable. No wonder Paul Krugman is so clearly a fan of her candidacy.

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SPECIAL THANKS to C.S. for the This Week video. You always come through, C.S.