Obama has all these enormous plans for new spending, and there is simply no way that his supposed tax increases only on the rich will be sufficient to pay for it all. Which means he'll be faced with the same choice Bill Clinton faced when he was sworn in on January 20, 1993: either he will have to abandon his more ambitious spending programs or he will have to abandon his middle class tax cut.
Clinton took the latter option, and it's one of the reasons he is remembered so fondly on the economy. He raised taxes in minor fashion on the wealthy, but only on the income tax. He did not raise capital gains taxes, he did not raise corporate tax rates, and he did not propose a windfall profits tax on oil companies, which are all central to Obama's program.
Further, under tremendous political pressure he abandoned the big government approach to universal health care, thus removing an enormous potential budget buster. This is in contrast to President George W. Bush, who championed the Medicare prescription drug benefit that is already, only in its third year, tripling its predicted cost.
If we had true conservative accounting, such that took account of the fact as shown above that government spending exceeds its projections dramatically, then I would feel more sanguine about this proposed new spending. But Obama's and McCain's proposals both likely lowball the estimate cost of new spending -- but at least McCain's spending proposals are modest by comparison to Obama's.
Then we come to free trade, which Obama has voted against consistently, as he has most of President Clinton's other moderate successes. Free trade is the engine of America's growth, and free trade accords only serve that critically necessary growth. Here's why: our tariffs on foreign goods are generally low, especially when compared to European, Asian, or Latin American countries. Free trade accords we've signed and ratified over the past few decades have the effect of bringing down foreign tariffs on our exports, while giving our trading partners the desired certainty (which investors prize) that the low tariffs on their exports to the U.S. are not subject to the yearly whims of a mercurial U.S. Congress.
According to World Trade magazine, Canada is our number one trade partner, Mexico is number three, and South Korea is number seven and rising quickly. Obama's reckless primary promise to tear up the NAFTA accord with Canada and Mexico if it could not be renegotiated, and his equally short-sighted opposition to the South Korea Free Trade Accord, would needlessly alienate these good friends and trading partners of the United States, to our mutual detriment.
The economy is deeply in trouble right now, to be sure, but a combination of large tax increases combined with a repudiation of our nation's historic commitment to free trade will only worsen the situation, not better it.
Don't take my word for it, though. An article in Foreign Affairs magazine had this conclusion in April 2005 about what it called "The Overstretch Myth" that America was inevitably headed for a fall, and it is just as relevant now as it was then:
Many analysts have pointed to the euro as a threat to the dollar's status as the world's central reserve currency. But the continuing strength of the U.S. economy relative to the European Union's and the structure of European capital markets make such a prospect highly unlikely. On the basis of likely demographic and productivity growth differentials, Adam Posen of the Institute for International Economics estimates that the U.S. economy will be at least 20 percent larger than that of the EU in 2020. The United States will maintain its 22 percent share of world output, but Europe's share will, in the absence of serious structural reforms, shrink by 3 to 5 percent. Moreover, European government bond markets, although larger than the U.S. Treasury market, are divided among five large countries and a host of smaller ones, greatly reducing liquidity, and European corporate bond and equity markets are smaller than their U.S. counterparts. With Asian capital markets still in their infancy, it will be a very long time before the pre-eminence of the dollar and U.S. capital markets is challenged.Protectionism and isolationism at home is precisely what Senator Obama offers as President, and why this Democrat simply cannot support him. As Senator McCain is a full-throated internationalist and committed free trader, he is the best choice for President on these critical economic issues.
At the peak of its global power the United Kingdom was a net creditor, but as it entered the twentieth century, it started losing its economic dominance to Germany and the United States. In contrast, the United States is a large net debtor. But in its case, no plausible challenger to its economic leadership exists, and its share of the global economy will not decline. Focusing exclusively on the NIIP obscures the United States' institutional, technological, and demographic advantages. Such advantages are further bolstered by the underlying complementarities between the U.S. economy and the economies of the developing world--especially those in Asia. The United States continues to reap major gains from what Charles de Gaulle called its "exorbitant privilege," its unique role in providing global liquidity by running chronic external imbalances. The resulting inflow of productivity-enhancing capital has strengthened its underlying economic position. Only one development could upset this optimistic prognosis: an end to the technological dynamism, openness to trade, and flexibility that have powered the U.S. economy. The biggest threat to U.S. hegemony, accordingly, stems not from the sentiments of foreign investors, but from protectionism and isolationism at home.