Friday, June 13, 2008

The Ambiguous Economics of John McCain

Who can figure out what Sen. John McCain really stands for on the economy?

In recent days the Republican standard bearer gave a really strong supply-side taxpayer-friendly speech, hitting all the right notes. Undoubtedly his best economic statement of the campaign to date. And then, yesterday, he appears to embrace King Dollar in his New York town hall meeting. Here’s the money quote: “We have to talk up the dollar, obviously, and I’m glad that Bernanke did the other day, and take certain short-term steps to try and strengthen the dollar.”

This is good. Very good. I’ve been worried that Obama, listening to Paul Volker, would get to King Dollar before McCain. But it looks like Big Mac, listening to Steve Forbes and Jack Kemp, is getting there first. So now we have McCain arguing for lower tax rates and a strong greenback, which is the ultimate supply-side Reaganesque message. Doesn’t get any better. In fact, from here, it only gets worse.

In that town hall meting yesterday, McCain also teed off on oil companies and so-called financial-market speculators. From today’s New York Sun, McCain endorsed a federal probe into speculation in the oil market: “I believe there needs to be a thorough and complete investigation of speculators to find out whether speculation has been going on and, if so, how much it has affected the price of a barrel of oil.” Well, this puts Big Mac in cahoots with Obama and the liberal Democrats who are calling for the same thing.

I don’t know if Mr. McCain realizes that in the last six months or so there has been a run on the dollar. That’s been a key driver of higher oil prices, along with various supply bottlenecks around the world. A strong dollar would cure this without having to blame “speculators” who actually enhance markets by adding liquidity. And anyway, so-called speculators are also investors — including, by the way, large state pension funds that represent tens of millions of cops, firefighters, teachers, and others. Free-market capitalism includes all investors, private and public. There are long-term investors and short-term momentum traders, and those momentum guys can turn markets on a dime. If they see a strong dollar, they’ll sell oil (and gold).

Then Mr. McCain lashes out at oil companies: “I am very angry, frankly, at the oil companies. Not only because of the obscene profits they’ve made, but at their failure to invest in alternative energy to help us eliminate our dependence on foreign oil.”

Well, Senator, my response is drill, drill, drill. Why aren’t you working to deregulate offshore drilling, ANWR drilling, and oil-shale drilling? By some estimates there are nearly two trillion barrels of oil to be lifted. And American oil companies can do it better than anyone in the world. Not only would so-called speculators take a look at this new drilling, they would start selling oil futures contracts immediately and pretty soon the spot-market price would come down.

And by the way, the drill-drill-drill strategy would create hundreds of thousands of high-paying jobs. Think of it. Plus, the oil companies are already paying a bloody fortune in record taxes to the federal Treasury. This is all free-market capitalism. Why not let it work, senator?

McCain is scoring poorly with the investor class because of his economic ambiguities. As we know, the investor class is one of the highest-turnout blocks each election, comprising two of nearly every three votes cast. It should be a natural core GOP constituency. But wait a minute, look at this: The latest numbers from the highly respected IBD/TIPP poll show McCain with a slim 44 percent to 41 percent lead over Obama in June. Last April, McCain was ahead 49 to 41 percent. He should win this investor poll by at least 15 percentage points, given the anti-investor and anti-business sentiment loudly proclaimed by Obama. However, if investors are on the fence about this election, it could spell trouble for Senator Mac.