From the August 30, 2008 Sunday Times (London)
September 2, 2008
by Irwin Stelzer
Today is the day that Americans realise that summer’s lease has all too short a date. Tomorrow is Labor Day, making this the last long, lazy weekend of summer. Fewer Americans than usual have taken to the road because petrol prices, although easing, remain high by our standards. But whether at home or on the road, we know there won’t be a long weekend until Thanksgiving in late November, and that holiday is more likely to witness snow flurries than warm sunshine in most of the country.
Still, we have some reason for cheer. Consumer sentiment is improving as petrol prices drop, and the government just announced that the economy grew in the second quarter at the gratifying annual rate of 3.3%, powered by a boom in exports that would come to a screeching halt if Barack Obama wages the war on free trade he is promising.
But none of that good news penetrated the convention the Democrats held to formalise the selection of Obama as their choice to take on John McCain. Reports from Denver, the mile-high host city — mile-high as in altitude, not the stuff that contributed to making the Democrats’ 1968 convention in Chicago such a riotous affair — have painted a picture of a nation in serious economic trouble, and shunned by its former allies. Only 18% of Americans believe the nation is on the right track.
The Democrats see an America consisting largely of uninsured people struggling to pay the healthcare bills of their sick kids, people whose homes have been snatched from them by hard- hearted bankers, an army of the unemployed, women discriminated against at work, greedy rich people unwilling to pay their fair share of taxes, and returning soldiers denied benefits to which their service entitles them.
To the Democrats, and to about half of Americans who have made up their minds, the solution is to elect Barack Obama president of the United States. Their man, they believe, will bring justice to the downtrodden, heal the sick, feed the poor, save the planet and end war. This will be accomplished by raising income and estate taxes paid by the rich, increasing tax rates applied to capital-gains taxes and dividends, and freeing up funds by ending the war in Iraq “responsibly”. Throw in taxes on polluters, the withdrawal of some tax advantages enjoyed by the big oil companies, and you have a sort of anti-Keynesian fiscal policy: higher taxes as the economy weakens.
Fortunately for America, the state of the nation is not quite as described by the Democrats. Some 85% of Americans do have health insurance. Of the 45.7m people who are uninsured, many receive healthcare at no cost to themselves from the non-profit hospitals that account for about 90% of all such institutions in America. And, according to The Wall Street Journal, 25% of the uninsured are eligible for government-funded Medicaid, but have not signed up, and 54% are between the ages of 18 and 34, a group heavily weighted with people who probably see little need for coverage. Can things get better with sensible policies? Sure. But experience in other countries suggests that huge government intervention in the healthcare system might not be the answer.
Then there is housing. Again, there is no doubt that repossessions are all too common, and a tragedy for displaced families. But the vast majority of Americans are paying their mortgages regularly, and living in houses that are worth far more than when they were purchased, even though prices are down from their peak of a few years ago.
There is no question that the job market has weakened, but neither is there any question that it has not sunk to the levels of past recessions. There is also no question that inflation in food and energy prices is hurting American consumers, but price increases are nothing like those unleashed in the late 1970s by then-President Jimmy Carter, a super-delegate in Denver last week.
Karlyn Bowman, the American Enterprise Institute poll analyst who has her finger on the pulse of America, tells me: “Job satisfaction remains very high. Most workers don’t fear losing their jobs, nor do they think their job is about to be sent overseas . . . 76% in a new Harris poll said things are on the right track in their personal lives.”
But the number of Americans who say their employer has laid off workers in the past six months is up, which must produce some anxiety, and even though 76% feel things are on the right track in their personal lives, only 18% think this of the nation. Which gives Obama an opportunity to persuade the undecideds, some 30% of all voters, that he is the agent-of-change for whom they have been waiting.
John McCain’s chances, which are proving to be better than anyone imagined, will depend heavily on two things: continued progress of “the surge” in Iraq, and the state of the economy. Fortunately for him, there are signs — signs that do not yet qualify even as green shoots, but signs nevertheless — that the housing market is finding a bottom, as Wall Street types put it. The fall in prices is slowing, nine of the 20 metropolitan areas tracked by the much-watched S&P/Case-Shiller index posted price gains in June, new-home sales ticked up in July, and the inventory of unsold new homes, although still high, declined for the second consecutive month. Nigel Gault, an economist with the forecasting firm Global Insight, told The Wall Street Journal: “We are starting to see some hopeful signs in parts of the country.”
That might not be the beginning of the end of the housing crisis, or even the end of the beginning. After all, mortgage rates are creeping up; the banks face the enormous task of refunding almost $800 billion of their debt by the end of next year — $95 billion next month; the list of troubled banks is growing; and Freddie Mac and Fannie Mae may face tougher terms from lenders and be forced to curtail their support for the mortgage market.
But most Americans are comfortable with their own circumstances as they return to work on Tuesday — and to the job of deciding which man they want to lead the country in the next four years.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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