Gramm, McCain and Obama

Phil Gramm spoke the truth. The economy is in a slow period, but the recession that many of us (including me) anticipated has not happened. IOW, despite significant structural problems in the economy (housing meltdown, inflation, oil prices, weak dollar and other policy mistakes), the economy is holding up. This is good news.

There is a disconnect between the real economy, which is doing OK, and the media picture of an economy about to fall into steep recession if not depression. It’s obvious what’s going on. First, the media industry is consolidating: old media businesses are failing, their employees either being laid off or worried about their jobs; new media businesses like Google are changing the fundamentals of the media industry. So there is a lot of fear and uncertainty among media people, and that uncertainty gets reflected in news reports and opinion columns.

Second, the big media are, as usual, doing their best to get the Democrat elected. This means that the economy is going to be terrible until the election, after which we will (assuming the Democrats win big) experience a remarkable recovery due to the farsighted policies of President Obama and the Democratic Congress.

Gramm was merely pointing out what was already obvious to serious observers. Maybe, for tactical political reasons, he shouldn’t have been as blunt as he was in the Washington Times interview, but that’s hindsight. The problem is that McCain immediately disassociated himself from Gramm in a way that weakens his campaign. Gramm, a former economics professor, is known for having a clue about economics. Indeed he was brought into McCain’s campaign to compensate for the candidate’s widely acknowledged weakness in this area. McCain’s hasty disavowal of Gramm therefore looked like a political panic. He was behaving like the old McCain, whose primary loyalty often appeared to be to the media and Democratic opinion. The media and Democrats decry what they see as a disastrous economy, therefore McCain could not allow Gramm’s reasonable statements to stand. He didn’t even try to spin them but flatly disavowed them. This was McCain at his worst.

The Gramm incident also showed Obama at his worst. While Obama showed consummate political skill in exploiting the McCain campaign’s missteps, he revealed in doing so the glibness and extreme arrogance that unnerve some of us. Here is the key part of Obama’s response to Gramm:

“Senator Phil Gramm, a top economic advisor to Senator McCain, just recently said that this is merely ‘a mental recession,'” Obama said during a campaign appearance in Virgina.
 
“Senator Gramm then deemed the United States, and I quote, ‘a nation of whiners,'” Obama said.
 
“Well, you know, America already has one Dr. Phil,” Obama said, referring to a tough-talking television talk show host and psychologist.
 
“When it comes to the economy, we don’t need another,” he said.
 
“I think it’s time we had a president who doesn’t deny our problems or blame the American people for them, but takes responsibility and provides the leadership to solve them. That’s the kind of president I will be.”

Obama, who appears to know little about economics, blames economist Gramm for denying the existence of problems that don’t exist. The arrogance comes through more clearly on video:

I had thought McCain was due for a bounce, but things aren’t looking good. And of course McCain is his own world of bad policies.

Interesting times ahead.

40 thoughts on “Gramm, McCain and Obama”

  1. As accurate as Gramm is, I think we can see why he didn’t go far in politics. (The gossip around here – where he lived and taught – seldom makes him sound endearing. Some of this may be liberal academia critical of a conservative, but the picture isn’t a lot better from admirers of his theory and his intellect.) You can be right but if you want to be effective it is best not to be offensive.

    Of course, it would be a good idea if more students learned more language at an earlier age, but being told by someone like Obama (whose Spanish can’t match Bush’s, for instance) that we are parochial and the subject of European laughter is not likely to come across as the appropriate attitude for a president. Gramm’s conclusions are clearly right; but it isn’t just bullshit to recognize that others have been damaged by the ecnomy. Sure, it is presented in a skewed way, sure it isn’t true overall – but the purpose of a campaign is, after all, not just to get elected but to offer a program that the public believes understands their worries. The price of gas is making a difference in people’s lives. They aren’t giving up food or medicine and the changes they are making are generally sensible anyway. Still, filling up your car is not a fun thing. I think Gramm is quite right, but I wouldn’t trust him with a lot of power. Surely McCain could find a free marketeer that isn’t a jerk. And one who wasn’t a jerk might have said what Gramm said in a way that was less offensive and therefore easier to “spin”.

  2. Please do some more homework on the economy before posting such silly uninformed ideas regarding the economy. Gramm is out of touch with economic reality as is the notion that big media, whatever that is, is creating a ‘story’ regarding the economy.

  3. A person’s perspective on the economy will be largely dependent on his geographic location & his profession. If you’re a corn farmer in Iowa or a chemical engineer almost anywhere, things probably look pretty good. If you’re a semiskilled worker in Michigan, not so much.

    It’s certainly true that the old media generally exaggerates current problems with the economy, for three reasons: (1)a traditional preference for bad news–supposedly based on marketing reasons but probably also partly a matter of journalistic psychology, (b)a dislike of the current administration, and (c)extrapolation from the problems in their own industry, which are to a substantial degree self-generated.

    At the same time the media exaggerates the problems of the moment, they are generally blind to the problems that are coming down the pike to hit us over the head in a year or in five years. In 2006, how many articles or TV segments were there about the coming subprime/CDO crisis? How many articles are there *now* about the coming electricity crisis?

    I’m far more concerned about long-term structural factors: the electricity crisis, the catastrophic failure of the public schools, the burden of excess litigation–than about the cyclic downturn, because these things have little if any automatic tendency to fix themselves. All of these things would IMNSHO be greatly aggravated by a Democratic administration. People who long for “change” ought to reflect on the fact that not all change is good, and some changes can break things almost beyond repair.

  4. By consensus, recession is defined as two or more quarters of zero or negative GDP growth. It appeared recently that we were in or about to be in a recession. However, for the past several months economic data have shown weak but positive growth. Unemployment has ticked up but is still at levels that would have been considered full-employment until quite recently. Productivity is at an all-time high. There are problems but the situation is nowhere near as negative as it was in, say, 1990-91, a mild recessionary period, never mind 1975. To characterize the current economy as being in terrible shape, as many politicians including Obama and McCain do, is wrong and irresponsible. The fact that the media consensus reinforces a false message of economic gloom and doom doesn’t make that message accurate or worthy of deference.

    Gramm spoke the truth and is being pilloried for it. Anyone who thinks he is wrong should watch Obama, in the video above, call for a govt bailout of people who made foolish real-estate speculations that most people were wise enough to avoid. This is a far cry from the high unemployment rates of the 1970s, much less 1982. In historical terms were are in decent shape, yet the guy who points this out gets punished.

    The willful economic ignorance displayed by Obama, McCain and their public defenders is of a piece with the willful ignorance displayed by people who insist that expressions of concern about jihadism and WMD threats to the USA are fear-mongering.

  5. So, Americans are whiners and we are people who embarrass our politicians by not speaking more languages.

    Huh. As much as the substance of what Gramm and Obama said in the past few days is, well, substantive, I sure wish they wouldn’t rush to show how little they think of the American people.

    Perhaps the low approval rating of our political class, en mass, is the public returning the favor? They don’t approve of us, we don’t aprove of them……

  6. Oh, darn! Spelling mistakes galore. Obligatory comment about second cup of coffee to be inserted here.

    *Saw a great bumper sticker today – a beer truck had a bumber sticker that said ‘44% of the cost of this beer was related to taxes’. Don’t remember exact wording, but, hilarious!

  7. Running for office is a job interview and while speaking truth can be refreshing occasionally, demeaning the interviewer in a job interview is generally a bad idea. I do not disagree with Phil Gramm’s underlying message about the economy, but his political skills have a lot to be desired. Of course McCain had to slap him down for it (and the Belarus comment was a joke).

    I would like to see Phil Gramm in treasury or as a seinor advisor to President McCain, but Mac is not President yet. It is Phil’s primary job to help McCain get elected, not give tough love to the American voters.

  8. Senator Gramm was inartful (and overgeneralizing) when he uttered “nation of whiners”. He would have been spot on if he had said, “a media populated by whiners, who seek out the whiners to amplify their themes”. Those of us who think logically about the economy and do not whine are not offended by his phrasing, but the same media mentioned above will now take his comments and find all those timid souls who are “hurting” and get them to castigate Gramm, and by extension, John McCain. For his part McCain showed his true colors by immediately denouncing Gramm. What a sap.

  9. Given that the MSM is in a decline [technological correction?] we’re confusing the desperate messenger with the message, our economy isn’t screwed, just the MSM’s.

  10. IIRC correctly, the drumbeat of economic gloom in the nation’s media started about 9 months ago–Is the economy weak? yes; but, weak as it is, it is still exampanding as of the last quarterly report. And, as several commenters have correctly noted, the state of the economy depends in large part on where you live. I do take Gramm’s major point, and agree with it, but as the Obama campaign might say, it was “inartfully” worded. I think any enterprising grad student in need of a dissertation topic could do a content analysis of the nation’s media, count how many times the word recession has been used, and then correlate that information with the democratic primary season, and would end up with a reasonable dissertation. Of course, this could only be done at the University of Chicago.

  11. I work in the fixed income markets, so I actually do spend my waking hours doing a lot of “homework” on the economy. Gramm is right that our current problems (with one big caveat) are not nearly in the league of the lost decade of the 1970s, nor the recession of the early ’80s. An unemployment rate that is below 6% and an inflation rate below 5% do not signify the end of the world.

    However, Gramm is a lummox. You want to help people keep perspective so they don’t act irrationally; you don’t want to call them whiners (or, by implication, morons – that’s Obama’s specialty, anyway).

    My big caveat regards the problems at Fannie Mae and Freddie Mac. There’s a growing consensus that the government is going to have to bail them out, and that will cause a giant mess. It won’t cripple us, but it will be distinctly unpleasant.

    When all is said and done, we’re going to have to take a long look at mark-to-market and off-balance sheet accounting, the government’s guarantees to its GSEs, asset securitization, and other issues. Looking at the craven economic imbeciles that make up Congress (and our two presidential candidates), I’m not hopeful.

  12. “…due for a bounce…”

    Like a dead cat hitting the cement twenty stories down.

    Is he even running? Where is he? Obama has made the transition from Lefty seeking the nominaton to centrist seeking the presidency and McCain was NOWHERE to be found. Any competent candidate would have riddled him by now. He is just blundering around, much like Dole.

    “…nation of whiners…”

    D’oh. What a stupid thing to say to the customers who you are trying sell your product, er, candidate to. Gramm is a dope. His policy ideas may be good, but if you are in politics and don’t know the basics about what not say, that makes you a dope.

  13. Ginny says, “As accurate as Gramm is, I think we can see why he didn’t go far in politics.”

    Hmm, Gramm is a five term congressman (elected as a democrat and as a republican) and a two term senator. Looks like you are setting the bar pretty high there Ginny.

  14. I’d like anyone to try to sell a car — assuming gas prices are rock bottom — by first insulting your customer. Good luck.

    Now, take the same conditions but swap the rock bottom gas prices with rock bottom party approval ratings and instead of selling a car to a customer you’re asking for their vote.

    Phil Gramm is very intelligent thinker. Few can deny that. But he’s not a public spokesperson.

    Unless you’re planning to make a silly public comment, spark a firestorm, and attempt to alter its course in your favor(which McCain obviously never wanted), leave the back room chatter IN the back room.

  15. Phil Gramm is an economist and he should know better. In fact, I’m certain he DOES know better. If you look at income growth over the last ten years, it’s primarily been the result of home equity. People were seeing the value of their homes double in five years, that happened in lots of places around the country, guess what? It’s unsustainable. When you eliminate the wealth effect of rising home equity, people are going to feel it. It’s not a mirage. People had equity in their homes and they tapped that equity to finance their lifestyle. Now, that equity isn’t available in many cases and they’re forced to spend less. Phil Gramm works for UBS who made tons of cash securitizing mortgage debt. I didn’t hear a peep out of him when his firm was busy making bundles of money off the housing bubble. Now that the bill is coming due, he thinks we’re a nation of whinners. Maybe he should stop the whining himself and get to work on a solution.

  16. Gramm is right on the recession thing, but wrong on the “nation of whiners.” If he had said that we have a political culture the essence of which is to reward whiners, he would have been right. If he had said that we therefore get more whining for handouts than is warranted, he would have been right. But there are still many, many people in America, perhaps even a majority, who do not run whining to Congress whenever something goes wrong in their economic lives. But if he had said that he knows of a way to stop politicians from rewarding whining for dollars, he would have been wrong.

  17. “If you look at income growth over the last ten years, it’s primarily been the result of home equity”…income and wealth are different. Increase in the value of home equity has no direct impact on income, though it does affect both wealth and spending capacity.

  18. “Gramm is a five term congressman … and a two term senator.”

    What worked in Texas is not working on the larger stage, obviously.

    Knowing what league you are playing in, and what the rules are in that league, is a skill he apparently lacks.

  19. David Foster,

    I suppose “income” is the wrong word but whatever you call it, the economy benefitted from the increase in home prices over the past decade. It only stands to reason it would suffer as prices fall.

  20. Some of us whine a lot more than others. Even people old enough to know better, whom I define as those old enough to remember the “long Seventies” (’70-’82), are prone to saying we’re in tough times, or concocting arguments like those of “NYC,” above.

    Whiners will always be with us, and if it’s not the economy, it’s usually something like the Supreme Court; I’m enjoying each half my friends telling me that the SC will be wrecked if the guy the other half of my friends support is elected. The problem, as alluded to above, is that McCain immediately began pandering to the whiners in a way distressingly reminiscent of his infamous response to the MMR-autism whackos a while back.

    NB: I am facing a possible layoff later this year which would most likely require a full-blown career change. Nothing would be easier for me than to whine and demand Federal bailout/protection of my current position. Oddly enough, I don’t want the world to stop so that I can do exactly what I’m doing now until I retire. Freezing America in 2008 is no better an idea than freezing it in 1978 would have been.

  21. We are not a nation of whiners! Things are awful because a Republican is Prez. We’re only the first richest country in the history of mankind, but we could be more if we had a Dem leading us.

  22. Jay Manafold,

    “…or concocting arguments like those of “NYC,” above.”

    Yeah, this whole housing bubble thing is a figment of my imagination. Is it your contention that falling home prices and
    the disintegration of subprime home loans has NO effect on the economy? What exactly DOES effect the economy in your world? Let’s just say I’m less than surprised you’re facing a layoff.
    Idiots are usually the first to go.

  23. The housing bubble and collapse didn’t happen everywhere. Many parts of the country experienced much less extreme changes in home prices. Here in North Texas home sales are slow, but prices haven’t collapsed.

    High energy prices are generally bad for the economy, but areas that actually produce oil and natural gas benefit from high energy prices. Some of the areas that complain the most about the current state of the economy consistently block anything in their backyard that would increase energy supply.

  24. Falling house prices are certainly very painful for homeowners, especially those who have maxed out their borrowing capability. However, for younger people and others who–for whatever reason–have not yet bought their first house, falling housing prices are very good. In effect, rising housing prices represent an intergenerational transfer of wealth (younger>>older) and falling housing prices are an intergenerational transfer of wealth in the other direction.

    Given that most residential real estate changes hands among Americans, I’m not sure that increases/decreases in res R/E price levels (except for those based on physical improvements) should be counted in the national wealth at all. What they really are is asset inflation/deflation.

  25. I am no economist, but until I am standing in line again for gas, staring at long rows of black @ white generics at the grocery store and trying to get a home loan for less than 12.5%, I will not worry overmuch about our current “worst economy ever”.

  26. Home prices: Colleague carrying boxes to his car, I ask if he’s moving. Kids out of college, they are moving to a house closer to work (and out of the better school district). Said they put up a sign and the old one was sold in two days. Neighbor has had a sign up for 4 months, but wanting $480,000 on a street with half the houses rented by multiple students and across from a (temporary) parking lot means the lack of buyers isn’t all that surprising. Their remodeling was impressive & its basic lines are great; still,I’ve never thought we were common sensical about our homes – and our investments, both in emotion and money, in them.

  27. The whiners have been the Old Media. They have been banging on about the widespread devastation of 5% unemployment (formerly considered full employment) for over a year now, so the jump to 5 1/2% is the Return of the Son of the Great Depression. Expect Pulitzer-winning songs of praise if President Obama manages to reduce it to 6%.

  28. Gramm is a cranky old man. Reminds me of what my sister in law said about our father inlaw. Once they his 70, the edit function goes.

  29. There are few things more fatal to a politician than condescension to the public. The public already suspects that politicians feel this way, but they don’t want it confirmed.

    Those who are insecure, are made to feel their perceived weakness more deeply. Those with a more accurate feeling of contempt for politicians are naturally outraged that what most of them regard as lowlives dare to speak so to their moral and intellectual superiors.

    Many Americans are hurting. If you live in a big city, and use your car once a week to visit the beach, then no, you’re fine. If, like Senator Gramm, you have tons of cash from your senatorial pension, then no, you’re fine. But home heating fuel, electricity, and gasoline have gone up a lot, and stayed up. And most of the country has to drive a lot if they want to keep their job.

    I’m glad things at the Tennwriter la casa are so arranged that most of the other usual bills are very low or nonexistent, but still, $4 a gallon hurts. If instead of paying down our bills, we’d instead bought the 72″ plasma screen, well, we’d be in trouble, instead of merely pinched.

    There are a lot of things I could buy if I didn’t have to send huge gobs of cash to the Saudis so they can finance terrorists. The economy would be raging forward if gas was $2 a gallon.

    This isn’t whining. This is reality. Sure the economy isn’t in recession, but energy costs have gone up 250% for gasoline, and a substantial, but not so exquisitely painful amount for Mr. Propane and Mr. Electron.

    I’m a conservative. I already knew Senator Gramm had lots of problems. I’m not surprised that Senator McCain chose him because both of them are rude. I’m not surprised Senator McCain slapped Senator Gramm down either because anyone could have told him that calling the US a nation of whiners was really, really not a good idea. It didn’t work too good for President Carter when he called America a helpless giant or that ‘malaise’ thing.

    There is a reason the 70’s come up. No, we’re not as bad off as then, but still. Clueless, arrogant, not very conservative Republicans, the US acting passively in foriegn affairs, extxtreme fuel costs, and Jimmy Carter…I mean Obama about to win the election. I’m just waiting for disco to come back.

  30. Aside from the obvious universal that we don’t like to be condescended to, we also suspect if a politician is doing it that this might be his attitude in office (“what can I get by those rubes” at its worst, more damaging and irritating if more high minded “they don’t know what’s good for them, the economy, or is morally appropriate.” Of course, we tend to suspect that that line on some level we figure the politician is thinking (probably not consciously) “they don’t know what’s best for me.”

  31. I’m so sick of (I’ve been using this phrase a lot now) this

    “Welecome to Nuclear-Hot Critial Breaking Exploding Orgasmaing News at the Top of the Hour…. OMG!!! Presidential Candidate x’s suppoter said y today. Top news!!! Candidate z demans Candidate x condems y. X says z is a pedophile and should be quiet”

  32. NYC – Not a problem. But do take a shot at quantifying your argument*. While I would be surprised if the housing bubble drags us into a ’91-’92 type recession (and astonished if it led to an ’81-’82 type one), it would be interesting to lay out a detailed, falsifiable prediction. We might all learn something.

    Note also that aggregate statistics can be misleading. See, for example, Dynamic Maps of Nonprime Mortgage Conditions in the United States, or this heat map.

    * not the one about whether I deserve to be laid off or not; it wouldn’t be very challenging

  33. One thing worth noting is that had Phil Gramm been one of Obama’s advisors, he would have wound up under the bus with Rev. Wright, Samantha Power, and the other advisors that Obama has found inconvenient.

    It’s interesting how Obama gets a pass when one of his people states the truth, or says something unpopular. But one McCain guy states the pure economic facts and McCain gets unartfully pummelled.

  34. In 1999, Gramm supported the historic banking deregulation bill that destroyed Depression-era firewalls between commercial banks, investment banks, insurance companies, and securities firms that is now at the heart of our financial problems. Between 1995 and 2000 Gramm, received $1,000,914 in campaign contributions from the Securities & Investment industry. Gramm was one of five co-sponsors of the Commodity Futures Modernization Act of 2000, which is blamed for permitting the Enron scandal to occur. At the time, Gramm’s wife was on Enron’s board of directors

    Wendy Gramm, as CFTC chairwoman, promoted a rule excluding Enron’s energy futures contracts from government oversight. Wendy later joined the Houston-based company’s board and her Enron salary and stock income brought between $915,000 and $1.8 million.

    Why would anyone listen to the esteemed Dr. Gramm?

  35. Why would anyone listen to the esteemed Dr. Gramm?

    Because he has a deserved reputation for knowing a lot about economics, finance and public policy. That was why McCain picked him as his economic advisor and spokesman, as is obvious to any reasonable observer. If your ad hominem slanders were true McCain wouldn’t have gone near him.

  36. Jonathan,
    I don’t think presenting facts about a person’s history in the senate and his spouses work is ad hominen slanders. They are facts. They are verifiable. His use of “knowing a lot about economics, finance and public policy” is clearly seen in his senate record and his current role with UBS. Perhaps McCain made a mistake in choosing Gramm; he acknowledged that publicly following Gramms’ statement. I found McCain’s response to the statement to be heartfelt and honest. McCain knows what it is to suffer hardship, as we well know. He could have picked a better economic advisor.

    This weekend’s events concerning FredMac and FanMae counter Gramm’s rosey economic scenario. If these two GSE’s go under, then you’ll hear some real whining, especially from Japan.

    Have a good week. :)

  37. It’s slander because you interjected, as though it were fact, your opinion that the banking and future regulatory reforms Gramm supported somehow caused the Enron scandal and real-estate meltdown, and because you suggested that he supported those reforms because the financial industry gave him campaign contributions. Nowhere did you discuss the substance of Gramm’s positions. And now you dig the hole deeper by suggesting that McCain’s political response to Gramm’s reasonable statements is to be accepted at face value because McCain suffered as a POW. Your assertions are entirely personal and speculative, and give a strong impression that you dislike Gramm but lack a basis to criticize his arguments on the merits.

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