As flip-flops go, John McCain's latest may set an all time speed record. This past Tuesday morning on the 'Today' show, he said this about the possibility of a federal bailout for insurance giant AIG. "We cannot have the taxpayers bail out AIG or anybody else, this is something that we're going to have to work through." Just 24-hours later, as the Bush Administration effectively bought 80% ownership of AIG at taxpayers expense, McCain said this on 'Good Morning America.' "I don't think anybody I know wanted to do that. But there are literally millions of people whose retirement, whose investments, whose insurance were at risk here and they were going to have their lives destroyed."
That's about as complete a 180 degree turn as you can do on an issue, and it took him just one day to completely change his mind. It exposes McCain's biggest Achilles' heel. In these difficult economic times, the man who said just days ago that "the fundamentals of the American economy are strong" clearly does not have a good grasp of economic issues.
McCain's even admitted as much himself. In a meeting with the Wall Street Journal earlier this year, McCain admitted he "really doesn't understand economics." It shows, and that's why McCain's economic statements are so much more political than practical. For instance, as the financial sector went into meltdown this week, McCain's answer was that he would "fire the head of the SEC." Is he really naive enough to believe the head of the SEC caused this mess?
McCain's policy views are also problematic. McCain favors keeping the Bush tax cuts on the rich while giving smaller tax cuts to those in the middle class. Obama wants to eliminate the Bush tax cuts for the wealthy and give larger tax cuts to the middle class. On this one issue, Obama's plan is better because he clearly understands a fundamental maxim of our economy. It's not just 'It's the economy stupid' but 'It's the MIDDLE CLASS economy stupid.'
To prove my point, you need look no further than the economy we have right now. The Bush tax cuts are still in place. How are they working? As the latest Fortune ranking of the richest Americans shows, even the rich are a lot less rich. Why? It's because middle class Americans, the people who actually buy stuff, are bearing the brunt of this recession and have suffered economically during the Bush administration.
President Bush's plan for economic growth involved more than just massive tax cuts tilted towards the wealthy. He also pushed the so-called 'ownership society' plan that has put us on the verge of the most massive bailout of the financial industry ever. Bush wanted to raise home ownership to all time highs by relaxing loan requirements and backing them with help from Fannie Mae and Freddy Mac. His thinking was that not only would a greater level of home ownership create better communities, but Bush also understood most Americans achieve wealth through the equity they build in owning a home. There were also side benefits. More demand for homes raised their value which created more home equity from which homeowners could borrow at dirt cheap interest rates. Middle class homeowners spent money. The economy flourished.
But there was a problem. Statistics show real wages for the middle class continued to decline, meaning more and more people were buying costlier homes their wages could no longer support. Once they started defaulting, it created an economic 'death spiral' which has put our financial system in crisis.
The lesson? When the middle class does well, they buy things and the American economy booms. When they don't, it flops. Understand that, and then deciding a simple issue like who should pay more taxes and who should pay less taxes is a no-brainer.
In 1992, George H.W. Bush was beaten by Bill Clinton in part because he couldn't articulate a good vision for reviving a faltering economy while Clinton could. McCain could be headed down the same path as Bush Sr. if he doesn't bone up on economics and adjust his views accordingly because this economy is no longer 'fundamentally strong,' and we cannot afford a President who doesn't understand that.
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