John McCain on Our Economic Challenges

Via Greg Mankiw comes John McCain’s speech to the Economic Club of New York. Greg really liked what Senator McCain said. Maybe he’s hoping to be McCain’s economic advisor on the hope that a President McCain would be more willing to listen to his advice than George W. Bush did.

Let me start with where I also agree with Senator McCain:

A global rising tide of protectionism and a retreat from market-based economic policy is threatening the entrepreneurs of developed and developing countries alike. Free trade is the key to global economic growth, and a key to U.S. economic success. We need stand up for free trade with no ifs, ands or buts about it. We let trade and globalization be politicized at our own peril.

Of course, President Bush also preaches free trade as he uses trade protection for political purposes. McCain is also rightfully worried about the long-term fiscal deficit created by the President that Greg used to work for:

A tsunami of entitlement spending is threatening our economy, while providing no real security to retirees. We have made promises that we cannot keep … Our workers make their retirement plans based on promised benefits that cannot be paid even if we burden our children with crippling taxes. If we fix the system now, people will have time to plan accordingly, to ensure that they still have a comfortable retirement. If we wait, we make the problem worse and, in effect, lie to Americans who we encouraged to put their trust in a broken system. I have long supported supplementing the current Social Security system with personal accounts – but not as a substitute for addressing benefit promises that cannot be kept. People of good faith in both parties agree that we must make the hard decisions to restore solvency to these programs and that personal accounts can ease the impact of slower benefit growth … But the answer to these deficits is not to raise new taxes or repeal tax cuts but to restrain our spending habits. If the federal government can’t be funded with current revenues than we must reduce its size.

The best that can be said about these claims is that Senator McCain is not arguing there is some magical free lunch. But he is flat wrong that moving to personal accounts will solve the deficit problem. He is also wrong that the Social Security system is broken. Rather it’s the General Fund that is in massive deficit as Greg’s former boss promised massive tax cuts and a prescription drug benefit. Finally, the Senator is wrong about not being able to pay for the prescription drug benefit with tax increases. But at least the Senator is not trying to sell us that we can have our cake and eat it too, which Greg’s former boss is still saying.