McCain’s Economic Plan: NYTimes Critique Only Goes So Far

This oped does a nice job of calling McCain on his balanced budget BS:

the biggest news that Senator John McCain made last week was his renewal of a pledge to balance the federal budget by 2013. How? Who knows? Mr. McCain’s main campaign promises, if fulfilled, would lead to huge budget deficits. Extending the Bush tax cuts, enacting more tax cuts of his own and staying the course in Iraq would cost hundreds of billions of dollars more, every year, than the small bore spending cuts he has specified. Mr. McCain cannot balance the budget on a crusade against pork and a one-year freeze in a sliver of federal spending. Either he has a secret plan to balance the budget or he’s blowing smoke. It is safe to assume there is no secret plan. To balance the budget in the face of ever-increasing tax cuts would require untenable near-term cuts in Medicare, one of the biggest drivers of budget imbalance … no politician, least of all Mr. McCain, is simply going to slash the life out of the program. Even reform of Social Security, which Mr. McCain has also promised and which also must occur to restore long-term fiscal balance, would not right the budget anytime soon. Any feasible reform (not that Mr. McCain has one) would have to phase in over decades. Which leads us to conclude that Mr. McCain is merely talking the balanced-budget talk. Mr. McCain and his advisers must know that his numbers do not add up. But adding up is not their point. Their point is to perpetuate the fantasy that Americans can have ever bigger tax cuts and a balanced federal budget. They cannot. The unbalanced budgets of the Reagan years and two Bush presidencies are proof.

So why is Dean Baker not pleased with this oped?

The one obviously crucial item that is missing from this list is a lower dollar. The United States is running a current account deficit that is equal to 5 percent of GDP. This logically implies means that the public and private sector must together be dissaving (i.e. borrowing) by an amount equal to 5 percent of GDP. While this can be reasonable for a rapidly growing country like China or India, it is not a sustainable position for a rich country with a slow growing labor force like the United States. The only plausible mechanism for adjustment for the current account deficit is a lower value of the dollar. It is understandable that politicians would be reluctant to call for a weak dollar.

As we noted here, the McCain plan calls for a stronger dollar:

John McCain’s policies will increase the value of the dollar and thus reduce the price of oil. In recent years, the declining value of the dollar has added to the cost of imported oil. This will change. Americans will have a stronger economy, a stronger dollar and greater purchasing power for oil, gas and food.

Why is this a stupid idea? Oh yea:

Does McCain want net export demand to decline? Does he not understand that the reduction in net export demand from dollar appreciation will deepen the recession and lead to less employment growth?