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From Senator McCain’s Economic Brain Trust

Conference Notes

We were invited to attend a call with some very illustrious people this morning who are advising John McCain on economic policy: Martin Feldstein, Carly Fiorina, Meg Whitman, and John Taylor.

As a tech businessman it’s always a privilege for me to hear from these two ladies, and as a dilettante economist, it’s even more exciting to hear from Doctors Feldstein and Taylor.

The points that were emphasized on this brief call related to job-growth, energy policy, and government spending. It’s worth pointing out the substantive differences between McCain’s positions and Senator Obama’s.

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Ms. Fiorina (former CEO of Hewlett-Packard) made much of the “Jobs for America” plan, which is primarily a recognition of three key points that I couldn’t agree with more: 1) Job growth in America, like economic growth, is not as robust as it could be; 2) Most jobs are created by small businesses; and 3) Job growth will come through selling American goods and services to consumers in other countries.

So what does Senator McCain propose to do about these points? He intends to reduce taxes on business investment and corporate income, and also to bolster the international agreements that make expanded trade possible.

Barack Obama has promised to do exactly the opposite of those things. Ms. Fiorina invited us to remember the lessons of history as in regard to higher taxes and protectionism. What Senator Obama has promised to do will make our current economic slowdown worse.

We got a brief mention of unemployment-insurance reform from Ms. Fiorina, which was intriguing, but no details. That ought to be taken up in a position paper or a future call.

Meg Whitman (the CEO of E-Bay) emphasized again that the focus of McCain’s economic planning is about small businesses, who are the job and growth engines of the American economy.

I really wouldn’t mind it one bit if Senator McCain made this a centerpiece of his campaign. He should say that he’s in favor of anything that will make small businesses grow and prosper. That includes lower taxes on business income, eliminating export tariffs, and making health-insurance portable, and anything else that comes to mind. The Business of America is Small Business!

In contrast, Barack Obama sees small business owners primarily as evil exploiters, whose taxes aren’t high enough. Obama doesn’t see entrepreneurs as the job-growth drivers that we actually are.

On to Dr. Feldstein (the Harvard economist and policy-maker), who made the point that petroleum prices need to come down through both an expansion of supply (more exploration and production of oil and gas) and a reduction in demand (he didn’t spell it out, but we know that McCain is interested in expanding support for alternatives research).

Feldstein’s key point was that expectations for future reductions in the price of oil will necessarily create permanent reductions in near-term prices, because the changed incentives will affect the behavior of producers and consumers. Basically a good point.

We heard from Dr. Taylor (the Stanford economist) on deficit spending. Here I’m less convinced.

Obama wants to reduce Federal deficits by increasing tax rates on high earners. In the first place, there’s only so much blood in that turnip, and in the second, balancing today’s budget is hard enough without all the additional spending Obama has promised.

Obama is just plain lying to us about fiscal policy. And he knows it, too.

But McCain’s fiscal policy hinges on several tenuous things: he expects that reduced spending on Iraq in future years will reduce the deficit, and he holds out hope that he can convince Democrat-controlled Congresses to freeze spending increases for one year, and keep them under control in the future.

McCain expects spending growth of about 2.5% per year during his first term in office. So where’s the deficit reduction going to come from? He expects revenue growth of 5% a year during that time. That’s incredible to me. I need to be convinced.

-Francis Cianfrocca

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