Wanted: An economically savvy candidate

What this country needs is a presidential candidate who understands and cares about economics. None of the candidates fills the bill.That isn't a good sign, because the state of the economy promises to be one of the two biggest challenges the next president will have to face, foreign affairs being the other. The next president will have to deal with an economy that is struggling to recover from the credit crisis brought on by the real estate collapse, an increasingly competitive world market, the weak dollar, the economic consequences of higher energy and commodities prices, and the costs of adjusting the economy to deal with climate change. He or she will have to devise policies to deal with all these challenges. No doubt, teams of economic advisers will provide the next administration with options, but the next president will have to make the choices. Given the election campaign so far, the prospect of a sensible, cohesive, effective economic policy's being presented by any of the candidates upon achieving office isn't good. Take Sen. John McCain, R-Ariz. One would expect that after his 26 years in Congress, he would have absorbed some understanding of economics, yet he has conceded several times during the campaign that he doesn't know much about the topic. Given that, how could Mr. McCain weigh the value of the advice he might receive from the Council of Economic Advisers, the Treasury secretary and the chairman of the Federal Reserve Board, and choose the right policies from among competing counsel? While his proposed federal gas tax moratorium for the summer months might be popular with working-class voters, it makes little sense if the ultimate objective is to reduce gas consumption for environmental and energy security reasons.

WINDFALL TAXES

Sens. Hillary Clinton, D-N.Y., and Barack Obama, D-Ill., show little more economic understanding than Mr. McCain. They both have called for a windfall profits tax on oil company profits and for increases in capital gains taxes. Are they aware that oil company earnings are barely average for U.S. industry as a whole and that the oil company profits support price-earnings ratios well below the average for the market as a whole? Do they understand that the last windfall profits tax, in the 1980s, reduced domestic-oil production and increased oil imports? What about the fact that a tax on the oil companies would actually be a tax on oil company shareholders (including 401(k) plan investors and pension funds), oil company employers in the form of lower wages, and customers, who might pay yet higher prices as companies passed on part of the tax to them. Both Democratic candidates have also said they would raise the capital gains tax. Here Ms. Clinton comes out ahead of Mr. Obama. She said she would raise it only to 20%, the level during the Clinton administration, while he wants to raise it to as much as 28%. However, each time the capital gains tax has been raised, federal revenue from it has declined, and each time it has been cut, federal revenue from it has increased. Raising the capital gains tax can negatively affect stock prices, and hence the value of 401(k) plans and pension funds of ordinary Americans. Unfortunately, none of the three candidates has any significant experience working in a company that requires a profit to stay in business. Mr. McCain has always worked for the government, first in the U.S. Navy and then in Congress. Ms. Clinton worked as a lawyer for a non-profit organization and for a law firm before being elected to the Senate. Mr. Obama worked as a community organizer, a lawyer and a law professor. As a result, none has any firsthand experience of the workings of the economy. Given that none of the candidates displays any significant understanding of economics, investors should be cautious with their investments for the foreseeable future no matter who is elected in November.