Economic policy wonks rarely get much attention, even if they are advising a presidential candidate. But that's not the case for Austan Goolsbee, a University of Chicago economist who serves as the top wonk for Sen. Barack Obama, a longtime friend. But Goolsbee got plenty of media attention recently after reports that he may have given back-channel assurances to the Canadian government that Obama's tough talk about the North American Free Trade Agreement was just campaign rhetoric. In an exclusive interview, U.S. News chatted with Goolsbee about Obama's economic agenda. Excerpts:
What do you think about the idea of more regulation for Wall Street because of the subprime debacle?
It doesn't make you against capital markets to be for oversight. As Senator Obama has said, if we had had more aggressive, prudent oversight of what people were doing, we very likely would have prevented the most extreme behaviors by a lot of the actors which have ended up being massively devastating to our financial markets. [Even before the crisis] Obama said that the fate of our capital markets is very much tied to the fate of ordinary Americans who are really struggling. If an ordinary person in Indiana can't make the payment on their house, it hurts them but it also hurts Wall Street, too. Wall Street may be on an island, but it is not an island from the economy. That has also proved superprescient.
So what affects one, affects the other?
As he says, if you think a very small group of people can succeed beyond their wildest dreams while the rest of the economy struggles or goes under, it's not that you don't understand what's fair—it's that you don't understand how the economy works...and it is his view that in the last eight years there's been a lot of economic policy geared around an unsustainable economic philosophy that says let's just keep cutting taxes for the very highest-income people whose incomes were already growing and that that's the key to a successful economy.
Does Obama's plan for higher taxes and more government spending and regulation mean a return to big government?
That isn't what Obama is putting forward. The single biggest item in his budget is tax relief for ordinary Americans. His point is that if we are cutting taxes and providing relief to people, not only should they be the people who need it but the people for whom it would be best for the economy to cut taxes. And that is ordinary Americans, because the squeeze on ordinary Americans is the thing that is pulling the economy down now. It's not that high-income people need to have their capital gains [tax rate cut from] 15 percent to 10 percent. They aren't the people who are struggling, and they aren't at the root of the economic downturn we are facing.
This downturn is not a random business-cycle event that just happened. It is the very culmination of six to eight years of really serious struggle for ordinary Americans in which their incomes are flat, the cost of energy, education, healthcare, and now food are up dramatically, leaving zero margin for error, and that is the root, Senator Obama says, of why the personal savings rate literally goes to zero.
People don't have money to save, so they started taking money out of their houses, and now the powder keg is lit, and all we were waiting for is something to go wrong like house prices fall or the price of oil goes to $100 a barrel. You knew given what had happened the past seven years that there would be a consumer debt crisis that would come out of that.
Senator McCain's advisers have told me that before we start spending more money, let's get government as efficient as possible. Does that sound like a good plan to you?
I totally agree with that, but Barack Obama doesn't need to take a lesson in fiscal responsibility from a candidate who has called for $400 billion a year in additional high-income tax cuts and unlimited commitment to war in Iraq, which is currently running at about $150 billion a year. Under the current McCain budget, it is clear the deficit would more than double by the end of his first term. After $400 billion a year in high-income tax cuts, they are going to have a serious revenue problem. And the problem facing the economy is not that high-income people do not have enough money. So I find it extremely strange that the solution that they keep putting forward is to cut taxes more for the people whose incomes have been growing very rapidly.