The top economic adviser to John McCain's 2008 presidential campaign sounds off about auto bailouts, health-care reform, and why Obama's fiscal policies don't make the grade.
If John McCain had won, would there be more bipartisanship?
Holtz-Eakin: I think so. One reason is mechanical: it would have been a Republican president and a Democratic Congress. You have to operate in a more bipartisan fashion. It's also about style. McCain is more willing to disappoint Republicans than Obama is to disappoint Democrats.
How would you grade President Obama's economic policies?
On the short-term policies, I'd give them a C-plus, maybe a B. They deserve credit for changing perceptions. The Bush administration was out of gas, and the public was starved for leadership. It fell to him during the transition to stabilize the situation. But on the long-term stuff, he is laying the groundwork for bigger future problems. The budget is in disarray. The stimulus and [the] health-care proposal are making it worse. The auto [bailout] sets a precedent I don't much like.
Why don't you like the auto rescue?
GM and Chrysler could have gone through normal bankruptcy. The auto companies said they would never have come out of bankruptcy, but they weren't exactly impartial observers. The Obama administration put them through bankruptcy anyway but also acquired ownership stakes in the companies. The minute you own it, Congress wants to run it.
You've also said the country would be better off without the Obama-backed health proposals in Congress. Why?
Health-care reform has twin goals. One is to reform the delivery system [hospitals, doctors, clinics] to make the cost of medical care grow more slowly or even fall—without diminishing quality. There's little of that in these bills. The second is to increase insurance coverage; that's what Obama is about. Politically, it would have been better to do it the other way: start with delivery--system reform and, as savings showed up, plow those into coverage expansion.
Do you accept the administration's claims that health-care reform won't increase budget deficits?
No. There is no cost control, and the numbers are truly frightening. On paper, the bills break even for the budget. But they don't do that, because they leave things out. They all leave out paying [higher] Medicare doctors' fees, because that's inconvenient. They claim they will cut $400 billion or so out of Medicare from reductions in payments to other providers [hospitals, skilled-nursing facilities]. The problem is, they haven't changed the way those guys do business. You're setting up a new health-care program that grows at 8 percent a year by promising to cut the one [Medicare] that you haven't fixed. That's saying to our kids, "Here's another one for the deficit." That's terrible.
Do you think the economy's dynamism is declining?
That is my concern, really. Small businesses look out and see an array of things going on: health-care reform, higher taxes, Waxman-Markey climate legislation—I'm all for cap-and-trade, but not that bill—trade issues and "free choice" elections for unions. They say, "I don't want to hire someone." My long-term worry is that we lose flexibility. What we have always done better in the U.S. is fail. Workers and capital went to new places and were better used. A risk-averse economy doesn't let things fail. A heavily regulated economy just props everything up. That's a mistake.