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Economists shaping politicos’ policies
By Dan McCue
Staff Writer
The candidates and their political surrogates might be grabbing the headlines in the long march toward January’s South Carolina primaries, but behind the scenes, on both sides of the political divide, economists are already beginning to shape the business, trade and other significant fiscal policies of the next administration.
For instance, Sen. Barack Obama’s lead economist, Austan Goolsbee of the University of Chicago, has been helping the Illinois senator hone his stance that Democratic goals can be achieved through market-oriented policies.
Among the Republican candidates, meanwhile, former New York City Mayor Rudy Giuliani is getting economic policy advice from David Malpass, chief economist at Bear, Stearns & Co. Inc., the global investment bank and brokerage firm, while Arizona Sen. John McCain has been tapping the expertise of John Silvia, chief economist for Wachovia Corp.
The individual candidates’ policies diverge when it comes to issues of interest to the local business community—issues that range from making affordable health insurance available to small employers to stimulating the growth of an innovation-based economy in the Lowcountry.
If a candidate wants to stand out, he or she had better convince the voter of his or her soundness on a wide range of bread-and-butter issues, the economists said.
Capitol Hill veteran
Silvia, Wachovia’s chief economist since 2002, previously worked on Capitol Hill as senior economist for the U.S. Congress Joint Economic Committee and chief economist for the U.S. Senate Committee on Banking, Housing and Urban Affairs.
That makes him somewhat unique in the world of economists who run in political circles—he’s seen the nexus of business and policy from both the public and the private perspective.
“I’ve always believed in the importance of education,” said Silvia, who holds degrees from Northeastern and Brown universities. “But I also always felt that if you want to be a really good economist, you had to work in the public sector.
“If you don’t, then you don’t understand how decisions are made.”
One of the first things he learned in Washington, is that a handful of senators on the important committees are the real drivers of decision making. The other thing he learned is that there are no easy answers when it comes to policy making.
“You can see that now with ethanol,” he said. “There’s this huge push behind alternative energies, and as a result, corn prices are going up and that’s affecting the price of a whole range of products. As an economist working on the Hill, it was very important to understand all these unanticipated consequences of seemingly simple policy decisions.”
On health care
Giving an example of a policy discussion, Silvia said that in providing advice to the candidate on health care issues, he’s emphasized that from an economist’s perspective, it’s important to differentiate between actual care and the insurance that people rely on to pay for it.
“That’s because a lot of people who don’t have insurance do get health care, in hospitals and in clinics and the like,” he said. “Secondly, when you’re talking specifically about insurance, you have to recognize that a lot of people who don’t get it do so voluntarily. It’s self-selection, and oftentimes those who make that choice are young and haven’t yet started
families of their own.
“Then there’s the other group that does have significant issues—that one-half of one percent that generates about 20 percent of the health care costs in the United States,” he said.
To the economist, insurance and insurance-related issues are only one component of the health care debate in this country—the how-you-pay-for-it part. Fundamentally, he said, one must look at health care costs as a whole.
“The fundamental issue is, how do we deal with the substantial rise in health care costs and how do you make the consumer aware of what those costs are?” Silvia said.
So how can public policy be massaged in such a way that it helps small businesses get ahead of the game?
Silvia endorses a couple of approaches. One would be to allow small businesses to buy health care insurance across state lines. The other is to allow small businesses to get together in groups—say, all the dry cleaners in Charleston, for instance—and permit them to buy a group health insurance plan, he said.
Tax policy will also need a significant review, Silvia said.
“One of the arguments surrounding all the proposals on health care out there is how you deal with the tax implications related to health care and, particularly, (to) insurance,” he said.
“How do you deal with the income disparity between someone who’s in a group program offered by their employer, and therefore receiving a subsidy from the company they work for, and someone that’s insured outside of it? Do you want to deal with it as a deduction? Or as a credit toward the health care they buy on their own?”
Silvia also doesn’t believe that universal health care, a concept that’s been endorsed by the entire field of Democratic candidates, is the solution.
“A lot of people talk about socialized medicine,” Silvia said. “Some of the candidates are saying they’ll create a system that results in health care for everybody, but the question for an economist always comes down to, who’s going to pay? Somebody’s going to have to foot the bill.
“Do you fix prices so that health care providers foot the bill? Do some taxpayers pay for others? To the economist, that’s the crux of the entire issue.”
On economic development
While health care is a hot-button issue because of the strong emotions it engenders, Silvia said economic development is a tough one for presidential candidates to tackle because so many of the issues will remain beyond their control even if they win the presidency.
“No matter who the president is going to be, federal assistance in the economic development of your state is largely dependent on who your congressmen and senators are,” he said. “Those that really matter in Washington will always get projects, and money, for their constituents.
“Frankly, about the best thing the next occupant of the White House can do to positively affect these things is to rein in federal spending while striving to minimize the pitfalls and unintended consequences that will accompany actions once elected.”
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charlestonbusiness.com.
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