Candidates' Economic Advisers Take Center Stage

With the U.S. facing a recession and the economy at the top of voters' concerns, all three presidential candidates are looking to experts for new ideas.

By Richard Sammon, Senior Associate Editor, The Kiplinger Letter

March 25, 2008

The three presidential contenders -- John McCain, Barack Obama and Hillary Clinton -- are all building up their brain trusts of economic advisers. These key aides will have a prominent role in the campaigns -- and in the next administration if their candidate wins.

Republican nominee-in-waiting John McCain is surrounding himself with fiscal conservatives and tax cut promoters.

• Former Rep. Jack Kemp (R-NY), a supply-side guru and vice presidential running mate of Bob Dole in 1996 who helped craft Ronald Reagan's tax cuts in the 1980s, will have a prominent seat at McCain's table. He's already responsible for McCain's campaign pledges to seek full and permanent extensions of President Bush's tax breaks. Simply having Kemp near him on the campaign trail has helped shore up support from conservatives.

• Douglas Holtz-Eakin, a former director of the Congressional Budget Office, would be a principal economic adviser in a McCain White House. Holtz-Eakin is not as big a supply-sider as Kemp, but he'd also steer McCain toward tax cuts and toward spending reductions to help pay for them. Holtz-Eakin is much more of a deficit hawk than Kemp. McCain would welcome his advice on cutting wasteful spending, including many unauthorized earmarks that lawmakers slip into spending bills. He'd also help McCain push to rein in entitlement growth and shore up Social Security, using some version of private accounts for young workers. He'd aim for balanced budgets -- that's always good politics -- but it wouldn't be etched in stone for McCain, or even achievable, in all likelihood. Deficits in the $300 billion to $400 billion range could be expected. Holtz-Eakin would caution McCain that letting deficits go much higher could spark inflation.

• Pete Peterson, former secretary of commerce, ex-chairman of the Federal Reserve Bank of New York and former CEO of Lehman Brothers, is another senior adviser to McCain, pressing especially for free trade deals and export promotion policies. Peterson is also steering McCain on corporate tax policy, pushing for a reduction of the tax rate from 35% to 25%. He's behind McCain's embrace of green economy technology, saying it would promote creation of thousands of jobs.

• Phil Gramm and Warren Rudman, two former Republican senators from Texas and New Hampshire, respectively, are pressing to keep spending down, reform entitlements and push for tax cut extensions.

• Martin Feldstein, who served as President Reagan's chief economic adviser, is another advocate of supply-side economic and tax cut theory.

Barack Obama's brain trust is focused primarily on middle-class issues, a reflection of the Democratic Party's mantra that the Bush administration has been overly generous to the wealthy at the expense of others.

• Austan Goolsbee, a professor at the University of Chicago, is Obama's chief adviser, and his hand is being seen in some of Obama's positions. He prefers extending expiring middle and lower income tax breaks, but not for upper income earners. Goolsbee warns of a "round two" of the subprime mortgage mess in which tight credit could squeeze the middle class further, bringing fewer home equity lines, more credit card debt, etc. He'd push Obama to go after the credit card industry, bar excessive interest rates and rein in hidden fees and charges.

• David Cutler, a Harvard economist and former adviser to President Clinton as well as to 2004 Democratic nominee John Kerry, played a large role in formulating Obama's health care plan. He persuaded Obama not to include health insurance mandates, except for children.

• Jeffrey Liebman, also of Harvard, supports partial privatization of Social Security, with some caveats. Liebman could be central in fashioning a compromise with Republicans.

Hillary Clinton has a legion of economic advisers but relies most heavily on the team of Robert Rubin and Roger Altman, two close associates of her husband and both with extensive connections to Wall Street.

• Robert Rubin, treasury secretary under Bill Clinton and former head of the Goldman Sachs investment house, is an economic centrist. He favors industry-led changes in the mortgage lending and securities industry as opposed to more outright regulation. He also supports international trade and economic globalization efforts and would dissuade Hillary Clinton from a wholesale rewrite of the North American Free Trade Agreement, even if she promises one on the campaign trail.

• Roger Altman, deputy treasury secretary under President Clinton, is the senator's chief liaison to the financial markets industry, and he would, like Rubin, counsel against overly zealous regulations and oversight of the financial industry. He backs extending middle-class tax cuts, saying that's more important for the economy than extending tax breaks for upper incomers.

• Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee, is close to Clinton on policy matters and regularly discusses economic options with her. Frank would press Clinton to back a larger housing assistance/mortgage bill next year if the housing slump were to worsen.

• Steven Rattner, a telecom venture capitalist and former Morgan Stanley executive, is also a top adviser, as is Wall Street merger and acquisition dealmaker Blair Effron. Along with Rubin and Altman, Rattner and Effron urge budget neutral federal spending proposals by Clinton -- a strict pay-as-you-go requirement to keep federal spending in check, especially as Iraq war costs continue to mount. How tightly such a rule would be adhered to is an open question.

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