Phil Gramm's Mouth And Economic Reality

A clarifying moment for John McCain, potentially, or a moment where Barack Obama pulls together a variety of strands about McCain and presents an unflatter..

"Phil Gramm does not speak for me. I strongly disagree.”

McCain has baggage. Begin with his own statements about not undering economics; add to that a few reversals on policy, a very odd phrase about Social Security, a party linkage to President Bush, and pressure from professional conservatives to adopt an approach to economic problems that is more tough-love than lovey-dovey. Phil Gramm is not just an adviser; he's been a close adviser for years, and has influenced McCain's economic policies. Go back to the fundamental paradox of conservatives and economic crises: in many instances, the proscribed solution is to do nothing; the political imperative is exactly the opposite. Usually, a compromise takes the form of half-measures that will pacify the public and not weaken the fundamental architecture of the economy.

Today, Gramm has given voice to an idea that is not uncommon among ideologically conservative economists: the recession is as much a creation of our anxiety about the future as it is a reflection of economic fundamentals.

"Look, the economy is bad. It is far below what we Americans have a right to expect, but we are not in a recession," he said. "We may or may not have one in the future, but based on the data we are not in a recession. But that does not mean all this talk does not have a psychological impact."

Gramm represents one distinct force that is pulling at McCain: orthodox, academics who experience the world through graphs, charts and data. The other is represented on the campaign by policy chief Doug Holtz-Eakin, who experiences the economic world through the language of politics. Holtz-Eakin is more of an Eisenhower Republican than a Kemp Republican, although Gramm has always been a big proponent of a balanced budget. Gramm generally wants government to get out of the way and lets crises work their way out through the market, believing that interventions distort the market. Holtz-Eakin's economic bent is more applied; politics demands that leaders offer solutions, even if solutions are more about quelling anxiety than they are about fixing a problem.

These two approaches have ranked McCain before; Gramm's fingerprints were all over McCain's first attempt to explain the housing crisis: measured, incremental and market-oriented. Didn't work. McCain looked like an ogre, although professional conservatives cheered. Two weeks later, Gramm had little to do with McCain's second swing of the bat, a specific set of proposals designed to help families hit hardest by the crisis. There were echoes of the Grammar, if you will, in the second speech, but the tone was softer and less academic, the proposals were more generous, and the message was unambiguous: McCain understands the pain.

Gramm's statement is technically true but contextually meaningless. We haven't seen two consecutive periods of negative GDP growth, but that doesn't mean that how we measure recessions in a globalized economy is valid; if our financial system's in crisis, gas prices are $4.50 a gallon, grocery bills have doubled, consumes are changing their behavior and homeowners are defaulting... it really doesn't matter whether the academic definition of a recession is met or not. It's not entirely clear to me why the media focuses obsessively on the formal definition of a recession and not on other, more appropriate metrics like personal income to determine what it means for an economy to be growing or contracting.