Big Issues for the Next President

Presidents get more credit and more blame for short-term swings in the economy than they deserve. And they get less scrutiny for decisions that have long-lasting economic consequences, say the bipartisan agreement to expand Medicare to cover prescription drugs without any visible means of financial support or the price tag on the Iraq war.

Similarly, presidential campaigns – when they move beyond coverage of the candidates' wives dresses – can bog down in details of proposals that will never be implemented as proposed. Neither President McCain nor President Obama, no matter what he says, can do much that will make an immediate difference to higher energy prices, falling house prices, rising unemployment, sagging wages. And no matter how many briefings by learned advisers or position papers posted on Web sites, no candidate can honestly tell us exactly what he'd do in office.

So ask not for details and spreadsheets, ask for broad brush strokes. Here are four of the biggest economic issues about which the next president, and those who elect him, ought to be thinking.

The budget deficit: It isn't a problem now. It's getting bigger, as it should in a recession or near-recession. And foreigners are still willing to lend the U.S. money. The problem is tomorrow: The U.S. government has made promises to pay health and retirement benefits that will cost far more than projected taxes will yield. Neither candidate talks much about how – or even if – he'd try to fix this; most voters don't want to hear about it. All one can glean is that Sen. Obama leans toward bigger government (more taxes, more spending) and Sen. McCain leans toward smaller government (less taxes, less spending.)

Health care: Until the housing bust and credit crunch, the political system was inching toward tackling this one after the election. That seems less likely now, despite the consensus that the U.S. doesn't get its money's worth from its health-care spending. The system is so complex it's hard to describe; same applies for proposed solutions.

"What we want to know from each candidate is his broad approach toward creating a health system that is affordable and accessible to all...and spends less than we would otherwise spend," says Robert Reischauer, the head of the Urban Institute think tank who, despite the cynicism that accumulates from a lifetime inside the Beltway, is one of the loudest, clearest advocates for common sense in Washington.

Sen. Obama offers a mix of changes, many but not all involving government money, and argues the best solution will emerge from some experimentation. Sen. McCain would, instead, make the market for health insurance more like the market for computers or cars, relying more on individuals shopping for insurance to create competition now largely absent in health care.

Inequality: The gap between economic winners and losers in the U.S. is growing; the trend didn't begin with President Bush's election, but he didn't do much to arrest it. Economists Emmanuel Saez of the University of California, Berkeley, and Thomas Piketty of the Ecole d'Economie de Paris calculate that even excluding capital gains, 75% of the pretax-income growth in what they call the Bush expansion (2002-2006) went to the best-off 1% of American families versus 46% in the Clinton expansion (1993-2000). There is significant disagreement among politicians and voters about how hard the government should restrain market forces that are widening the income gap, particularly how much the tax code should redistribute income.

The differences between the candidates are sharp: Sen. Obama would wield the tax code more aggressively than Sen. McCain.

Globalization: It isn't going away. But for all the benefits it brings American consumers (and Chinese workers), the toughening competition is frightening to Americans, both as workers and as parents. Sens. Obama and McCain both assert the virtues of globalization (at least some of the time). The next president needs to respond to calm public anxiety about it. The backlash is intensifying, both in the U.S. and elsewhere. A new Council on Foreign Relations report by lawyer David Marchick of Carlyle Group and Matthew Slaughter of Dartmouth's Tuck School of Business warns of a "protectionist drift" in government policy toward foreign-direct investment. And that ought to be the easy-to-sell form of globalization, the Mercedes-Benz factory in Alabama or the desperately needed Middle East capital shoring up the foundations of big U.S. banks.

The solution doesn't lie in tweaking trade laws (though they could use tweaking) or in applying band aids to an archaic, inefficient system of assisting laid-off workers (though that system needs replacing). It probably lies in assuring Americans that they aren't fending for themselves in an increasingly competitive economy – that their health insurance won't evaporate if they lose a job and that the U.S.'s schools are preparing their children to succeed.

On this issue, the candidates risk becoming caricatures – Sen. McCain harping on the benefits of free trade, Sen. Obama on its costs. But the debate is likely to evolve now that Sen. Obama no longer has to worry about Hillary Clinton.