John McCain and the Magic of the Markets

First some good news: the New York Times reports that Barack Obama and John McCain both believe that the $700 bailout requires greater oversight. The bailout would add as much as five percent of our gross domestic product to the federal indebtedness. But when it comes to loading up on debt, John McCain believes we can go further:

But Mr. McCain said in an interview here with CNBC and The New York Times that he would press on with his plan to extend the Bush tax cuts and to cut others.
Contrary to the warnings of fiscal analysts, he said he believed he could do so and balance the federal budget, which was falling deeper into deficit even before the financial crisis, by the end of his first term.

Perhaps the scale of the bailout hasn't sunk in for Senator McCain. Perhaps he has assimilated Dick Cheney's belief that deficits don't matter. But I find it astonishing that he could seriously say that our national government could extend the Bush tax cuts, add another round of new cuts, finance the bailout, and still balance the budget in his lifetime, let alone in his first term.
The bailout would add $700 billion in spending and borrowing authority—five percent of GDP—to be used to buy impaired assets, which means some of that money is gone. To imagine that we could add five percent of GDP to the national debt, further cut taxes and still balance the budget is delusional.
But wait, there's more:

Mr. McCain also stuck by his support for allowing workers to invest a portion of their Social Security payroll taxes in stocks and bonds, an approach that Democrats call privatization and that Mr. Obama has used to suggest Mr. McCain would subject retirees to excessive market risk.

There are few assets or income source that families have been able to rely on in good times and bad. Home ownership used to be a stable asset for families. Social Security provides a reliable, if modest, income for retirees. But the true believers in the magic of the marketplace would rather that all of our assets be subject to market fluctuations. Back in July, McCain had some startling words on Social Security:

"Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed," he said.

If Social Security is a disgrace, it has been so since it was created during the Great Depression. Current workers have paid the benefits of retirees since the program was created, one year before John McCain was born. Its finances were last adjusted 25 years ago, and is running a surplus. But having worked since FDR isn't good enough for John McCain. In the wake of the worst failure of the financial markets since Herbert Hoover, John McCain sincerely believes that the magic of the marketplace will make Bush's Social Security scheme work, pay for another round of tax cuts and finance the biggest bailout of our lifetime.