Wednesday, April 2, 2008

Clinton's goals for economy? Big change

WILKES-BARRE, Pa. — Sen. Hillary Rodham Clinton plans, if elected president, to aggressively use federal tax and regulatory policy to promote key sectors of the U.S. economy. She also vows to take a more skeptical view of foreign investment in companies involved in defense work.
In an interview with USA TODAY, she proposed stripping tax benefits from sectors such as the oil industry and using government policies to boost industries such as automakers, wind turbine producers and steel companies. And she rejected criticism that her plans amounted to a form of industrial policy that would represent a dramatic departure from traditional U.S. practice.

"We subsidize the oil companies. We think it's important that we give them our tax dollars so they can go out and explore and extract and produce oil. That's a clear decision right along the lines of an industrial policy," she said. "We subsidize all kinds of industries. We don't call it that. But we've made a decision we're going to subsidize them. I think that what we subsidized in the past is not what we should be subsidizing right now."

As the Democrats prepare for this state's critical April 22 primary, Clinton's remarks illustrate the sweeping nature of the changes Corporate America would face in its dealings with the federal government if she were elected the nation's first female president.

She offered few details of how business incentives would be reshaped other than to vow to preserve auto manufacturing and steelmaking capacity and promote alternative energy industries. But she insisted that government subsidies are needed to counteract the market's tendency to "punish" investments that don't deliver swift returns. The interview came amid a global credit crunch that has the U.S. economy stumbling like a sailor on shore leave. Signs of financial weakness are evident at home — where house prices, consumer confidence and jobs are all sliding — and abroad, where the value of the U.S. dollar is down more than 17% against the euro since early 2006.

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In her comments, Clinton made it clear that she regards the free-market doctrine that has held sway in Washington for a generation to be both inequitable and ill-suited to the sharp-elbowed global competition the U.S. now faces. Leaving economic outcomes to the market has resulted in stagnant incomes for the typical family and special treatment for the well-connected, she says.

"People say all the time, 'We can't pick winners and losers.' Well, then fine. Take every single dollar of subsidy out of the federal tax code. Get rid of all of it. … Let's have a real level playing field where nobody gets a penny in subsidy," she said. "Then see what happens. You'd hear the squeals of protest from Wall Street to Houston to Silicon Valley."

Clinton was interviewed in a small gym office at King's College, a Catholic institution founded in 1946, after holding a "town hall" meeting with voters. The conversation, which came as she prepared to wrap up a six-day campaign swing focused on the economy, continued by phone as she was driven to the airport.

She was sharply critical of the Bush administration, but made no mention of her opponent, Sen. Barack Obama, D-Ill.

Her most impassioned remarks in the interview came as she blistered the oil companies and the "moneyed class" she said has reaped the economy's rewards. Indeed, the share of national income going to the top 1% of wage-earners has doubled over the past 25 years, according to Robert Lawrence, a professor of trade and investment at Harvard University.

"Americans have been sold a bill of goods about the way the economy should work through a very concerted ideological effort at propaganda," she said.

Clinton, whose lead in the polls here over Obama is shrinking, said she believes that parts of the U.S. economy already are in a recession. But she said there is still time for policymakers to avert a lengthy and punishing downturn.

Struggling town identifies with message

In Wilkes-Barre, a working-class bastion of Luzerne County, residents already are feeling the pain. The average weekly wage here in March was $679, less than 80% of the state average. The unemployment rate is 6.6%, well above the 4.8% national figure.

So Clinton's full-throated economic populism struck a responsive chord when she appeared before a crowd of college students and local residents. Standing on a low stage, flanked by giant American flags, she was greeted by a sign reading, "We've got your back Hillary." As she began her remarks, one man in the crowd yelled: "I love you, Hillary!"

Prowling the stage, Clinton touted the economic record of her husband, President Bill Clinton, during the 1990s. And she promised to create 3 million jobs by investing in building roads and bridges.

The New York senator, who hails from the Midwest and spent 12 years as first lady of Arkansas, has ties to the Scranton/Wilkes-Barre area through the family of her father, the late Hugh Rodham. In a play for the hometown vote, she waxed nostalgic about "all those happy times in Scranton."

Much of the interview revolved around the challenge of preserving a prosperous middle class amid a ferociously competitive global economy. With U.S. median wages stagnant since 2000, Clinton made it clear that she takes a more skeptical view of the unrestrained market than do its most robust defenders. If she makes it to the White House, she will push for a more active government role in shaping globalization's effect upon the economy, including identifying key industries for protection, she said.

"We have to adjust our view of this. … What is it we really believe the United States should continue to make? I would put certain defense items in that category. I would put certain basic goods in that category, like steel," she said. "If you look at every other country, they make such judgments like that. We are competing against countries that directly and indirectly subsidize what they have concluded to be in their national interest."

One symptom of U.S. economic ills is the sagging dollar. Clinton did not respond directly when asked whether she favored coordinated central bank intervention to halt the greenback's decline. But she said the dollar could be in danger of losing its status as the world's reserve currency and suggested a change in the White House would reverse the tide.

"It is in danger with respect to being a reserve currency," she said. "A lot of the problem is of our own making. I think we could see the dollar start to creep up if we had a different president."

Clinton said the country has been "trapped the last seven years … in an ideological container" that has prevented a needed rethinking of how to regulate a financially globalized world. She criticized President Bush for not acting on the current housing crisis with sufficient urgency and dismissed Treasury Secretary Henry Paulson's proposal for a revamp of financial markets regulation. "What the administration has done up until now is just not adequate," she said.

But she shied from attacking Alan Greenspan, the former Federal Reserve Board chairman, whom some economists say opened the door to the current financial turmoil.

Greenspan publicly praised the adjustable-rate mortgages, many of which were sold to borrowers who proved unable to afford them in the long term, as well as the process of securitization that spread financial weakness through multiple countries and markets. Last month, Clinton called on the president to name an emergency working group on home foreclosures and recommended it include Greenspan.

In the interview, Clinton said that "legitimate questions" have been raised about the former Fed chairman's responsibility for the crisis. But she said he remained a valuable economic figure because of his "calming influence on Wall Street."

At issue: Sending U.S. jobs abroad

During her town hall appearance, Clinton vowed to "take a hard look at every trade agreement" and said she would add tougher labor and environmental standards to any new deal. Enforcing such requirements, she said, would reduce the incentive for companies to shift jobs overseas.

In the interview, Clinton singled out drugmakers that have shifted production overseas in recent years. Higher product safety and quality standards might lead to them bringing jobs back to the USA, she said.

But when pressed, Clinton said she was unable to provide even a rough estimate of the likely impact on employment or the trade deficit of writing such standards into new trade deals. "I don't know," she said.

In Pittsburgh on Wednesday, she unveiled a proposal to eliminate a provision in the corporate tax code that economists say encourages companies to invest abroad. That would bring in an estimated $7 billion in additional revenue, which could be used to encourage investments in the USA, she said.

Clinton also had tough talk for one of the USA's top trading partners, China, which she accused of manipulating its currency, violating American copyrights and rigging its domestic market to benefit government-backed firms.

She said she would prevent the offshoring of defense-related production, citing an Indiana company that once produced sophisticated magnets for the Pentagon's precision-guided missiles. In 2003, the company, Magnaquench, shuttered its last Indiana factory and shifted operations to China. That anecdote drew a startled "oooh" from the crowd.

In 2000, while campaigning for a Senate seat, Clinton supported normal trade relations with China, despite what she described as lingering doubts about the country's human rights record. In the interview, she acknowledged that she has been "surprised" by the way the commercial relationship between the U.S. and China has evolved.

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