John McCain on the economy
Fortune's David Whitford interviewed John McCain in New York City on June 10. Here is an edited transcript.
Fortune: There's been a lot of bad economic news lately. On Friday we got a lot of bad economic numbers. The stock market took a big dive. It seems pretty clear that the country's facing grave economic challenges right now. But I'd like you to look a little further down the road, to when you're in the Oval Office - what do you see as the gravest long-term threat to the U.S. economy?
McCain: Well, I would think that the absolute gravest threat is the struggle that we're in against radical Islamic extremism, which can affect, if they prevail, our very existence. Another attack on the United States of America - another successful attack on the United States of America - could have devastating consequences. Now having said that, I would say that at this moment it's probably our dependence on foreign oil that is one of the major factors that's harming our economy dramatically, increasing greenhouse gas emissions, or shall I say, affecting our climate and hurting fixed-income Americans the most. Finally is the issue of affordable and available health care for all Americans.
Fortune: Do you believe the U.S. economy today is fundamentally sound?
McCain: I think the fundamentals of the U.S. economy are very strong. We're still the most innovative, the greatest exporter, the greatest importer, the greatest producer, and by any measurement. And I believe the fundamentals are sound. But that in no way diminishes the severity of the immediate challenge to our economy and millions of Americans.
Fortune: You've been an enthusiastic supporter of climate-change legislation that would have the effect of essentially putting a penalty price on the use of fossil fuel in order to encourage clean energy. Should consumers and businesses be prepared to pay higher prices for electricity and gasoline? Is that pain inevitably in our future?
McCain: I have a fundamental difference with the opponents of cap and trade. History shows me that every time there's been technological advances, it has been beneficial to the economy and the American people. Every time we invent a quicker, a more advanced technology chip, then it's been an increase in productivity of economic benefit. I believe that green technologies - whether it be nuclear power, whether it be wind, solar or tide - can be beneficial to our economy and increase productivity, and improve the lives of American citizens in every aspect. And I'm sorry for the long answer. But the fundamental philosophical difference I have with the opponents of cap and trade is that they believe it will require greater sacrifice on the part of American citizens. I think innovation and advanced technology is beneficial to the lives of American citizens and to our economy. And I know that there's strong disagreement with that.
Fortune: So, long term, we can continue to enjoy relatively inexpensive gasoline and electricity because of the compensating effect of innovation and growth?
McCain: Long term, I do not believe we will ever see the price of a barrel of oil come down permanently or dramatically. So that then argues for nuclear power, for wind, tide, solar and innovative technologies such as batteries that will take a car a hundred miles before we have to plug it in. Or 200. And so I just happen to believe that even though this very high price - and it may go higher - has some artificiality associated with it - i.e., speculation - the fundamental fact is that, even with new discoveries of oil, that there is a greater and greater demand for what is fundamentally a finite resource. So we will be driven to adapt energy resources - energy-producing capabilities - that will eliminate over time - reduce and then eliminate - our dependence on foreign oil. One small example: The French - 80% of their electricity is generated by nuclear power. They sell power to other countries. It's been good for their economy. So, I mean, it's just there in plain view.
Fortune: Given the recent emergence of China and India as global economic players, what steps will you take to extend the United States' hard-won supremacy in the global economy into the 21st century? Or do we need to accept that the United States may not dominate the global economy in the 21st century as it had in the 20th?
McCain: I think when you look at innovation and which country has been most involved in the future economic growth of the world - and that's information technology - that the United States still has a credible lead. Of course India and China will be economic superpowers in many respects. But I do not believe they will overtake the United States of America. In other words, our fate is in our hands. If we educate, if we train, if we innovate and we produce, the 21st century will also be the American century. Governments matter. And raising taxes the way Senator Obama wants to do, and unilaterally renegotiating trade agreements, and doing - carrying out the economic proposal of Senator Obama, I think, can have very serious negative effects.
Fortune: Policy aside, how would your management style differ from that of the current occupant of the Oval Office?
McCain: Well, I'm not totally familiar with the management style of the president because I've not been in meetings where things like management of the economy are discussed. I do have a wide circle of respected and close - let me just say very respected advisers. Steve Forbes, Jack Kemp, Doug Holtz-Eakin, Meg Whitman, Carly Fiorina. I have a very, I think, credentialed group of economic advisers that have the experience and the background and the knowledge to give me right kind of advice and counsel I need. And I do not pretend that the buck doesn't stop at the president's desk. But I noted that in other administrations - I'd like to specifically recall one that doesn't automatically spring to mind - Eisenhower, who had a decision-making process that I think was a precedent for future decision-making, both whether it be on the national security side or the economic side. First of all, President Eisenhower really installed the entire decision-making process as far as national security is concerned in the White House. The whole national security counsel, the whole concept of the decision-making process, was the employment of the years of experience that President Eisenhower had at one time commanding the largest invasion force in the history of warfare. Long years of understanding the importance not only of bureaucracy, but also of process, led to providing the president of the United States with the options in order to make the necessary decisions, and I think that's reflected in the decisions he made during his presidency. And there were some tough decisions. One was he said we shouldn't go to Indochina. Another was his ability and his leadership that I think had a great deal to do with the fact that the Chinese-slash-North Koreans, Russians, decided on ending - at least bringing to a halt - the conflict in Korea. So the entire process is largely today the one that was put into place by President Eisenhower when he came into the presidency.
Fortune: Apart from advisers, which business leaders do you admire the most?
McCain: I admire a large number of them, but obviously the ones I admire the most are those that have been on the leading edge of the information technology revolution. Bill Gates, obviously, springs to mind. Paul Allen. Course we all admire [Warren] Buffett, but not so much for his innovation but his talent for making a lot of people rich, including him. I admire - probably the role model to all of us who share our philosophy is Milton Friedman. Milton Friedman is the lodestone of thinking of the people that I admire and respect the most.
Fortune: In the past couple of years we've seen an unprecedented rise in a class of historically unprecedented wealth. We're talking about individuals whose annual income is in the hundreds of millions and even, with the hedge fund guys, billions. Is there anything wrong with that? Is there anything government should do about that?
McCain: All of us are for more transparency, whether it be trading in derivatives or some of the things that have happened that caused this crisis we're in. And that may require more supervision as an oversight as a result of the global economy we're in. But I've never begrudged anybody for getting rich. What I think is important is that we give all Americans an opportunity to get rich. That's why education, training, are so vital to the future of this country. So everybody has a chance to get rich. I don't believe in the old redistribution of the wealth. I just want to make people with lower incomes that have been mired down to a degree because of rising health care costs and other expenses, that they've not been able to progress up the economic ladder, the opportunity to do so.
Fortune: Jonathan Chait has written in The New Republic that if John McCain circa 2007 were running against John McCain circa 2000, he would call John McCain 2000 a Communist.
McCain: My principles and my practice and my voting record is very clear. Not only from 2000, but 1996 and 1992 and 1988 and 1986. And, you know, it's kind of a favorite tactical ploy now that opponents use, of saying the person has changed. Look, none of my principles or values have changed. Have I changed position on some specific issues because of changed circumstances? I would hope so! I would hope so! When I came back from the 2000 campaign that Mr. Chait refers to, I didn't know anything about climate change. But I'd been informed by the voters of New Hampshire that came to the town hall meetings. So I held hearings on climate change, and so I became dedicated to the proposition that we must reduce greenhouse gas emissions; otherwise we're gonna hand the next generation of Americans a more-damaged planet. Now if Mr. Chait wants to say that I've changed on climate change, fine, I'm proud of it. All I can say is it's something that's been used a lot by people that don't want me to be president of the United States. And I understand that. Can take it. But my record - my record and my principles and my core philosophy - has not changed since I've been in public office. Although my positions on some issues with changing circumstances may have changed over the years, and again, I sincerely hope so. Anybody who comes to the Congress of the United States and doesn't have something to learn, I think, doesn't understand how best you can serve your constituents.
Fortune: On executive pay, you spoke today about shareholders having a say. Is that a binding say or an advisory say?
McCain: Obviously I'd like to have an advisory say on pay. And I was glad that Aflac, I believe, adopted that, and some other corporations have. I think what the corporate world has got to understand is there's anger out there with the American people. And they have to act to restore their reputation, just as we in public office have to act to restore ours. Our approval ratings are basically in the same [laughs], at the same incredibly low level. They can best restore their credibility with the American people by basing their compensation on performance. There is a statistic which is true, and that is that the gap between executives and the workers has grown. That trend should not continue.
Fortune: Doug [Holtz-Eakin] told me a story about an encounter you had with a mill worker during the 2000 campaign. He has just lost his job, the mill had closed. He said, I worked here 30 years - what's my son gonna do? You said, I would have hoped that we both had higher aspirations for your son. Would you answer that question differently now, or more fully?
McCain: Well, I said to that individual, I said, look, my aspirations were not to work in a textile mill. My aspirations for my children is to work in high-tech jobs with a promising future, not a dead-end one. And that mill worker, by the way, never got his old job back. But we got a BMW plant, we got a Michelin plant, we got all kinds of companies and businesses and industries locating in the state of South Carolina. Look, in this whole campaign, I went to places and told people what they didn't want to hear as well as what they wanted to hear. Because you cannot govern without telling people the truth. I went to Michigan and said the old automotive jobs weren't coming back. And guess what? GM is closing the SUV plants and they're focusing on the manufacture of the [Chevy] Volt. Just as I predicted they would! I went to South Carolina and said the old textile mills weren't coming back. And now businesses are locating in South Carolina. I went to South Carolina, Michigan - I've gone around the country and said, look, our future lies in the information technology revolution, innovation and entrepreneurship of small businesses across America, and I'll do everything to get government out of the way. To keep your taxes low, to reduce regulation on small businesses, to let you make the decisions on your health care and not have the government make those decisions. If you want to govern this country, you're gonna have to tell them the truth in the campaign, as well as tell them the truth when you're in the Oval Office. And, frankly, when Senator Obama says that in one day he will unilaterally renegotiate the most important free trade agreement that we have, and then say he's for free trade, Americans don't buy that.
Fortune: I think we all agree that the entitlement programs are something we've got to get a handle on. It may not be in the next four years, or even eight years, but it's gonna have to happen at some point. Obama's gone on the record with a couple of things he'd be willing to consider. For example, raising the limit on the social security tax. Are you going to give us any specific ideas that you will promote or encourage when that decision is in your hands?
McCain: Senator Obama in my view is involved in a terribly risky proposal to raise capital gains, which affects 100 million Americans; to raise the cap on Social Security, which would have a devastating effect, particularly on small-business people, and raise taxes on literally every American in a time when our economy is severely challenged. Not only ignores the lessons of history, but I think could exacerbate the economic situation we have today. This is the last time that we should even have the slightest consideration of raising taxes. And capital gains - he wants to raise capital gains. You can dispute the benefits or lack of benefits of some tax cuts. You cannot dispute, since 1960, every time we've cut capital gains the revenues have increased. I mean, facts are stubborn things, as Ronald Reagan used to say. So here we have the one tax that we know when we cut it we increase revenues, that he wants to raise it on 100 million - in a way that would affect 100 million Americans. This is risky and inexperienced business.
Fortune: Is there anything you'd be willing to tell us that you'd be prepared to do to get a handle on entitlement programs?
McCain: Oh, I think there's no doubt we have to sit down, Republicans and Democrats, that's happened before. Put everything on the table and not hand off to another generation of unlucky Americans the obligations that we have. I would, to start out, just have one chart and talk to the American people - how much is coming in and how much is going out in Social Security. When we have more going out than coming in, and when it's broken. They'll come together. I know how to work across the aisle.
Fortune: Means testing?