Whose Plan Is Better?

(3 of 3)
<

b>KERRY
He proposes tougher regulations against abusive mortgage lending practices and credit-card policies. He promises to cut the deficit in half within four years through spending cuts.

THE BOTTOM LINE
Neither candidate delves into specifics of how he will trim the deficit, and both propose expensive new programs, so economists are wary of their pledges to rein in spending. When the spending caps exclude Social Security, Medicare, education, defense and homeland security, McKelvey asks, what's left?

ENERGY
Get used to gas at $2 a gallon. the higher prices are rippling throughout the economy—transport costs are partly to blame for $4 gallons of milk—but so far most families have managed by cutting corners elsewhere. Economists have been impressed by consumers' resilience, although they are concerned about how much longer families can absorb the price shocks, especially as wage growth slows. Since January wages have plodded along at 2% growth, about half the rate in 2000, says Ken Goldstein of the Conference Board.

BUSH
Approaching the issue from the supply side, he focuses on increasing domestic oil production, in particular, drilling and exploration in the Arctic National Wildlife Refuge. He also supports some tax incentives for hybrid cars and renewable energy sources like wind and solar power.

KERRY
His plan focuses squarely on the demand side, with tougher fuel-efficiency standards for cars and tax incentives for consumers who want to buy them.

THE BOTTOM LINE
Unlike Kerry, Bush scores points for addressing both the supply and demand sides of the question, but economists say changing domestic policy isn't enough. Instability in the Middle East and rising demand for oil in Asia are also driving prices up. They favor raising taxes on gasoline to discourage consumption, and allowing the market to drive demand for fuel-efficient cars. "If we don't, prices will go up anyway, but we won't get the income," says Richard Berner, senior economist at Morgan Stanley.

RETIREMENT
Alan Greenspan spelled out the bad news last month: Retirement may be a few years further away and a lot less comfortable than you might have hoped. As baby boomers retire, the over-65 population will nearly double in the next 30 years. These retirees will live longer than their parents did, but the generations that follow them simply aren't large enough to support them in retirement. "We owe it to our retirees to promise only the benefits that can be delivered," Greenspan said.

BUSH
He proposes diverting some Social Security contributions into "personal savings accounts" that could be invested just like a 401(k).

KERRY
With no specific plan, he instead promises to rein in federal spending to fund Social Security and would consider limiting benefits for wealthy retirees.

THE BOTTOM LINE
Economists warn against introducing market risk into Social Security nest eggs. As with any investment, "some people are going to lose," says McKelvey. Almost unanimously, they advocate a more immediate and equitable solution: Raise the retirement age. As for paying for Medicare, they're stumped.

Whatever the shortcomings of the candidates' plans, economists acknowledge that both Bush and Kerry are carefully calibrating their messages to voters' hopes and fears about the future. The experts may wish the candidates offered solutions to intangible problems like the deficit. Instead, they stick with near-term fixes for emotional issues like jobs. For better or worse, the candidates know that how people feel usually proves more potent in the voting booth than what the economists think.