- Wall Street’s tumble this week amid a raft of bad news helps Sen. Barack Obama by returning America’s attention to economic woes.
- Capitol Hill Democrats (and, to some extent, Obama) are waging a 1932-style campaign–declaring economic devastation, blaming capitalist greed, and calling for a robust expansion of government’s role. With the Bush Administration taking the lead on government bailouts and the McCain campaign economically impaired, will there be any meaningful push-back?
- The battle for the White House is now an even match between Obama and Sen. John McCain–and despite some early Democratic triumphalism and Republican pessimism–it has been nearly a tossup since Obama clinched the nomination in June.
- McCain’s post-convention bump has already dissipated, with national polls showing a dead-heat. This is an improvement for McCain, who trailed in national polls before the conventions.
Overview: The battle for the White House has taken a turn for the negative since the conventions.
- In late January, when the Democratic primary took a negative turn, we wrote that negativity on the whole helped Sen. Hillary Clinton, already known as a knife-fighter, while hurting Obama, the harbinger of hope and new politics. To some extent this is true about Obama in the general election.
- Obama’s appeal to independents and Republicans is the notion that he is a clean break from ugly politics. Making reference to Alaska Gov. Sarah Palin in his “lipstick-on-a-pig” comment hurts that image. Ads by a 527 group attacking McCain over his time as a POW could damage Obama, as well.
- This is Obama’s handicap in the election: He has to take more blows than he is allowed to dish out.
- While there are a dozen states that could end up in either column, the real battleground is smaller. While Oregon, for example, could land in the McCain column, that’s true only in a blow-out election. In a close race, there are only a handful states that could swing, and thus form the margin of victory in the election. Call them the marginal states.
- The most unpredictable marginal states lie out West: New Mexico, Colorado, Nevada. Unless Obama can pull off an upset in Florida, Ohio, or Virginia, he needs to win two of the three Western marginal states.
- The big marginal states–not quite as in flux–are Ohio and Pennsylvania, and right now Ohio looks safer for McCain than Pennsylvania does for Obama.
- Michigan, Minnesota, Virginia, Iowa, and New Hampshire are the third tier. Obama is the favorite in all but Virginia, and it will take hard work for either candidate to turn the tables, but it is doable.
Palin: It took the collapse of Lehman Brothers and a 500-point drop in the Dow Jones Industrial Average to move some of the spotlight off of Palin.
- Her two-night interview with ABC’s Charlie Gibson was not impressive, but neither was it a disaster.
- “Staying on message” and spinning questions, she looked more like a standard politician than like a maverick reformer bringing fresh blood and an outside-the-beltway perspective. She may have been too scripted, or still figuring out how to fit into the role of No. 2.
- Gibson’s tone–he was described aptly by the New York Times as “sounding like an impatient teacher”–further exposed the media’s “Palin problem”: She is not treated the same as other candidates, and it is easy for sympathetic women to see her as a victim of sexism. The media’s full-forced and visceral assault on Palin has always been at the center of the conservative base’s enthusiasm for her. As long as they attack, the media postpones a more sober conservative reflection over just what a McCain-Palin presidency would mean for social and economic conservatives, who, until Palin, were cool towards McCain.
- Palin’s stumble over the loaded “Bush Doctrine” question highlights a real problem she will face. There is enough reason to worry about her foreign policy knowledge that the media and voters will watch closely for signs of ignorance.
Crisis: While Lehman Brothers’ bankruptcy, followed by the Tuesday night bailout of AIG, sent shockwaves through Wall Street, in Washington they spurred new rounds of partisan finger-pointing and raised some pertinent questions.
- Democrats have dominated the Capitol Hill and media discussion of economics and the current problems. With bold calls for more government and harsh attacks on free-market economics, liberal Democrats are in their element. Conservatives have little to offer in response.
- Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are racking up the notches on their bailout belts with this year’s takeovers of Freddie Mac and Fannie Mae and their bailout of Bear Stearns; now they have added insurance giant AIG. When Lehman declared bankruptcy and no government hand reached out to catch them, fiscal watchdogs on Capitol Hill breathed a sigh of relief, while Lehmann employees cried unfair.
- Following the AIG bailout, some Wall Street people asked what the purpose was of letting Lehman fail if it wasn’t a “line in the sand” as some optimistic conservatives had concluded. Was Lehman instead just “an example” to indicate that bailouts are not guaranteed, possibly lessening the moral hazard?
- Obama’s campaign has pinned the stock plunge and renewed worries on the “McCain philosophy,” which he suggests is laissez faire. Pinning McCain–the champion of tobacco regulation, higher marginal tax rates, and global-warming regulations–as a laissez-faire cowboy echoes liberal journalists Paul Krugman and Thomas Frank, but it may not stick.
- Capitol Democratic leaders have called for an “investigation” of Wall Street. This means a made-for-CNN attack on greed and a lambasting of the Bush Administration for insufficient oversight. Democrats appear to be hitching their wagon to a call for much more regulation of the economy and a full-throated assault on capitalist greed, in the hopes that such an FDR-like message will resonate in these tough times.
- McCain and Obama differ on the magnitude of the problem. According to Obama, this is “the most serious financial crisis since the Great Depression,” while McCain asserts “the fundamentals of our economy are strong.” Obama’s campaign is hitting McCain over this claim, and if they can tie it to McCain’s seven houses and Phil Gramm’s imaginary-recession comments, it could help paint McCain as hopelessly out of touch.
- McCain’s response may not have improved things much. Calling for a commission to study the current economic woes sounds like typical Washington buck-passing, and the Obama campaign assailed it as much. This is where McCain’s limited economic literacy (and his pick of Palin over, say, Rep. Paul Ryan (Wis.) or former OMB Director Rob Portman) hurts. Obama’s no expert, but McCain looks like a novice.
- Government intervention played a role in the current crisis–with Fannie Mae and federal agencies fueling the bubble, as well as the moral hazard created by past bailouts and implicit subsidies–but McCain doesn’t appear equipped or willing to take up the Ronald Reagan line of “government is not the solution, it is the problem.” Democrats, meanwhile, are in full-throated assault on free-market ideas.
- What new federal regulations and rushes to legislation will we get this time around? Just as Enron’s collapse gave us Sarbanes Oxley, there is already talk about new regulations on financial institutions. Democrats have made it a theme that too little regulation was the cause of our current struggles. Rep. Barney Frank (D-Mass.), chairman of the Financial Services Committee, is pushing the idea of creating a new federal agency to regulate the financial sector.
- Capitol Hill sources, however, broadly believe that nothing will happen before the election, and real action in a lame-duck session is possible but not likely. Congressional inaction will allow both campaigns to form their own message on the issue.
Overview: A poll last week showing Republicans leading in a generic congressional ballot shows the Palin effect, but it must not be taken too seriously.
- The USA Today poll of 823 likely voters showed 50 percent leaned towards “the Republican candidate” while 45 percent leaned towards “the Democratic candidate” with a margin of error of +/- 4%.
- The most obvious detail to deflate the importance of this poll is that voters don’t vote for generic candidates, they vote for actual candidates. The fact is, Republicans are defending a lot more turf than the Democrats are, and Democrats have done a better job at candidate recruitment. Also, Democrats have more money to spend.
- Also, this poll was anomaly: Five subsequent national polls have shown Democratic leads ranging from 3 points to 8 points.
- Still, odds for congressional Republicans are better today than they have been any time this year. The generic deficit is smaller, and the landscape of individual races is looking a bit better.
Ohio-11: Local Democratic chieftains replaced the late Rep. Stephanie Tubbs-Jones (D) on the November ballot with Warrensville Heights Mayor Marcia Fudge (D). Fudge is the prohibitive favorite over engineer Thomas Pekarek (R) in this 59% black, low-income district.
While Fudge is on the ballot for the regular election (to serve a full two-year term), there will also be a special election to serve out the final six weeks of the 110th Congress. The special election primary will be October 14, followed by the special election on November 18. Likely Democratic Retention.