Financial Crisis: Thinking Ahead

We have today a guest, economist Joseph Halevi, who thinks ahead to the possible developments of the financial crisis. 

There is no major change in perspectives despite a lot of institutional talk, most of which is not very substantive such as that at the Beijing meeting. 

The centre of gravity of financial vulnerability is now the maze of the derivatives of credit default swaps. They are being hollowed out and, to that effect, I should mention some institutional steps, which are taken individually and are not coordinated except possibly one.

The first is by France and concerns the formation of a State financial institution with the objective of preventing take overs of French industrial companies by hedge funds, In effect this stops hedge funds from trading in firms' stocks. Many people on the "left" would like that but, whatever its merit, it does not address the compelling issue of vanishing investment plans. What it does it will allow the companies to close down and even relocate abroad or shift production to their foreign plants (it is happening with Renault which is shifting output to Roumania and Brazil), thereby firing workers, without their stocks being traded and speculated as junk stocks. The unemployed will be unemployed, period. 

In the same vein the Berlusconi government in Italy is preparing

legislation to guarantee borrowing by firms, that is to underwrite

firms' debt vis à vis banks, while banks are also guaranteed by the

Central Bank, ultimately by the ECB. The crucial issue is that firms

will borrow less because demand is evaporating, hence it does not solve the issue of labor losses nor does it guarantee a recovery. It simply protects capital from every possible direction: banks are even protected twice. 

A credit default swaps clearing house is being planned by the Euro15. In effect this means making the credit default swaps non convertible, i.e. non tradeable. This is an important event if it goes ahead. Credit default swaps were used also to 'cover' for the external deficits of the deficit countries. By rendering them non convertible the deficit countries will have to pay up, hence the external constraint will become visible and binding again (as I always thought it to be in the core of the functioning of the economy). 

On the other hand, CDS are highly toxic because they condense all the other forms of debt. They were not only used to ensure against potential default but also to make money in both directions simultaneously. Since hedge funds hold a great deal of CDS, the decisions to keep hedge funds at bay will reduce the 'value' of the CDS, hence the need of a clearing house for an orderly euthanasia of this type of paper. 

Japan and China are the only countries that have initiated policies from the spending side. Japan's new package is an extended version of that passed in July or August. Public works and some income support schemes. However it is just a "stay afloat like a dead corpse strategy" reminiscent of the 1990s when they did everything to absorb production without much success.

Japan has huge structural problems since it is the perfect Marxian

"overproduction cum disproportionality"  economy, given the size of its heavy industry and capital goods sectors. It is very difficult to bring up domestic demand to the level needed to ensure recovery. And now they are also subjected to the revaluation of the yen vis à vis the US $ without the mitigating factor of US growth; hence they experience hyper revaluation vis à vis the Euro where demand is also not doing well.

Furthermore, an important Japanese export market for heavy machinery (and thus for Japan's external surpluses, which are now dwindling), the Korean, is just drifting away because of the deep Korean crisis. Japan is really in a big blackish hole. Nothing much can be expected from those keynesesque measures therefore.

China has undertaken the only noticeable spending program. It is based on placing orders at its own heavy industry through very large programs of structural investments. But many consumption goods sectors are being affected by the fall in demand in the USA and it is difficult to see how the sectoral composition of the economy can be changed in the short, or even medium, run. Moreover if the spending programs are based on the heavy industry sectors, the slow down and actual crisis in the exporting sectors like toys etc. will exacerbate the gap between domestic production and domestic consumption demand. Thus China can find itself in a dynamic version of the Japanese situation. 

We should also expect major real crises in Latin America, given what is happening to Brazil and Argentina. The fall in oil revenues prevents Venezuela from acting as a benevolent lender. After all they helped Argentina to pay the rest of the debt by buying it themselves. Notice that through Venezuela and the energy-raw materials surpluses of Argentina, Brazil some others, the Latin America economy is more dollarized than ever. But now raw materials prices are falling and the values of the Real and the Argentinian Peso are falling drastically. They are back in a real deflation+ price cum interest rates inflation crisis. Indeed Brazil had to increase interest rates sharply to stem the outflow of capital.

India: India has the fourth largest trade deficit in the world. They make up for it through capital inflows on the capital accounts and invisibles on the current account. With the credit crunch underway the ability to make money by sending money to India will be severely limited. Hence the situation is wobbly but I think they will still expand in their own Indian style.

Notice that, in spite of all the talk about coordination there is none.

They present their trips to Camp David, Paris, Beijing as coordination, but there is nothing concretely there. Every country uses its own finances, the only common elements are: to throw money at banks and - for the USA-EURO15 relations - the unlimited unsecured and non recourse lending of $ by the US Federal Reserve to the ECB. As to the common ASEAN fund supported by China, Japan and Korea fund we should judge it

when we see it, if we will see it. I cannot possibly figure the Asean

countries being capable of managing that fund given their litigious relations, it will have to be done by Japan with China and Korea. 

The crisis is generating fragmentation in the world economy.

Undecided voters tilt to Obama

Today, the undecided voters who usually make the difference in a close presidential election are more pessimistic about the direction of the nation than the broader electorate and are looking to Democrat Barack Obama for a solution of economic issues.

In the latest Bloomberg/Los Angeles Times poll, 22 percent of voters said they are undecided or could easily change their preference between Republican John McCain and Obama. 

Almost nine out of 10 of the undecided voters said the country is on the wrong track. That result is 10 points higher than for all registered voters. The percentage of undecided voters who said the economy is doing badly is 7 points higher than among the broader public.

With the candidates locked in a tight contest, yesterday both Obama and McCain were credited of 46% of the preferences by Gallup, they must look to the still uncommitted voters.'' This group is ``more pessimistic than voters overall, which should be worrisome for McCain, since Obama is the candidate that voters believe would strengthen the economy and help get the country out the financial crisis we're in," said the Los Angeles Times polling director.

Housing Crisis: Even Representatives May Be In Trouble

Sub prime mortgages crisis has apparently reached Congressmen, too. CREW (Citizens for Responsibility and Ethics in Washington) reports that Democrat Laura Richardson’s Sacramento home has been sold into foreclosure. The Representative from California claims that this happened without her knowledge and contrary to an agreement with her lender, but Richardson failed to make mortgage payments on the property for nearly a year, and didn't pay approximately $9,000 in property taxes on that home. She has defaulted on other home loans as well. Her house was bought at a foreclosure auction by James York on May 7, 2008 for $388,000.

CREW investigates the story because there is a strong smell of foul play: Richardson has an awful credit history, and it is quite possible that she counts on her connections to take advantage of the situation. However, a U.S. Representative now has a gross salary of about $100,000 per year, that is about € 60,000, peanuts compared to the indemnities of Italian Senators and Deputies, and she may well be in financial troubles...

Will John McCain Do Better Than Barry Goldwater?

Politically, the situation in the field is this: Obama has gained a 7-point margin over John McCain in the last three days (50%-43%) and he seems to be a Democratic candidate not weakened at all by the long battle in the primaries. At least, this seems to be the effect of Hillary Clinton's endorsement of Saturday: now 81% of Democratic voters say they are ready to vote for him.
That means he should easily win in November: he will need only to keep the blue States where John Kerry prevailed in 2004, and win in states like Iowa, Colorado and New Mexico (look at the map on top of the page): that would make 273 votes in the Electoral College, more than the "magic number" of 270. In Iowa and New Mexico a few thousand votes more (or, a few thousand votes LESS in the Republican column) will suffice. Colorado has been leaning Democratic in recent years, electing several smart politicians like governor Bill Ritter and senator Ken Salazar.
This, however, is a conservative forecast: polls give him good chances of winning in Ohio and Nevada, creating a very large majority in the Electoral College for a Democratic President who will have strong Democratic majorities in Congress (the party should pick several seats in the House, and Democrats are on the brink of a filibuster-proof majority in the Senate).
During an American Presidential campaign everything can happen, but John McCain will have a hard time in convincing voters that the main issue should be terrorism, or Iraq, and not the economy. The gasoline at 4$ a gallon is simply political poison for him.

Harvard: Millions of Americans "Without any visible means of support"

The Harvard Kennedy School of Government offers an interesting insight about poverty in the US. Excerpts of an interview with author Kathrin Edin on the results of 1996 welfare reform are here: "There are big winners and big losers. At about the same time we reformed the welfare system, we made work pay better than welfare by implementing the earned income tax credit (EITC). This credit ensures that if you are a low wage worker, especially a single mom with no other earner in the household, the government pays you at tax time; you don’t pay the government. Families are getting thousands of dollars that supplement their income when they file their taxes each spring.

The problem with this solution is that it’s based on the assumption that everyone can work full time, full year. Because of what’s happening in the economy, lots of people can’t sustain full time, full year work. Then there are sick kids and disabled relatives to care for, very low human capital, and other reasons people can’t maintain a full time participation in the labor market. So there are also big losers. Whereas full time, full year workers who used to be on welfare are now probably better off than they’ve been in a long time – largely because of the tax credit – those who aren’t able to sustain full time work are possibly worse off than they’ve ever been before. At any given time roughly a third of people who used to be on the welfare rolls are without any visible means of support. We know very little about how those people or their children are doing."

Populist Commercials and Oil Money

Hillary Clinton spent April 25, 2008, in Indiana, and gave a speech about economic issues in Bloomington. You can see a clip of it in the video below:

Clinton also broadcasted a populist commercial about the soaring prices of gasoline, an issue very important to Midwest voters. In this spot (see below) she calls for "suspending the gas tax this Summer." 

However, this is the same proposal offered by Senator McCain in a recent speech and is generally considered a gift to the oil companies (it's not clear whether the details of the two plans are identical). An examination of campaign contributions by individuals from the oil and gas industry by the Center for Responsive Politics reveals that McCain has been the largest recipient of their largesse and Clinton comes second. 

So far, individuals from the oil and gas industry have given McCain more than $404,000, while Clinton received $309,363 and Obama $222,309. In fact, nearly 70 percent of the industry’s donations in the 2008 White House race have gone to McCain and other Republicans, which is no surprise knowing that the Bush administration has been a figurehead for the oil industry during the last 7 years.

It's somehow bizarre, instead, that Clinton would attack Obama on this issue, when he is the least connected to oil interests of the three candidates.

For those who thought the crisis was over...

US employers shed 80,000 jobs in March, in the latest sign that the US economy may be falling into recession, announced the BBC, quoting US Labor Department figures. The decline was the third consecutive monthly drop, and worse than market expectations of a 60,000 reduction.The jobless rate rose to 5.1% in March, the highest level since September 2005, and a rise from February's 4.8%. Federal Reserve boss Ben Bernanke warned earlier this week that the US economy faced the risk of recession. While the Labor Department said March's job losses were spread across the economy, the biggest cuts came in the construction sector, badly hit by the free fall in houses' prices.

In fact, the US housing downturn shows no sign of slowing: US house prices fell at an annual rate of 11.4% in January, according to the latest monthly Standard & Poor's/Case-Schiller index, the biggest decline in 21 years. This latest snapshot of the slump in the US property market was confirmed by the main US estate agents body, which said that prices fell 8.2% in February. 

WHAT A PRESIDENT SHOULD KNOW

Washington DC - "It would have been difficult four years ago to schedule a meeting with the President to discuss with him the fact that there were too many people in this country getting houses," says Marc Summerlin in response to a question on the crash of the housing market at the book launch of What a President Should Know, which he co-wrote with Lawrence B. Lindsey. "In retrospect this would have made perfect sense."
Marc Summerlin served as Deputy Director of the National Economic Council for President George W. Bush, while Lindsey was Director of the NEC. They both now work for the Lindsey Group, the economic advisory firm based in Washington DC that they co-founded.
Their book,  presented at the Council on Foreign Relations on Monday, offers an insider's look at the Oval Office: Through a review of the history of the office of the Presidency, the authors portray the constraints under which the Executive makes decisions. Summerlin and Lindsey also highlight the difficulties, even for the closest advisers, to have regular visitations with the President. With many competing issues that at all times require urgently the attention of the President, some necessarily end up to the sideline, often those that have longer-term effects.
The history of the architecture of the Oval Office itself stands as a symbol of how access to the President has been restricted through the decades.
The idea of the Oval Office was first conceived under Teddy Roosevelt and was finally built at the beginning of the Presidency of William Taft in 1909, in the shape of an oval precisely because it was the one that allowed for the largest number of doors to be added. Teddy Roosevelt wanted as many people as possible to enjoy direct, walk-in access to him.
Under the first "Imperial Presidency," as Summerlin described Franklin Roosevelt's three-term government of the United States, the West Wing - where the Executive meets - was moved and expanded, and the Oval Office was relocated to a side of the building with only one door opening onto it. "Such change was followed by the creation of the role of the Chief of Staff", said Summerlin at the Council on Foreign Relations, "that from then on strictly regulated access to the President," and with that the flow of information that made its way all the way up to the top.
Today, White House advisers have to fight among themselves to be able to see the President and documents containing important information must be signed by tens of people in order to make it to the desk of the Commander-in-Chief.
The most important advice that Summerlin, and Lindsey, would give the future President is to "truly reinforce those people that are advising him/her honestly, because it is hard to find such people."

WHEN THE UNTHINKABLE BECOMES REALITY

It was not even ten days ago when we stressed that American bankers, and politicians, were dancing on the Titanic's deck, while mainstream media provided the reassuring music. Well, it appears that last weekend the FED decided to launch the lifeboats, and the Bush administration scrambled to find a place aboard. The action arrived too late to prevent the well-deserved drowning of Bear Stearns, an investment bank with the reputation of having "often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach.” Paul Krugman, a mainstream economist who often was a voice of sanity in the Bush administration's years of madness, writes in the New York Times his obituary of the epoch: "Between 2002 and 2007, false beliefs in the private sector — the belief that home prices only go up, that financial innovation had made risk go away, that a triple-A rating really meant that an investment was safe — led to an epidemic of bad lending. Meanwhile, false beliefs in the political arena — the belief of Alan Greenspan and his friends in the Bush administration that the market is always right and regulation always a bad thing — led Washington to ignore the warning signs."
One couldn't say it better. Now, the question is: what will the Democratic candidates say to the country? Are Obama and Hillary too busy counting delegates to offer a vision of economic rescue? Do they think that this election will be decided by clever commercials, and an appeal to voters' fatigue? If so, a political disaster will double the economic disaster which is under our eyes.

Counting Delegates or Looking at Paychecks?

According to a just-released memorandum by the House' Committee on Oversight and Government Reform, ignored by mainstream media but put into the spotlight by our friends of dirt diggers digest, "executive pay is rising rapidly and dramatically" in the USA. The report is worth quoting at length: "According to Forbes magazine, CEOs of the largest 500 U.S. companies received an average of $15.2 million each in 2006, a collective raise of 38% over 2005. Many experts believe there is a growing disconnect between CEO pay and performance, as increases in executive pay cannot be explained by factors such as changes in firm size or performance. In a recent survey of more than 1,000 directors at large U.S. companies, 67% said that they believe boards are having difficulty controlling the size of CEO pay packages.
The large increases in executive compensation also have widened the gulf between CEO pay and that of the average worker. In 1980, CEOs in the United States were paid 40 times the average-worker. In 2006,the average Fortune 250 CEO was paid over 600 times the average worker. While CEO pay has soared, employees at the bottom of the pay scale have seen their real wages decline by more than 10%o over the past decade."

A LARGER, BIGGER DEMOCRATIC COALITION/2

Obama's pledged delegates: 1406
Clinton's pledged delegates: 1246


As we have noted in the first installment of this series, eight years of Republican control of Presidency and Congress politically activated new segments of the American electorate. How this fact will play in this year's races, and beyond, is the topic we should explore.
It is plain that the failure of the Bush presidency is the dominant fact of American politics today.George W. Bush's approval ratings stabilized around 30 percent, 25 percentage points below those of Ronald Reagan's in 1988. Bush's presidency has been marred by scandals, an unpopular war, and an economy that is already in recession, hardly ideal for any party wanting to hold onto the White House as Carter learned in 1980 ("Billygate," hostages in Iran, and stagflation).
The mobilization of new angry voters was what created the successes of Democratic political strategy since early 2006, when they focused on the campaign themes that brought their takeover of the House and Senate in November 2006. The majority in the Senate, for example, was entirely the byproduct of unexpected victories in Republican-held territory, like Montana or Virginia. The so-called success of the troop surge in Iraq, which has reduced the number of American casualties has not altered the centrality of George W. Bush and his failed presidency in the mind of Democratic voters approaching November.
Any forecast about the Presidential and Congressional elections must be based not on the last maneuvering of the candidates, but on long-term political trends. The central trend in recent years has been polarization of the electorate, a factor that for a long time was central to Karl Rove's successful strategy. About 90 percent of those identifying with a political party vote for that party's presidential candidate The exit polls in 2004 showed that John Kerry had won 89 percent of the Democratic vote, George W. Bush 93 percent of the Republican vote. As it is, this translates in a huge advantage for the party that is ahead in what political scientists call "party identification," simply because the pool of voters is larger. And what is the situation on this front? The Democratic advantage is now of almost 10 points, according to Rasmussen and even more according to the Gallup Organization. That disparity is one of the widest partisan gaps ever measured and it is clearly linked to the beginning of the primaries season: the 9.7 percentage point advantage for Democrats now is up from a 5.6 point advantage in January and a 2.1 point advantage in December.
To gauge the importance of this factor, imagine that in November vote the same 120 million Americans who voted in 2004 (there will be more voters, but it doesn't matter here). If Obama or Clinton will keep the share of 90 percent of the Democratic vote, that translates into a huge gap (12 million votes!) with the Republican candidate, assuming (somehow generously) that he will able to bring the same percentage of followers to the polls (this is a very optimistic assessment of Republican cohesiveness this year: even among Republicans, almost a third of Newsweek's survey respondents said they disapprove of the job Bush is doing).
This assumptions translate into 90 percent of 48 million votes for the Democratic standard bearer against 90 percent of 36 million votes for the Republican one. In an year of economic hardship as this one, there is no way the so-called Independents would split 50-50 between the two parties: more probably they will go 55-45 for the Democratic candidate, McCain's courtship of them notwithstanding. That means another 4 million votes in the democratic column (Independents are about a third of the voters, as of today). As there will be new voters, a large majority of them pulling the lever for the democratic candidates (remember that turnout in their primaries has been the double than in Republican ones) this will bring another 2 million votes net advantage to Hillary/Obama.
Question: Can the democrats squander a 18 MILLION VOTES ADVANTAGE between March and November? The answer is: "In theory, that is possible," Democrats have a long tradition of snatching defeat from the jaws of victory.
However, this would really go against the odds. To win, it is enough to reassure the constituencies now pouring into their primaries, especially women, Latinos and young people: they should give the Democrats a comfortable edge in November's election, and potentially well beyond. Right now, calculations about the electoral college give the Democratic candidate a solid majority of 318 votes but the victory might be much larger, with Obama (who in the end will prevail over Clinton) collecting more than 350 votes in the electoral college.
If you add to this the real possibility of large majorities in the House (25 seats more) and in the Senate (6 to 8 seats more), one realizes that there are on the table long-term opportunities for the Democrats, the possibility of changing American political landscape for a generation, as Ronald Reagan did for Republicans in 1980. This, of course, is a question of leadership but it all depends on how the party leader will conduct themselves.

DANCING ON THE TITANIC'S DECK

Data from the Federal Reserve show that the amount of equity Americans have in their homes has dropped below 50% for the first time since 1945. At the same time, the number of US homes repossessions, and the speed at which they were being repossessed, hit record levels in the fourth quarter of 2007, according to the Mortgage Bankers Association. The delinquency rate for mortgage loans on residential homes stood at 5.82 percent of all loans outstanding at the end of 2007, up 0,87% from one year earlier. The delinquency rate (the percentage of home owners unable to pay their mortgage last month) does not include loans in the process of foreclosure, that is homes that are about to be repossessed by the banks because of non-payments. The percentage of loans in the foreclosure process was 2.04 percent of all loans outstandingon December 31, 2007, an increase of 0,35% from the third quarter of 2007 and 0,85% from one year ago. That means that in the last twelve month, the number of Americans who lost their home because they were not able to pay the mortgage almost doubled, from 1.19% of all mortgage subscribers to 2.04%. In the exquisite language of The Wall Street Journal, "The 1.8 million mortgages now in default have created substantial personal hardship."

A LARGER, BIGGER DEMOCRATIC COALITION/1

While the interest of the media is focused on the candidates, political scientists should look at the tectonic shift under way in the American electorate. Seven years of Bush Administration have played the role of midwife to a new coalition of groups that is making the party younger, more affluent, more liberal, and more responsive to women, Latinos, and African-Americans. Of course, many of these constituencies were heavily tilted toward the Democrats already in the 1970s, but what is new is the growth of Latinos, and there commitment to the Democratic party. It is worth noting that still in 2004 Republicans scored some successes among them, playing the religious card (most of them are catholic, and traditionalist).

This shift, well described in a recent National Journal article, can be measured both by looking at the participation in the democratic primaries so far and by checking the polls about party affiliation.

We already noticed the surprisingly large turnout on the Democratic side ("Let's Crunch Some Numbers", below) but now Edison Media Research and Mitofsky International polls offer evidence that in 18 the states where it is possible to compare 2004 and 2008 caucuses and primaries, the share of the vote cast by young people has risen by substantial margins. Women's share of the vote has grown in 17 of the 18 states, albeit by smaller increments because the "gender gap" was already significant. In 12 of those states, Latinos have cast a larger percentage of votes, as have the voters who consider themselves liberals. African-Americans have boosted their share in 11 of the 18 states. Look at this chart, courtesy of National Journal, that shows how the movement was under way already in 2006.

Will Democratic Candidates Offer a New Vision For the Economy?

Unconvinced by Ben Bernanke's prayers, a total of 78% of Americans now say the national economy is getting worse. In the last days, Hillary Clinton's campaign in Texas adopted a more populist tone with a commercial about the economy, available on You Tube, or here. That may well be too little, too late: if her campaign had focused ont the economy and the middle class from the beginning, many primaries would have gone in a different direction. Today, only 14% of Americans approve of the way George W. Bush is handling the economy, 79% disapprove, and 7% are undecided. Only hard-core Republicans still support the President, and their number halved in a month: they were 29% in January according to a poll by the American Research Group. In February 2007, a solid 40% of voters approved Bush's performance, and it is plain that the crisis of subprime mortgages is hitting American families much more than the White House, Congress, or the candidates are willing to admit. This reality, however, will not have the political consequences it should if the Democratic candidates do not offer credible plans for the future. So far, both Hillary and Obama have only mumbled vague proposals of "renegotiating" the trading pact NAFTA (read the most recent controversy in the New York Times). That will go nowhere: the Democrats desperately need new ideas, putting an end to the "compassionate Republicans" attitude they have adopted since 1980.

The Return of Stagflation and Its Political Consequences

The return of "stagflation" to the American economy (a word almost forgotten by the media, as serious inflation had not been a problem for 27 years in the US) and the combination of inflation with a possible recession triggered by the housing market slump seemed unthinkable since Alan Greenspan's stewardship at the FED started working its magic.
Now, the word "stagflation" is popping up in the headlines of every newspaper: The annualized inflation rate for the past three months has been 6.8 percent, while unemployment is going up and growth is slowing, as Ben Bernanke said yesterday. The prices of oil and of gold hit new highs every week, while the dollar continues to drop to new lows compared to the Euro and other world currencies.
This is serious stuff -- and Bush's "stimulus" packages, will only make things worse because it's not a problem of lackof demand but a problem of lack of trust inside the overgrown financial and banking sector.
If the Republican party wanted to do everything to stop John McCain from winning the presidency this fall, it would implement an economic policy exactly like the one that is developing right now. There is no way that any Republican can hold the White House if the economy starts looking like that of Jthe late Seventies, that made President Ronald Reagan. Of course, the Democratic Congress this year will not even consider passing any legislation to prevent the crash.
Whoever will enter the White House on January 20, 2009, will have a task as formidable as the one of Franklin Roosevelt's in March 1933.

It's the economy, stupid!

Bill Clinton's "War Room" during the 1992 campaign had the poster "It's the economy, stupid!" prominently on display. It was the brainchild of James Carville, one of the most original, and successful, political consultants of the Nineties. This year, according to Rasmussen Reports, "The economy has emerged as a top voting issue for Election 2008," because "During the past week, consumer confidence fell to the lowest level of the post-9/11 era." It's no surprise that, facing the social catastrophe of millions of families that lost the homes in the subprime mortgages mess, "most Democrats believe that reducing the income gap between rich and poor is more important than creating economic growth." Are Clinton and Obama proposing anything substantial on this front?
The deep economic divisions inside the American electorate have been Jeffrey Stonecash's object of analysis for many years. Stonecash, who teaches at the Maxwell School of Syracuse University, recently wrote Split, an important book about political trends in the USA. You can also read an interview with him here at America2008.

Money and Planning, or Message and Listening to the voters?

Primaries in Ohio, Texas and Pennsylvania are still weeks ahead, but newspapers are already publishing obituaries of Hillary Rodham Clinton's campaign. The Christian Science Monitor writes that: "When the dust had settled after Super Tuesday, Barack Obama and Hillary Rodham Clinton were locked in a dead heat for the Democratic presidential nomination. Since then, over the past two weeks, Senator Obama has gone on a tear, winning 10 straight primaries and caucuses, and forcing Senator Clinton's back to the wall. Obama now leads the former first lady by almost every conceivable measure – total delegates, total popular vote, national polls, and finances. What happened? On Clinton's part, her straits represent a massive failure of planning and organization, analysts say. Her campaign operated on the assumption she would have the nomination effectively locked up with the 22 contests on Feb. 5, and it spent accordingly. The lack of a Plan B has left her scrambling for cash and organizing late in the post-Super Tuesday contests." So, it was a technical problem, a defect of planning. Too bad that now it is too late.
While there is a kernel of truth in the analysis, all this remains within the boundaries of a mistaken vision of American elections. True, the know-how of electioneering is important, resources and planning are as important as they would be in a military campaign, but it is wrong to look at American elections as games of chess, baseball or football. The media love the format of competion, they crave for personal duels, and nothing excites the journalists pack more than candidates going mano a mano (the bizarre, faux-Italian, slang for "close combat").
This approach neglects the facts that voters, too, want to have their say. Public opinion remains less compliant that many would love it, and Political Communication is not yet an exact science. While the list of successes in manipulating citizens through skillfull propaganda is longer than the Mississippi river, sometimes the "handlers" of politicians fail miserably not because of a lack of professional skill but because they don't register with citizens' fears and hopes.
Clinton's mistake was not in the technicalities but in the central assumptions of her campaign: that experience was all important, that name recognition was a priceless asset, that the network of supporters hard-won before and after the White House years was a resource that could not be matched by Obama or Edwards. Unfortunately, in 2008 experience and name recognition are not central considerations in the minds of voters. Hillary should have looked to the polls that show how only TWELVE PER CENT of likely voter think that Congress is doing a good job, while FORTY-SIX think it's doing a poor job. Just 4% of Democrats believe the nation is better off today than it was four years ago, while 91% disagree. According to Rasmussen Reports, "Sixteen percent (16%) say the country is heading in the right direction while 78% disagree and say the United States is on the wrong track. These figures are slightly more pessimistic than they were in December. Women are more pessimistic than men." And what about the issues? 80% of voters think that the Economy is of top importance to them, a few points ahead of Government Ethics and Corruption, a top issue for 76% of Americans.
These numbers do tell a story: voters want change. Change in Iraq (two thirds want the troops home in a short time). Change in the "benign neglect" Congress and the President adopted toward the economy. Change in the "productivity" of institutions, paralyzed by special interests (a polite word for corporations' lobbysts).
All this explains McCain's and Obama's successes. Voters want to turn the page, and therefore rejected "experience" as an important qualification for candidates: Giuliani had experience in dealing with 9/11, and went nowhere. Romney had experience as a businessman and a governor, and voters snubbed him. Hillary Clinton had a lot of experience, and in fairness it appears that she has learned from it, but this is not the right year for the message.