Is it really just ‘the economy, stupid’?

‘A once or twice a century event’
Unlike 1992, when Democrat Bill Clinton defeated President George H.W. Bush, the distress this year is not merely over lost jobs.

“This crisis is different — a once or twice a century event deeply rooted in fears of insolvency of major financial institutions,” former Federal Reserve chairman Alan Greenspan wrote recently.

The current chairman of the Federal Reserve, Ben Bernanke, and Treasury Secretary Henry Paulson have had to take extraordinary steps to arrange the rescue of deteriorating investment bank Bear Stearns and to try to revive Fannie Mae and Freddie Mac, the ailing mortgage agencies. The entire financial system is under severe stress.

In the face of such a calamity, it would seem that economic acumen and crisis management expertise should be essentials of the next president’s skill set. Yet neither Obama nor McCain has demonstrated achievement in these areas.

That’s why some Democrats have wondered about adding former Treasury Secretary Robert Rubin to the Democratic ticket, while some Republicans have pondered FedEx CEO Fred Smith as McCain’s running mate.

What the candidates are offering
The contrast of economic platforms between McCain and Obama is partly along traditional liberal vs. conservative lines.

Obama promises tax cuts for lower-income people, tax increases for the wealthy and subsidies to certain industries, such as solar and wind power firms, or “to make strategic investments in American workers and American businesses to create millions of new jobs,” as his campaign says.

He has also said he would try to structure future trade deals in ways that would encourage U.S. trading partners to make their labor and environmental laws more like ours.

McCain would permanently extend the 2001 income tax rate cuts, if he could. But with very likely bigger Democratic majorities in House and Senate next January, that is highly unlikely.

McCain is a stronger advocate than Obama of lowering trade barriers and expanding U.S. trade with Colombia and other nations.

Like Obama, he has proposed various incentives and subsidies, primarily in the energy sector. For instance, he would offer a $300 million government-funded prize to the inventor of a more efficient electric car battery.

The proposal on which Obama and McCain agree may turn out to be the most significant to the U.S. economy.

Both men support a cap-and-trade system to try to limit carbon dioxide emissions. Such a regime would have vast and difficult-to-forecast effects on the U.S. economy, with the federal government collecting hundreds of billions of dollars in emissions permit fees from polluting industries, with some of the money to be redistributed to "clean technology" projects and firms.

A series of 51 elections
The key to understanding how the economy will affect what will take place on Nov. 4 is to realize that this is not a national election, but a series of elections in 50 states and the District of Columbia.

Some states with high unemployment, such as California with a 6.9 percent jobless rate, or Rhode Island with 7.5 percent unemployment, are nearly certain to go for Obama. But they almost certainly would have gone Democratic even if the unemployment rate was zero, having been among the best performing Democratic states in presidential and congressional for 20 years.

Other states with relatively low unemployment rates are also likely to be easy Democratic wins, for example, Connecticut, Vermont, and Delaware.

Yet other states with low unemployment are likely to vote Republican. Cases in point: North Dakota, South Dakota and Idaho.

The culture and long-term voting habits in these states favor Republican presidential candidates, just as culture and habit skew very Democratic in states such as Vermont.

There is another category of states that are likely to be hotly contested, but where the economy is in reasonably good shape, or least better off than the national average.

Two states stand out in this category: Virginia, with only 4 percent unemployment, and Wisconsin, with a 4.6 percent jobless rate in June.

What about Michigan?
Then there’s Michigan with 8.5 percent unemployment. Kerry won Michigan in 2004 by three percentage points.

McCain has been doing heavy TV ad buys in Michigan. If McCain is still doing a TV blitz in Michigan in October, it will be a sign that Obama is in some peril there.

If Obama does not carry Michigan, then he’ll have a difficult time winning the election.

Without Michigan, Obama would have to carry at least a few of the states Kerry failed to win in 2004.

Nevada, Missouri, Colorado and Virginia, for example, would give Obama enough electoral votes to reach the required 270, even if he lost Michigan.

In an effort to make inroads with lower-income voters, McCain has so far offered empathetic populism.

That was the point of his summer gasoline tax holiday. “The lowest-income Americans drive the furthest and probably they spend more on gasoline because of the age of their automobiles,” he said as the summer started. “Why don't we just give them a little break for the summer?”

He noted that in Washington, D.C.’s Georgetown neighborhood, where many of the city’s policy-making elite live, you “could literally walk to work” — so the price of gasoline isn’t a pressing issue for them.

But the people who “do the real hard work, they sometimes drive 40 or 50 miles.”

In this year’s Democratic primaries, the fighting populist was John Edwards, not Obama.

Will Obama choose to wage a boldly populist campaign in the fall? So far, there are few signs of that. If he doesn't, it may reflect a judgment on his part that the economy is making his case that a change of party is needed in the White House.

Meanwhile McCain has reverted to the classic Republican strategy of stressing Obama's vow to increase taxes. Obama has said he would do that only for the wealthy, but that nuance is lost in the McCain message.

With Democrats likely to have big majorities in Congress next year, Obama as president would be almost certain to get enacted most of the tax increases he has proposed.

But that same Democratic Congress would make life difficult for a President McCain.

So in this election, as much as voters focus on "the economy, stupid," they must also keep in mind "the Congress, stupid."

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