ON NOVEMBER AND BEYOND

CENTER DIVIDED

Both party conventions are over and Americans now have two months to decide how they'll vote in November. 

In the meantime the economy and the markets continue to be in a funk, with no end in sight.  The economy also remains the one area with the biggest policy differences between McCain and Obama (image source).

Voters have a tough choice in November, especially if they skew politically towards the center, and are not primarily energized by an issue from the base of either side. 

My friend Mark Pincus hits the nail on the head with this post on a New York Times article on Obama's economic policies a few days ago:

"When you read how obama will cut taxes for middle class and poorer families it sounds great. But the author doesn't ever question the concept of 'paying for tax cuts' with a program that obama acknowledges may never raise govt revenue..."

Here's where he starts to hit the nail on the head:

"What bothers me most about articles like this, is the assumption that the govt can effect the economy. Are we really giving clinton the credit for the 90's boom? That's like crediting roosevelt for the car.

the 90's was about productivity gains from IT and internet. This caused massive high value job creation as well as american wealth creation. The deficit was wiped out under clinton because of huge tax revenue. Nothing to do with tax cuts or raises or who was secy of treasury or even alan greenspan.

The author laments how avg americans haven't seen their std of living go up in the past decade. Well, its not a god given right. It comes from innovation and its pretty tough to exceed the prior decade."

We put too much stock in what our politicians can do for us.  Most of the time they're around to either take the credit for good things that happen in an economy or cast blame on the other side when things go wrong. 

My favorite example of the former, include how grass-roots manufacturing entrepreneurship, fueled by massive overseas Chinese investment in China, jump-started the country's great economic leap forward in the nineties.  It was of course catalyzed by the developed world's need for inexpensive goods of every kind through companies like Walmart, and the rest as they say was history. 

A similar example can be made in India, where the developed world's fear of the Millennium bug (aka Y2K), fueled the initial outsourcing IT boom in India in the nineties.  That then fueled India's great leap forward as a global outsourcing power house over the next decade.

Just as economies everywhere are often the beneficiaries of unintended consequences, they can also brutally suffer because of them as well.  We're seeing that now in the global credit deflation that was seemingly sparked by the sub-prime real estate securitization bubble in the U.S..

The best thing politicians can do is recognize the reality of these perfect storms and try not to do too much damage while trying to "fix" them.

As far as the election in November is concerned, I find myself agreeing again with Mark Pincus in this other post a few weeks ago:

"My take, either candidate can win by appealing to the center. Seems painfully obvious.

Obama could take this hands down if he backed off the socialist 'make the rich pay' talk. As stated, he could get support for raising taxes if he made a logical argument supported by great economists. My sense is that people want to vote for him but he's too risky with all the rhetoric.

Mccain seems to be pulling ahead in my friend polls. The theory is when both options scare you go with the safe economic bet. Mccain's rhetoric is more libertarian - reduce govt spending - and that always grabs the center. If mccain can stick to this and lose the crazy old white guy who wants to go to war image, he will win.

Why can't this ever be easy? I'd love to hire the young guy and shake it up, but he speaks with such old rhetoric."

Not just old rhetoric, but downright depressing and negative rhetoric.  There's a lot more promise in America than the "young guy" can politically admit in his campaign at the moment.

Right now it looks like both candidates of course are catering to their base, especially coming out of their respective Conventions. The "old" guy for example noticeably avoided any discussion of immigration reform at his convention, and as a result is handing a 2-to-1 advantage amongst Hispanic voters to the Democrats going into November.

It'll be interesting to see who manages to connect with the center first.  Whether or not that really makes the difference, in winning the election is of course up for debate by the pundits.  But tacking to the center in substance by the winner from either side, means far more to the global markets and the economy post November.

Comments

[robert goldberg]

Hey Michael, totally agree with you that they are both trying to appeal to the base with too much rhetoric. Maybe its my left leaning tendencies, but I think Obama is really different. And had a different take than either you or Mark on the NYT article. The income gap is becoming an increasingly bigger problem, I would hate to see us end up looking like Brazil. And while you cant entirely solve it with tax policy you shouldn't exacerbate it either. Also think that its the citizenship duty of people who have had the opportunity to contribute back, a progressive tax is part of that. Lastly my read on Obama's policy is that its not the typical tax and spend, but really about creating sustainable opportunity for everyone. A position that I believe is supported by a number of notable economists - as Mark suggested.

[Alex Tolley]

I you really don't believe government policy has any effect on GDP and that the Clinton era was all about non-governmental variables, why should the McCain/Republican belief in tax-cuts for growing the economy be valid either? This is just non-sensical double-talk.

No god-given right for the average worker to see pay increases? What happened to the traditional approach of giving pay rises in line with productivity gains? Has the US stopped improving its productivity - no. So where are the wage gains that should accompany it? If you don't believe that productivity gains should also go to workers, what is the role of the economy and government policy?

The US is a country that is governed, "for the people, by the people". Today is has become "by the rich, for the rich". This is how empires end.

As for last night's McCain speech, how stupid does he think we all are. "My country first!" Hah. He wasn't thinking that way when he was part of the "Keating 5". Orwell must be laughing in his grave.