Riding Out the Day's Events

Today was a near pitch-perfect illustration of the flaws of our major Presidential candidates.

Barack Obama has had various positions of authority, but as near as I can see he's never been held accountable for accomplishing anything, or even staked his personal reputation on the attempt. Today is no exception. By now, he's been the de facto leader of the Democratic Party for almost six months and his voice carries all the power of Marcel Marceau. John McCain has an innate feel for the exercise of leadership, but poor judgment for its end. Ie, he knows how to overcome inertia and rationalization for a common purpose, but he doesn't know what the common purpose is.

Today, John McCain suspended his campaign and is going to Washington to participate in the bailout debate. This has been characterized by many as a stunt, and that's certainly a legitimate pov. But I can almost guarantee that it's not a stunt in McCain's mind, but a real statement of priorities. For the sake of the economy, this might be good or bad. It's easy for me to envision the scenario where McCain builds a legislative consensus where there otherwise wouldn't be one. But the resulting bill might be your typical Congressional hodgepodge we'd have been better off without.

Fwiw, the lay of the land is changing so quickly, I don't know what we want to happen. I still expect some sort of intervention to happen, but it looks a lot less urgent now than it did a few days ago, which is a very good thing in my book.

If I had my druthers, here's the framework I'd use. Come up with criteria for a reasonable dividing line between "healthy" banks who we think can survive without an intervention. Figure out what the current market liquidation price of the various sorts of bad paper is, and have the Treasury bid at a small to medium-sized premium to that price, ie, well below the hold-to-maturity price Sec. Paulson has been talking about. Then, use the regulatory power of the government to force the "unhealthy" banks to clear out all their bad paper, either to the government or to somebody else. For many of them, this will not give them enough capital to continue operations. For those, we handle like an ordinary bank failure, ie, inject enough capital into it for a healthy bank to take over. Finally streamline the process of chartering new banks with new capital, perhaps allowing them to operate in a looser regulatory environment for a while. That should be okay, we know they're not carrying bad paper.

This approach would solve the moral hazard problem and be the best for the taxpayer. It avoids demagoguery and blame games. On the downside we're left hoping we're using enough club to get the job done. On that score, today at least, I think we just have to take our chances. From what I've seen, there is no magic bullet where we're guaranteed to get out of the mess if we give the Treasury X number of dollars worth of spending authority.

Like anyone else, my view on this might be completely different tomorrow.

McCain Gets Closer

As I noted in the last post, McCain's various statements about the credit crisis or the economy in general are less than inspiring. However, he's getting closer to where he needs to be with today's statement.

The problem is complex, and the legislation to fix it surely will be as well. So first, let's state some principles we can use to guide us instead of barking barely coherent complaints against various bogeymen, some innocent and some guilty.

I would have stated the guiding principles a little differently. Whether we characterize what eventually gets done as a bailout or not, there will eventually be some kind of intervention, because there is a very substantial likelihood that we would have a second Great Depression without one. But the money is so huge, and the amount of government control over the economy is so extraordinary, that we have to emphasize that the intervention is something we have to do, not something we want to do. And, this is something we only intend to do once, with provisions for sunsetting and reselling debt back into the private market when the opportunity arises.

But truth be told, what's in the statement isn't too bad for now. Everything going forward has to emphasize two things. First, let's do X, Y, and Z and we'll avoid the 1932-scenario. Second, after the crisis is past, we'll remain vigilant against government mission creep. We're not going to maintain intrusive government power past the point where it's needed.

The Moral Hazard

By now, we've all heard about the Fed/Treasury Resolution Trust Corp. reprise. Among other things, various parties are tut-tutting over the "moral hazard," ie, the idea that having an external party bail our protagonists out of trouble greatly increases the probability they will get into trouble in the first place. In this case, this is usually meant to mean that the lenders and investors are leaning against the gov't bailout, thereby propping up institutions which should have either failed or taken a more conservative business plan some time ago.

That is not something to dismiss out of hand. But on balance it's difficult to say this outweighs the possibility that our banking system was an hour or three away from collapse, a story which nobody has really tried to refute. About the creditors and the equityholders, they might catch a break from the government, but then again they might not. It'll depend on the details, and those might not be in their favor.

However, now that it's clear that some kind of bailout will occur, there is a significant risk of moral hazard that we should be aware of, and take measures against. We should be more afraid of recklessness from the political class than the financial class. Various politicians and bureaucrats will have control over assets, de facto and de jure, on a scale they had only dreamed of beforehand. This might be necessary to resolve an emergency liquidity crisis, so it's important for us to insist that the government intervention be taken for that end, and nothing else. That certainly won't happen by force of bureaucratic intertia, so it will require vigilance from those of us not in government. The flip side is, once we agree that this intervention is something we doing because we have to, not because we want to, the consequences are probably not so bad.

The Candidate We Have

If you were to ask 10 well-informed conservatives who they would rather have as President if they had to choose between John McCain and Chris Cox, I think Mr. Cox would get at least nine votes. Of course, John McCain does not strike anyone as being particularly adept economic policy expert, so it was doubly unfortunate that Mr. McCain chose to take out his frustrations on Mr. Cox last Thursday. This is just one symptom of the larger condition of this campaign diagnonsed by Peggy Noonan, where for many of us, we support Mr. McCain but don't necessarily believe in him.

Donald Rumsfeld famously told a soldier that we go to war "with the Army we have, not the one we want." There's a tendency to apply the same train of thought toward elections, and in this case it would be a substantial mistake. Among other things, the "chain of command" in this case runs in the opposite direction, where the voters are sovereign. But even beyond that, for the credibility of the GOP base and the health of the economy as a whole, we can't afford to pretend this particular emperor is well-dressed when he's really naked.

Too Big to Fail

Just six days ago, I wrote that John McCain was late giving up manufactured outrage over lipstick and needed to pivot toward a real message on the economy. Unfortunately I suspect that window is shut now. First of all, with all that's happened this week, he appears to be late to the party. Second, what he has said isn't exactly worthy of the brilliancy prize (more on that later).

It's been said of several big teetering financial institutions, Long Term Capital, Fannie and Freddie, Bear Stearns, Lehman Bros. (oops sorry guys), and most recently AIG that they are "too big to fail." This has been repeated enough to be a cliche without necessarily figuring why. Financial institutions have to be able to deal with each other with the understanding that in the vast majority of the time (more often than with other generic businesses), the other party will be able to live up to their obligations. Too big to fail means that a financial institution is so entrenched in its obligations to other firms that if it fails then its counterparties likely will as well. By the time the cascade of failures is finished, there won't be enough solvent institutions remaining to lubricate the wheels of a healthy economy.

The point being, most of the economy lives outside the financial sector, and the crisis inside it needs to be viewed from that point of view. The economy as a whole needs institutions that can store capital on others' behalf, and extend various kinds of credit. Even if the events of this week are resolved well enough, we're still not out of the woods. Just because there's players out there with money who can extend credit, does not at all imply that they will. In the big picture, the crucial factor is growth. In the end, it is growth which generates the credibility that money lent out will eventually be paid back. As it stands right now, things aren't so bad. Growth has been ok, and credit is available for creditworthy parties, even if the liquidity of the secondary debt market has dried up. It's what happens when things turn for the worse from now that we should be afraid of.

Except for the Bush tax cuts, John McCain's record in the Senate is actually pretty good. The problem is, he seems to view the mechanics of the economy as morality play. He's not alone in that of course, but for him it fuels the perception that his life experience is in substantial ways lacking in the ability to engage peoples concerns now. In any case, it's seems to me that the weakness in the Republican ticket is on the top, not the bottom.

Keep Them Dogies Rollin'

New York judge Gideon Tucker once said "Nobody's life, liberty or property are safe while the Legislature is in session." Bearing that in mind, it's useful to remember that for the big ticket issues, it's almost always better to roll the Democrats instead of negotiating with them. That's not a matter of being macho or mulish resistance to compromise. It's just that conservatives can never get half a loaf when both sides emerge from the proverbial smoke-filled room. And wrt the energy "compromise" floating around Capitol Hill, that's the way National Review sees it. To be honest I haven't checked all this out too carefully but I'm inclined to agree with them.

In the smoke-filled room column we have the Medicare Prescription Drug Bill, Leave No Child Behind, the infamous 1990 Budget deal (ie, the repudiation of "Read my lips."), and who could forget last year's Comprehensive Immigration bill. In the other column we have the nomination fights over Roberts and Alito, the 1996 Welfare Reform, any of the recent major tax cut bills, and the Iraq War vote for that matter.

The trick is to sharpen the difference between the parties toward maximum clarity for the public at large. In this case is not too difficult. The GOP, if they're smart, ought to be in favor of "all of the above" wrt energy production. As it stands there are lots of statutory barriers to energy production in America, there's no point in adding to them. Anything we can get out of the Democrats now, let's take. Anything we can't get, we'll try for later.

The Last Pivot

For the moment, the Presidential race has found its equilibrium. McCain has a small lead, and the Obama campaign appears lost. As things stand, both sides look ready to fight the trench warfare at the end of Presidential elections: sound bites, debates, ritual denunciations, the ground war, etc. McCain has a small advantage here, but it's too vulnerable to try to protect. One mistake in a debate, poor organization in Ohio, and it all goes away.

It doesn't have to be that way. McCain has had a good six weeks. I'm reminded of a thought of Judge Sonia Klonsky in Laws of Our Fathers by Scott Turow, where she thinks (and I paraphrase), "This is the only cross-examination in my entire career on the bench that is actually going to change the verdict of the case." Everything that's gone right for the McCain campaign, the Saddleback Forum, the "celebrity" ad, the Palin selection, it all sets the stage for what happens next.

Now, while McCain has everybody's attention, he needs to execute the Michigan pivot. Ie, he tells the voters "Vote for me and the 1932-scenario is out of play. Vote for the other guy and it's a very real possibility." It's important to maintain as high a signal-to-noise ration as possible, and avoid electioneering theatrics. Fortunately, there are several very specific, very tangible data points available to make that clear. Michigan has been in a one-state recession for the last six years. The Democratic-controlled House of Representatives turned off the lights in lieu of debating energy production. The housing GSEs, whose management has largely been a gravy train for Democratic insiders, have failed and now require a government bailout.

One thing McCain can do is promise to drill, or more importantly, "all of the above". The second thing he can do is cut spending and talk up the dollar. The biggest problem with credit now is not risk of default. The lending bubble has largely been written down. Instead, it's about currency risk. Anybody loaning money to an American on any terms is going to be paid back in dollars and therefore taking a risk that the dollar will depreciate. Fortunately for McCain he has credibility on spending. He just needs to apply it in the right place.

If McCain can do this, I don't see this as a close election. This is where the voters are and Obama can't follow him. Obama has had his chance of running on a message and blew it, the voters are ignoring him at this point. I see a McCain win of 5-8 points and with a drama-free Election Day (and drama-free for the three weeks leading up to it as well). Will McCain actually make this pivot? It's anybody's guess.

Teaching a Pig to Sing

The world is abuzz with speculation about whether "lipstick on a pig" was a deliberately ungracious insult of Gov Palin from Sen Obama, or an unfortunate choice of words. For the Republicans, this is good news and bad news.

The good news is that Sen Obama clearly has no message, he's out of his comfort zone and is flailing. From what we've seen so far, he's gaffe-prone and surprisingly ineloquent when forced to speak unprepared.

The bad news is that playing gotcha games is not good turf for the Republicans and they should make some effort to get out of there as soon as possible. In a very particular way the Republicans have unwound a significant part of the legacy of President Bush in the last ten days or so. They have the nation's attention and people are listening to what they have to say. It's been so long since the party has gotten a decent hearing that it's imperative to leverage this wisely. Ultimately our message to the voters has nothing to do with complaints about Sen Obama insulting them so let's not waste our time teaching trying to teach this particular pig to sing.

Instead, the economy is a very ripe issue for the Republicans, and if the McCain people play their cards right, the Presidential race could be functionally over by the beginning of October. The Republicans already own the oil issue. As it happens they stand to benefit from some good timing as well. The Congressional ban on offshore drilling sunsets at the end of the month. The debate over renewing it, inside and outside the halls of Congress, will work to the Republicans' benefit. The trick for the Congressional GOP is to establish the energy analog of the Brezhnev Doctrine. With respect to energy production, they are in favor of "all of the above" The Democrats will acquiesce to some forms of energy production and not others. The GOP should take whatever the Democrats acquiesce to, and agitate for the rest. They must resist the temptation to think that because they have some deal with the Democrats, the leftover forms of energy production are "off the table." The country will be better off for whatever energy production the Democrats allow, and the Democrats will look bad no matter what they do.

Plus, just Monday the government announced the takeover of GSE's Fannie Mae and Freddie Mac, both of which happen to have been woefully mismanaged by Democratic pooh-bahs sucking very generously on the public teat. McCain-Palin can't unilaterally promise to prop the housing market and end the mortgage crisis, but they can demonstrate that they are dialed in to the the real problems facing America.

Identity Politics for Republicans, Pt II

Here's one more post on Gov Palin, then I suspect we'll be leaving the world of all-Sarah, all the time (me and the Presidential race both).

First let's recap the impact of The Speech a little bit. I had a wrong read initially, largely because I had already gotten to the place where everybody else was going. I already knew she was hot and poised, so I didn't need to see any more of that. I am probably one of the very few viewers who thought her speech was too nice toward Obama. In any case, the first impression for most of the world was that she is a woman who is composed and aggressive at the same time, a very appealing combination.

Since the announcement of her place on the ticket, Gov Palin has been hit with two separate waves of antagonism. The first was various negative insinuations and rumors about her family. The second was about her "inexperience." Both have boomeranged against their instigators to the benefit of the McCain-Palin ticket.

We've already written about the first a little bit, so let's hit on the second for a moment. Some people claim that she attracts support because she is an ordinary person that her constituents can relate to. I see the point but I find that explanation unsatisfactory because even though she is very normal in some ways she is also completely extraordinary. It's not just that she has five children. She also hunts, she fishes, she won the state championship in basketball, she finished runner-up in the state beauty pageant, she ran a small business, she got elected mayor and governor. Sarah Palin is the reason compasses point North. People identify not just with her ordinariness, but more importantly with her extraordinariness, as a crucial expression of their sovereignty. Ie, if the media, the Democrats and various bien-pensants of The Establishment will treat her the way they have, the rest of us have no hope.

Unfortunately for Gov Palin's detractors, in America the people still get a vote that counts, and they can and will use it to pull rank. We'll always have experts of various stripes, and it's a mistake to disparage the idea of expertise in general. Nonetheless, even if it's the experts who know how to sail the ship of state, we still pick the destination.

Tonight

After McCain's speech, I like him more but my expectations of him are less (when he gets to the Oval Office, and I think he will). I wrote before that the self-justification of the McCain candidacy is that he survived the Hanoi Hilton and you didn't, and I stand by that.

Obviously that is a substantial achievement that speaks impressively to steadfastness in character, but it isn't enough. Even though McCain has largely been doing what I suggested in the post I mentioned before I am not particularly optimistic about the upcoming McCain Administration. We've got very substantial problems in America that require real expertise to get through. More expertise than any one person has of course but in McCain's case I fear his tendency to view the world through his "public service" lens will keep him from getting the best out of others too.

Notwithstanding that, McCain vs. Obama is an easy call and at the moment most of the intelligent people who are sitting this one out are motivated by the need to indulge their own spite, which is their prerogative of course. I suspect when push comes to shove Palin is the real game-changer anyway. We need a broader base of political renewal than the Establishment has on offer. And now we have a chance of getting it.

What He Said, Pt IV

http://article.nationalreview.com/?q=MzQyZDllYTM3MzgxN2VhMDQ4OTg5YzQxMzQ3N2Y0MmI=

Larry Kudlow is an affable guy in a sometimes jerkish business. Sometimes he confuses his wishes with reality but today's article is pitch-perfect. The Republicans cannot afford to be too giddy, or even look that way, when the 1932-scenario is very much in play.

If I were John McCain, I'd do some kind of back-of-the-envelope calculation to price out Obama's middle-class tax cut in terms of the price of oil, let's say it's worth $25/bbl for the median tax cut beneficiary. Then I'd point out that the price of oil has dropped $40/bbl since President Bush and the Republicans have put exploration and drilling on the political agenda. Combine that with the emphasis that the government doesn't control the price of oil, it only hopes to contain it.

I'm Glad I'm Not in Politics

And that no one actually reads this blog because I wasn't as a big a fan of The Speech as everyone else. From what I've seen, so far Giuliani has been by far the best speaker of either convention. Even in his pauses and awkward lines made it clear that it was his speech.

Palin's jabs at the Democrats were cute but a little contrived. I'm not convinced that she actually believed them. And the whole business of she likes small towns and special needs children was overplayed. For me, we could look at her or listen to her for 10 seconds and get that already.

This might be down to my own personal preferences. For me the gold standard for attacking the opponents in a convention speech was Zell Miller at Madison Square Garden in 2004, and last night was not that. According to PalinFacts, Death once had a near-Sarah-Palin experience, and I was looking forward to seeing that side of her. We already knew she had the PTA mom angle down cold.

But then, the whole world seems to love The Speech. I'll have to consider this again in a few days and see if the seems the same then as it does now.

Letting Sleeping Dogs Lie

The political fortunes of the GOP turn a sharp turn for the worse yesterday. Bristol Palin's pregnancy and all the punditry and side stories that have come out with it are dominating the air to the exclusion of everything else. There's polls out now that show Obama with an 8 or 9 point lead, something we haven't seen in a while. We can pooh-pooh this if we want but I think we're seeing significant changes in the race right before our eyes.

I misread the impact of this largely because to me the Palin family looks closer to something out of Norman Rockwell than something out of Jerry Springer. But then I read Steve Sailer's take on this and I think he is exactly right. The Republicans have kicked the sleeping dog and now we'll just have to see who he bites. There is a significant danger because not only is there a fear of redneck female fertility there is actually a means to do something about it. Ie, vote for Sen Obama and erase Gov Palin's family from the national stage.

Notwithstanding any of that, Gov Palin was still the right pick and the McCain candidacy is miles better off now than before he chose Palin.

1. The oil narrative is looking very good for the Republicans now if they know how to argue it.

2. The overall dynamic of the race has changed in several good ways. First of all, the GOP has finally moved beyond Bush, and everybody likes it. At this point, the race is a referendum on McCain instead of a referendum on Obama. There's been times in the past few days where I wondering if the Democrats were running a candidate in this race. They'll have to swim upstream against the media of course, but the fact that the Republicans have interesting things to say is going to make all the difference.

3. People who don't want their families to end up on the Jerry Springer show will figure out that the haterade about Gov Palin and her family is really aimed at them. The GOP hopes they figure it out sooner rather than later.

Sarah Palin Facts

Move over, Chuck Norris. It serves you right for supporting that awful Huckster. (HT: Steve Sailer)

What He Said, Pt III

http://www.realclearpolitics.com/horseraceblog/2008/09/what_the_heck_is_mccain_up_to.html

God How I Love Sully

But not in that way of course.

The most weaselly partisan contemporary commentator in public events has for the last couple of days been confronted with an intractable dilemma: write about something other than Gov Palin in which case nobody could possibly care, or write about Gov Palin, in which case he's writing about Gov Palin.

For those of you who've got lives, Sully's been retailing the story that Gov Palin's daughter Bristol is the real mother of Trig, the Down Syndrome baby. As it happens Bristol really is pregnant now, so we know:

1. It's just about impossible that she was pregnant then.
2. The standards of evidence in Sully-land (or the Left in general for that matter) are gutter-level.

He's obviously throwing whatever he can against the wall in the vain hope that something will stick.

But even without this, he was still stuck. Even if some people still read his blog, nobody actually takes his train of thought seriously, because he's never really writing on the level. The key to the spinmeister's craft is understanding the limits to it. You can frame a plausible story on a set of facts and if it sticks, a consensus might adopt it to be the frame of reference about those facts in the future. You can't frame a story whose premises are easily shown to be false. They make up their own mind about the underlying circumstances and form a (bad) frame of reference around you.

What He Said, Pt II

http://www.chicagotribune.com/sports/chi-01-haugh-bears-draft-flops-csep01,0,7373723.story

You can't be have a winning team in the NFL with bad offensive line play. The Bears line wasn't too bad as of a year or two ago, but they had a bunch of decent to good players, (Fred Miller, Ruben Brown, Roberto Garza, John Tait, even Olin Kreutz a little bit) who all got old at the same time.

One small quibble. The trade with the Jets was fine. The end of the second round is a plenty good enough spot to get quality offensive lineman, and if they'd picked one there they might have one instead of Dan Bazuin who's not on the team any more.

I'm Holding Out For a Hero(ine)

One interesting part of the whole Palin phenomenon is the roster of conservative commentators who have expressed reservations or in some cases outright opposition. So far by my count there's David Frum, Charles Krauthammer (I don't count him a right-winger but most people do), Jay Nordlinger, Ramesh Ponnuru, Rick Brookhiser and Quin Hillyer. William Kristol has gone back and forth. It's an impressive list, one that I'm obviously not on (for reasons besides my much lower profile).

In any case, it's fair so say we've got the book on Palin by now. She's got lots of pluses, and pluses, and pluses, and pluses, yeah whatever. But she's got one big minus, inexperience and woeful lack of qualifications for the job she's a candidate for. And for some people the nature of this minus is such that it wipes out all the other pluses.

I don't buy this obviously, but let's go over exactly why for a little bit. First of all, she's been the governor of a small state (population, obviously) for a short period of time. But, she's done well in the jobs that she has had. And in particular, she's demonstrated a fair bit of personal accountability with respect to various players in Alaska politics. For all the people talking about "one heartbeat away" from the Oval Office, let's remember that most Presidents actually live through their term of office. The last guy who was elevated to the top job in the middle of a term was over thirty years ago, and Gerry Ford was never elected to the Vice-Presidency anyway. The Vice-Presidency has been largely ceremonial for substantial segments of our history. Bill McKinley put Theodore Roosevelt on the bottom half of the ticket to get him out of the national spotlight (interesting how that one worked out). How it functions now is determined by the guy on top and what he's willing to delegate. If anything the other team ought to be happy that we're clearly not going for a repeat of Cheney.

And if President McCain dies in office VP Palin will get the top job. Lot's of people are supposedly "worried" about this. For the most part I'm not buying. Mostly it's a smokescreen for mischief against McCain by proxy. If it does happen, we'll make do.

The other part of "inexperience" rap has to do with campaign issues: Biden will tear her apart, people will laugh at her, the press will embarrass her by highlighting her ignorance of Kazakhstan, etc. I think it could just as easily go the other way. She's fresh, pro-energy, pro-life, etc. But this is all on paper and discounts her ability to frame her own narrative. If it she gets put in a tight spot, we're not going to see a deer-in-the-headlights freeze. She's a real-life female version of that bearded guy in the Dos Equis commercials. She's got personality to burn.

But what of my right-wing brethren, why are they pissing in our corn flakes? I thought about that for a bit, and I think I figured it out. First of all, their frame of vision is too narrow for a situation like this. They've seen most directly the tide turn against the Republican party, and directly felt the Bush fatigue. Bigger than that however, is a little bit of control freakery. They've patiently endured the Alberto Gonzales, Conrad Burns and John Podhoretzes of the world and put on as brave a face as they could. And now at least those people are gone and they finally man their trenches and fight. Now Gov Palin comes and everything is up for grabs again, and in their experience that's been a bad thing. It's very important to recognize that the luminaries are right to see this as a loss of control. The mistake was to think this campaign season could be micromanaged in the first place.

Identity Politics for Republicans

Ok, some of the bien-pensants are tut-tutting over Gov Palin because she represents identity politics practiced by Republicans and that's just not our cup of tea, you know?

I disagree with this one, and frankly it doesn't seem to hard sort out. First of all, let's agree that she is an identity politics VP choice as we set straight the kind of diversity hire she is. She's not an appeal to solidarity with the Hillary-esque sisterhood of the traveling pantsuit (more on that later). She is "one of us" for prolifers, gun owners, nuclear families, Westerners and libertarians, all various constituents of the conservative base who've been less than thrilled with the trends in American politics over the last few years. People have come out of the woodwork with new enthusiasm not just for this election, but for politics in general. If you chase this stuff around the internet a little bit, there's a significant hope around the web that John McCain won't be a drag on the Palin ticket. So, let's emphasize that, out of the many many things that Gov Palin on the ticket represents, this is the most important one.

Would a Harold Palin with the same resume have gotten picked? Of course not. A woman who hunts, fishes, and plays basketball is ten times as exotic as a man. At bottom, this pick is about the citizenship of Americans. We don't have to defer to the "experts", our "betters" to work the machinery of government. We're perfectly capable of handling it ourselves, thankyouverymuch.

Back to Hillary. Getting the Hillary deadenders is something to hope for but not count on. The important thing about them is that for many of them it's not about policy, and never was. It's that Hillary, a Senator with a huge national profile, gets the big office, and somebody else has to suck it up and be a team player instead of the otherway around as some form of karmic payback. Obviously it didn't work out that way. Now their primary voting motivation is to punish Barack Obama and those elements of the Democratic party who were instrumental in nominating Obama over Hillary. The idea that Hillary tries to throw her support to Obama (or not, for cynics) doesn't change things at all. In fact, it makes it worse. Frankly, I suspect their grievance will be forgotten by Election Day. I don't think Palin really makes much difference except that it rubs the wound raw for a few more days. But for the most part George W. Bush won reelection without them anyway. If somehow they vote Republican John McCain will happy to take their votes. Otherwise going after them too hard is a distraction.

The Three-Headed Monster

One thing I've been wanting to write about a little more explicitly is why Obama's six months worth of pablum has put him on course to lose the general election, and why changing that course at this date will be difficult to do.

First of all, the state of our economy is in a very interesting place. Ever since the Bush recovery started in 2002, the economy has been in more or less good shape. It is true that this period of growth disproportionately benefited the skilled and educated, and substantial slices of America missed out on it altogether. But most people with a little initiative or personal responsibility avoided the sufferings of real privation. And so it is now. But, more than anytime since the 70s, and maybe even more than then, we are looking at the possibility of 1932 again.

The American economy is struggling against a three-headed monster of a credit crunch, inflation, and oil crisis, all more or less independently at the same time. Any one of these would be a substantial macroeconomic problem that would threaten the possibility of recession. Taken together they compound each other and what's worse, the policy options that might help one problem could exacerbate the others. It will take smart leadership in Washington and probably some cultural renewal out in rest of America to work our way through this and wind up okay on the other side.

The American people profoundly get this, and are looking for answers. The Republican party has answers, in the form of oil exploration and drilling, and the Democrats don't. Obviously our oil problems (and economic problems in general) are much bigger than ANWR and offshore drilling. But for now, that is the crucial focus of debate because ANWR and offshore drilling are the low-hanging fruit of our oil crisis. Any halfway objective outside observer, when he sees a person (or an economy in this case) refuse to pick the low-hanging fruit, automatically concludes that that person is not serious about taking care of the problem. That's exactly what's going on now in the oil market. Anyone who says that the price of oil is immune to changes in perceived abundance or scarcity of oil in the future or our attitude toward exploration is either stupid, ignorant or dense. Oil has already gone down 20% since the Republicans increased the profile of exploration as a political issue. And anybody with any awareness of the market at all will tell you that the price of oil is not $120/bbl because the oil we're consuming now costs $120/bbl to extract.

The Democrats have historically championed "alternative" sources of energy, meaning alternative to the ones that work. The day might come, reasonably soon even, when Texas has several operational gigawatt-producing wind power plants. And on that day, Boone Pickens will be just another rich oilman and Hillary Clinton will be in the Senate arguing for a "wind"-fall profits tax.

Our energy problems are very big and complex of course, and that's only one head of the monster anyway. But, it works in such a way as to profoundly change the lay of the land, politically speaking. The Republican party has been crushed because of its association with the corruptions, cronyism and complacency of the Bush Administration. Well George W. Bush will be gone in six months or so but the alienation and ill will could last long beyond that.

But maybe not. The American people want drilling and the Democrats are looking for a place to hide. Most of the time that would probably work. But not here. The American people also know (or will soon learn) that the Democrats know that the American people want drilling and still won't acquiesce to it. That has the possibility of changing people's thoughts the relative merits of one party versus another in a hurry.

Where's Barack Obama in all this, what does he think about ANWR or offshore drilling? Well, he avoids thinking about either one if at all possible. The problem is, it's difficult to change his frame of mind at this point. First of all, ten weeks before an election nobody believes you anyway. Also, he wouldn't know where to draw the line. Once he flips on ANWR and offshore drilling, he'll be forced to acknowledge that all the "environmental" concerns against energy production are more or less Luddite scaremongering.

And let's not be too partisan about this: John McCain (and other significant players in the GOP) has the same problem. But people do believe, with good reason IMO, that when push comes to shove the Republicans will figure it out.

But Barack Obama came on to the scene as a fresh face, not necessarily beholden to the "smelly little orthodoxies" of modern liberalism or the Democratic Party. Many people still view him that way. But that can only last for so long. Anybody can talk, but a person earns credibility when he puts himself in a situation where he publicly states an intent and is held accountable for achieving it. And Barack Obama simply hasn't done it. As we see him develop in the public arena, we get a sense that he is really about avoiding conflict. In general that's not a bad thing, nobody has a dog in every fight. But Barack Obama doesn't have a dog in any fight. So in spite of his well-spoken oratory, anybody who is looking for the source of real change for the better in our world, has to look somewhere other than Barack Obama.

The Hail Mary

Ok, Gov Sarah Palin is an out-of-the-box pick for John McCain, a deep ball if you will.

But I don't buy this "Hail Mary" business. The pick of Jack Kemp by Bob Dole in 1996 was a Hail Mary (and the GOP liked to think of it that way at the time since Jack Kemp was a former AFL championship quarterback). But John McCain was even in the polls before the Convention To Nowhere, and since then the best poll for Obama has him leading by six percentage points. With the momentum in his favor, McCain was better positioned to win the election anyway.

Emotionally speaking, this is about aggressiveness, not desperation.

Arsenal 3 - Newcastle 0

I haven't written much about football in a while. Arsenal have had a nervous off-season, and a couple of weeks ago they started to play the games that count. Of those games, Arsenal has lost once and won the rest, but they have yet to look clearly superior to the mediocre opposition they have played so far.

So today's stroll over Newcastle was a big relief. Arsenal showed they could dominate the play and dominate the scoreboard in the same game. The Premier League is all about consistency so one game does not a season make. But this is one that Arsenal needed.

Finally, Emmanuel Eboue, who is not one of my favorite Gunners, made an important offensive contribution by setting up the second goal. This is the first such contribution that I can recall, except where he has dribbled into space on the left hand channel and successfully crossed it to the middle of the box. Hopefully he's no longer a one-trick pony that way.

McCain Sets a Trap

So it says here and here.

No, he didn't, he's not that smart. He just got lucky.

Young At Heart

The reaction to Gov Sarah Palin has been positive, and much of it has been enthusiastically so. At first cut, there is an appreciation across the spectrum that Gov Palin might very well be a game-changer in the Republicans' favor.

The negative reaction such as it is, has all been about her inexperience; Mayor of Wasilla, AK (pop 9000), no foreign policy credentials, whatever. All that is legit and has some element of truth, but I don't think it goes very far. Ultimately, the American people aren't going to vote against the Republican ticket because lack of experience from the VP nominee.

I'm much more worried about ANWR. If McCain doesn't flip on ANWR, I think he loses credibility on energy and puts the tokenism meme back in play. And he hasn't done it yet. Surely he realized the need for it as he was considering Gov Palin. But this is McCain we're talking about, and he does have a mulish streak in him.

This brings me to what I wanted to write about, and that is, the effect of Sarah Palin on the perception of the youth of the Republican ticket. The obvious thing is to say "She's young and hot instead of old and crotchety, so hooray for us." But again, the important part of the VP choice is how it affects the top of the ticket. The point being is that, when and if John McCain flips on ANWR, it will show that he's dialed into the issues facing the American economy now instead of gettin' the kids off the lawn. He'll look younger.

As it happens, John McCain turns 72 today. There are a lot of people that age who have severe health problems. For others, the patterns of their lives are so fossilized that they are really powerless to change them at that point. But for others, 72 might be the prime of their life. If they worked for most of their life (or married rich, in McCain's case), then they are not sweating financially. Their memories are sharp and they retain the benefit of decades of experience and connections, and the economy demands much less in the way of physical labor than it used to. So, which is it for McCain? It could go either way, frankly. We'll find out over the next 10 weeks.

The Democrats are going to try to hurt McCain on the theme of senility. Some of it will be subtle and some of it will be crude, but ultimately what the Obama campaign does on this won't matter. What McCain does will matter a lot.

Be Careful What You Ask For....

....you might get it.

I wanted McCain to select Gov Palin as his running mate (John Kasich was my other favorite) and now that he has, he's got to make it work.

First, let's say a couple of things about how Vice-Presidential picks in general affect the election. Voters vote for the top of the ticket, not the bottom. Nonetheless, the choice of running mate is important still, because it is a window into how the Presidential candidate intends to position himself; demographically, aesthetically, and "issue"-ly. And in these ways, Sarah Palin is a home run.

The best thing that Sarah Palin has going for her is that she is not the Republican reincarnation of Gerry Ferraro, who politically speaking never was anything except and affirmative action token. She actually counts in her own right. This will be even more apparent if McCain flips on ANWR, which I think he's got to do now. She's also a symbol of a new Republican party, who is young and not afraid of the future.

This also has the potential to affect women voters in interesting ways that can't really be anticipated. For single women who don't particularly want to get married, have five kids and live in Alaska, they could go either way. They might view Palin as a symbol of the life they've worked to avoid. But it's as least as likely that they'll give props to a woman who's accomplished as much as all but a handful of American women. I don't either side can really campaign on this directly, the point being is that she is not a token.

On the downside, there's a scandal where she supposedly got her brother-in-law fired out of loyalty to her sister when they were in the middle of a nasty divorce. IMO, a much bigger deal is that Don Young and Ted Stevens are still around, politically speaking, and she (and the party in general) have to find a way to handle them.

What He Said

http://corner.nationalreview.com/post/?q=ZGQ0MDgyOTljZDExMDFkMzQ0ZGQwYTJjMjIzMGIzYzk=

I am a reader of Jonah Goldberg's sometimes, but alas I cannot take credit for this.

My only quibble is that McCain's head-fake consideration of a pro-choice running mate was emphatically not any kind of brilliant tactical move. But in the main, the reader is exactly correct to point out that the developments in this campaign over the last six weeks or so have boxed Obama into a place where he doesn't want to be.

In fact, I think he understates the case. The driving force behind Obama has always been an attempt at a particular form of social intimidation, especially toward the Republicans. "Vote for me if you want any hope of being one of the kewl kids." The mockery behind McCain's ads, and the actions of the Obama campaign toward them, have shown that that particular emperor has no clothes. Now that particular balloon has been punctured, it's not going to get blown up again.

More than that, this isn't 1996 any more, and this election won't be dominated as much by aesthetic concerns. The voters aren't going to care who's tight with the kewl kids if there's somebody out there offering real answers for energy, inflation, or the credit crunch. Like I mentioned before, Barack Obama is six months behind that curve. He's in a bigger hole than he can get out of with one speech.

At this point Obama is just about stuck. Even if he were to pivot toward an hard-hitting issue-based campaign, he's abused the attention of the American people long enough to where I don't think enough people will listen. The one thing that he can do is throw some weight around with the Democrats in Congress when they return to session before the election. Frankly I don't think he has the stomach for it.

What If....

.....the Democrats had a convention and nobody came?

We've become adjusted to the reality that the national party conventions are not as meaningful as they might have been in some bygone era. But, this is a new one in that this Democratic '08 convention isn't even dominating the news cycles in the week that it occurs. Is a speech by Hillary or Joe Biden defining the game any more than McCain's latest ad buy or the efforts of Stanley Kurtz to get around Obama's stonewall of his Ayers connection? It doesn't look that way to me. I first noticed this Tuesday morning, but I thought it might be a bit churlish to note it then. But now it's Thursday, the last day of the convention, and it looks the same now as it did then.

The only consolation for the other team is that the Republicans go next week in St. Paul and their effort might not be any better, and could be worse. The challenges for the Republicans are different. They'll want to knock down Obama a peg or two, which from what we've seen over the last month or so isn't going to be that hard. But, the bigger challenge is to rehabilitate the Republican brand from its poor reputation under the leadership of President Bush. This will be hard to do in its own right but also because the aura of the party conventions works against it. It will be hard for the Republicans to acknowledge the voters' legitimate anger against them amongst all the "Hooray for me!" theatrics.

GOP Weepstakes

John McCain will supposedly make his VP choice on Friday, and it's a minefield for him and the party. Many of the names being floated are plain bad, see here and here.

I mentioned Sarah Palin before, and I doubt she ever made the top tier, but now that Sen. Ted Stevens and Rep. Don Young have won their primaries, and the fact that John McCain hasn't flipped (yet) on ANWR works against the rationale of that pick.

If Chris Cox were willing to take the job, he's probably as good as we can hope for at this point.

My Generation

The latest of HBO's major production series is Generation Kill, which just completed its run yesterday.

Hollywood has tried to cover the War on Terror several times already, but most efforts have been a mush of paranoid, heavy-handed anti-American or anti-military screeds. Is there really a difference between Rendition, Stop Loss, Lions for Lambs, or Syriana? And if so, what is it? Notoriously, they all flopped in spite of merciless flogging by the studios and bien-pensants. I think Redacted by Brian DePalma was screened by 26 people total. It would be nice if somehow Hollywood could make a movie that's either pro-war or could show a close connection between the sacrifice of our soldiers with the big-picture aims of the War.

Generation Kill (besides being a TV series) is not it, but to me at least it is compelling nonetheless. Based on the memoirs of a reporter embedded with the First Recon Marine Battalion at the start of the Iraq War, Generation Kill has (so far) been a three-part essay for Rolling Stone, a book, and now a TV series. As contentious as the debate about Iraq has been, Generation Kill is as apolitical it's possible to do. If anything, the theme is that the enlisted guys are strong, fast, and disciplined, but command is either reckless or incompetent or both.

Maybe it was intentional and maybe not, but there's an eery parallel between the story of the First Recon Marines in Mar-Apr 2003 and the status of Iraq in the minds of Americans in general five years later. We go in with our Humvees and MTV with the expectation that things would get a little rough here and there, but nothing major. We perservere, and at end we may not know whether things are better or worse for us having been there, but they will never be the same.

In his heart of hearts, Barack Obama

......... really doesn't want to be President.

Else he wouldn't be airing ads like this (HT: The Corner).

Not Lookin' for a Place to Hide

The presidential race is entering the homestretch now. Starting say, mid-Semptember or so, the American people are going to interpret any new policy initiatives (unless they've been telegraphed pretty strongly beforehand) as election maneuvers and discount them accordingly. So any attempt to change the boundaries of the election dynamic have to happen very soon or they're not happening at all.

This is not good news for Barack Obama. For the last couple of weeks or so McCain has been on the upswing and Obama's been going the other way. The voting public has just started to wake up to the mental vacuousness of the Obama campaign. The Saddleback Church forum, the trip to Germany and the Paris Hilton ads probably factored in a little bit. Mostly though, the country has real problems and Barack Obama hasn't had anything interesting to say about them for six months.

The choice of veep candidate was an opportunity to restart his campaign. Obama had a lot of decent choices on the general theme of "moderate stodgy white dude from Middle America" Instead, Sen Joe Biden just empasizes the essential gasbaggery of this ticket.

So, counterintuitive as it is, I think McCain has to be the favorite at this point. And the things that might stop McCain from winning will come to a head very soon. One of them is his VP choice. It's a symptom of how far the down the GOP has gone that there aren't very many good choices. In my mind, the two best choices are Gov. Sarah Palin of Alaska, and former Rep. John Kasich. As far as I know, neither one is getting serious consideration. Supposedly the current short list is Mitt Romney, Joe Lieberman, and Tim Pawlenty. Of those, Lieberman is horrible, Romney is bad, Pawlenty is ok but dull. Republicans can take a little solace that most of the time the VP choice ultimately doesn't matter very much.

The bigger drag on McCain is the leftover fallout from 2006. There are a lot of voters (and not all of them gooey liberals) whose only political agenda this year is to vote against the Republicans at least once more. The country has largely tuned out George W. Bush for about 18 months now. The association of the Republican party with President Bush is strong, but not necessarily overpowering. The way things are now there's just enough other voters, for whom Republican is not a dirty word, for McCain to plausibly win. So there's a temptation to run a defensive campaign about getting all those "other" voters into the GOP column and then pulling up the drawbridge.

That would be a mistake. First of all, there's a matter of simple arithmetic. The more voters that McCain campaign doesn't pursue for this reason or that, the bigger percentage he has to get out of everybody else to win. But the bigger reason is to establish that the GOP is a forward-looking group. We, as a political party and the conservative movement in general, claim credit for the turnaround of America in the 1980s but we're not looking to repeat it. Things are different now, especially with respect to domestic policy. The Carter-era economic malaise was largely a result of unemployment, high income taxes, and usurious interest rates. Those things are less important now. Instead, now we have to deal with a credit crunch, a weak dollar, and an oil crisis. The GOP is much better positioned to fix these things and if we can, the voters will reward us.

But to get there, we've got to get people's attention. This means we have to tell the American people that we aspire to be the majority party and most of the reason that we're not now is because of our own mistakes. For some people that will hurt, but it has to be done or else we'll be butting against the Bush-era wall of alienation long after Bush himself is gone.

Clarity

This short blogpost from James Pethokoukis has made the rounds in the last week or so. He's right to suggest it's a blessing when clarity comes cheap, but I disagree with the clarity we're going to get from Russia's invasion of Georgia.

I only wish Putin's invasion of Russia would give America clarity on energy. "All of the above time" is the best way I've heard to characterize America's energy situation that's short enough to fit on a bumper sticker. But for America's decision-makers, $150/bbl oil outweighs Russian adventurism by at least ten to one.

Brett Favre, Take Two

Brett Favre's status for the upcoming season has dominated the sports news for the last three weeks or so, and is now finally resolved with his trade to the New York Jets.

But like so many of our other contemporary controversies, there was more drama than real news. Favre wanted to play, the Green Bay Packers wanted to protect their memories of him as a Packer, and failing that wanted to keep him from playing for another team that could beat them.

So, what happened? Green Bay offered to pay Favre $20 to $25 million to stay retired as a player and do some sort of more or less irrelevant front office work. I didn't get the point of that deal at all. The Packers lose a boatload of dough, and Favre doesn't get to play.

The whole thing becomes a lot simpler for either party when they take care of the things they can control instead of the ones they can't. Favre wants the freedom to play for any team that he wants, which would be a very reasonable thing to want except for the fact that he's under contract to the Packers. The Pack wishes Favre would just fade into the sunset, which conveniently ignores the fact that #4 gets a vote in that election. Once both parties understood the leverage that the other one had, the whole thing got settled in a day or two.

What have you done for me lately?

The conventional wisdom is that the Presidential race is about Barack Obama. John McCain has been around a while and the voters know what they think of him, whereas a lot of people would like to vote for Obama, but don't entirely believe that it's safe to do so. I agreed with this until a couple of days ago, then I thought about it some more and concluded it isn't so.

At this point the voters actually have a better handle on Obama than McCain, and frankly doesn't speak well of either man. Obama won the Democratic nomination by running out the clock on Hillary Clinton. Since then, he's been giving a bunch of speeches trying to be inspirational and high-minded, but which really amount to nothing but pompous windbaggery. Add it all up and he hasn't said or done anything of substance in at least six months. This isn't the time where McCain or the GOP have to go negative on Obama. The opponents are handling that just fine.

Listening to McCain though, at any moment you almost expect him to talk about how many miles he had to walk from his log cabin to the schoolhouse. What decade is this guy living in? If it's not this one, he needs to catch up in a hurry.

McCain another obvious problem as well. He's a Republican running in a Democratic year. He's got to create a motivation for his candidacy based on what it means for America if he's in the White House, one that's compelling enough to overcome the inertia in the voters' frame of mind. When push comes to shove, I fear the real self-justification McCain's candidacy is that he has moral credibility above any other national political figure because he endured a North Vietnamese prison camp. Even when he talks about how he's motivated to serve America, I ask myself what America gets out of that deal.

But somehow, if McCain can shift the object of his intent away from his own self-regard and toward the issues facing American, there's a window open to defuse both of these problems at once. He can say, that if we're willing to take the pain of seeing things as they are, we can actually do some things about our problems instead of wallowing in despair of how bad the situation is. Ie, let's talk about the elephant in the living room instead of trying to avoid it. In particular, the opportunity is ripe for McCain to emphasize his party affiliation as a Republican and to ask the voters to vote for him as a Republican and other downticket Republicans too.

1. To the voters that turned against the party last election, he can say that the GOP lost a whole bunch of seats in 2006 and deserves the low esteem it's held in right now. But 2008 is a new election and as bad as the Republicans have been and for all the flaws they have now, they are ones more in tune with the problems the country faces now.

2. Only the Republicans intend to drill for oil or intend to produce more energy in any form for that matter. The Republicans aren't against conservation or wind power or solar energy, but our economy can't function if these are the only options available.

3. The Republicans are going to bring the troops home from Iraq as soon as we're not going to lose everything they've worked for for years as soon as they're gone. In fact, as the violence in Iraq has abated, President Bush has brought some of the troops home already, and intends to bring more home later this year. The Republicans aren't maintaining the troops there out of some bloodlust, but to complete a particular mission, a mission which actually is being completed.

There are other possibilities along the same lines. Immigration would be a good possibility, but McCain is on the wrong side of it. Inflation, pork barrelling by Congress, the value of the dollar, the housing market, the crunch are also plausible if McCain or the party can find an angle on them. In any case, the essence is that McCain can credibly address the problems the voters are most afraid of in a way that cuts through blustery spin or partisan flackery.

Retirement Insecurity

My padre friend Pierre asked me what I thought about Social Security and Medicare in one of the comments, and this piece by Noah Millman is as good a place as any to start.

Noah is right is to emphasize that taxes on wage-earning, ie payroll taxes, are usually thought to be the most economically destructive of all usual forms of taxation. But, that's the one we have, and as the comments to that post illustrate, any attempt to reengineer some different form will run into strong resistance based on the fact that there is no consensus underlying rationale for these programs, something that's been more or less papered over for twenty years or so.

More important than that, the biggest problem with Social Security (and the other entitlement programs too) is that you can't put ten pounds of s**t in a five pound bag. At the moment, an individual contributes up to a maximum of $15K/year to Social Security (counting employer and employee contributions), and at retirement receives a maximum benefit of $2185/month. That latter number is very much worth dwelling on. Unless you're a monk, it's difficult or impossible to maintain one's standard of living on $2185/month (and even for monks, it only works if you're not the one responsible for the financial health of a monastery). If you're relying on Social Security to fund your retirement, you've got the same problem whether you retire in 2042 or next Tuesday. Of course, if you retire in 2042, the benefit will be higher, but it will be the wage and price-adjusted equivalent of $2185/month now. And, this is leaving aside all questions of solvency.

This means that retirees are going to have to independently fund a substantial part of their standard of living. But, the money available to do just that ($15K/year) is already going to Social Security. Oddly enough, George W Bush never went through this train of argument during his Social Security reform period right after the 2004 elections (he emphasized solvency problems instead). If we're looking for reasons to bash our hapless Prez, that would figure in my top ten somewhere.

Corruption and Paternalism

Back to our regularly scheduled programming, why hasn't McCain, with all his hard-earned independence, been able to take any advantage of the unpopularity of Congress? My theory is that McCain has demonstrated independence from (and opposition to) the greasy logrolling culture of the Congressional establishment. But unfortunately he significantly shares in its paternalist worldview.

The more I think about it, the more I suspect that explains many or most of the issues McCain has taken a position on. McCain's positions on immigration, campaign finance reform, opposition to tax cuts, ANWR, all have an ethos of "Eat your vegetables, Daddy knows best."

In the case of immigration, there's strong grassroots activism that insists that Daddy plainly does not know best, but that's a little bit of an outlier. I don't think McCain's stance on these issues affect his political fortune much one way the other. But his persona does.

The voters are hungry for someone who can talk turkey about their biggest collective fears: gas prices, Iraq, the stability of the economy. Except for Iraq, McCain has not done that yet, and maybe never will.

The Perfect Lose-Lose Proposition

This is a bit far afield of the usual topics of this blog, but this deal makes no sense to me.

A Respite Not A Reprieve

Is the price of oil today too high given the fundamentals? Could be. Is it
too low? Could be. But one thing I'm sure that's too high is the confidence
on the part of those who insist they know the answer.

James Hamilton

Particularly dramatic in this growth has been China, whose petroleum
consumption between 1990 and 2006 increased at a 7.2% annual compound rate. It's always amusing to project these impressive exponential growth rates. If that rate of growth were to continue, China would be using 20 million barrels a day by 2020, about as much as the U.S. is today. By 2030, China would be up to 40 mb/d, twice the current U.S. consumption.

.............

To summarize, I think we will see some net production gains this year, and
expect this to bring some relief for oil prices. But I cannot imagine that the
projected path for China above will ever become a reality. Oil prices have
to rise to whatever value it takes to prevent that from happening.

James Hamilton

Over the last couple of weeks, oil has gone from grasping for $150/bbl to sitting just over $120/bbl. So if oil continues to decline another couple of dollars (and I have no reason to think it won't), then strange as it seems oil will have dropped 20% from its high and we can officially declare a bear market for oil.

At the risk of stating the obvious, we don't know how long this will last. But now that the sheer shock of oil prices has abated a little bit, we have the opportunity to look at the bigger picture. We've all heard the story about how industrialization in China and India is going to drive the price of oil up, but the story doesn't end there. In the short term we can maximize oil production and in the long term we will be able to use electric power for transport.

The oil crisis has been brewing for a long time, and it will take a long time to unwind. By all means we need to drill for oil in ANWR or whereever we can find it, but even if we do, and even if the price of oil goes down to $70 or so, the oil crisis won't be over until we have a sustainable, reliable, and affordable source of energy for transport, and after that for energy in general.

Presidential Pincer Revisited

Six weeks ago, I was a little more bullish for McCain than I am now.

McCain's campaign seems to me to be floundering. I was optimistic that he could establish some critical distance from the Bush Administration, and I think he has. But, we've seen too much of the crotchety old guy persona, a la Bob Dole, and it's not wearing well. We're in a different spot than 1996 and there is no general desire for a changing of the generational guard like there was then.

But, we are in a difficult situation with real problems that have to be addressed. So far, McCain's energy policy is to support offshore drilling but oppose ANWR development. What is the rationale for this? If anything it makes more sense the other way, to get some more energy resources to the market without spoiling the view for some coast-dwelling Floridians. The whole thing smacks of a baby-splitting exercise from a pol who thinks the political process controls a lot bigger fraction of reality than it actually does.

If he can show that he can see outside the Beltway cocoon and really gets it wrt the scope of today's particular issues, he'll probably become President. As it happens I suspect this will be a matter of teaching old dogs new tricks.

Update: one more thing. As I mentioned before, I think I overestimated McCain's ability to swim against the tide as an independent in a Democratic year. I do think that he's established that he's not George W Bush, but that's not enough. Because the underlying environment is unhospitable for Republicans, he has to define very concretely the rationale for his candidacy, and frankly I don't know what it is.

If I were directing his campaign, I would have the candidate assert that he, John McCain appreciates the depth of our problems, and is uniquely prepared to get us through the tough times that lie ahead. It's credible (to me at least), and it ties in all the big-ticket items in this election cycle: Iraq, housing, debt, energy, inflation, etc. It also of necessity distances him from the Bush Administration, and differentiates him from Obama, who seems prepared to read from a Teleprompter and nothing else.

If he were to come up Boone Pickens-like energy plan, people will listen. If he just says, "Get off my lawn!", he'll be ignored.

The Saudis

Will the Saudis increase oil production?

Frankly, I'd be happy just to know they could if they wanted.

The oil picture

In the current oil market it doesn't make very much difference whether the price of oil is driven by speculation or by fundamentals, as this slightly geeky article points out. The quasi-circuit flow diagram about halfway down is especially useful. In any case,

The equilibrium expression is AI = DI, and when this situation prevails, s = h, and price is constant (i.e. Δp = 0)! Put another way, a stock equilibrium implies a flow equilibrium, while a flow equilibrium does not imply a stock equilibrium. In this type of model expectations are very important because of their influence on desired stocks, and in the real world expected prices are undoubtedly more difficult to describe than via the simple implicit expression shown in the figure – i.e. p^e = f(p) – but right or wrong it is these expectations that are and have always been a key element in determining the oil price, however it was only when the oil price moved past $100/b that they were given their true weight in the scheme of things.

In other words, because of demand from China, India and the usual suspects, the current expectation is that the price of oil will be dramatically higher in the future than it is now. Therefore, the market adapts by trying to build inventory. The price of oil goes up, because whatever isn't consumed goes to the inventory stock. The increase in the price ought to cause inventory to build but it hasn't. So the bullish price pressure remains.

Among other things, selling off the Strategic Petroleum Reserve doesn't fix the problem, and in an odd way represents the opposite of the solution. The price of oil will go down when people see that there's lots of oil around that nobody knows what to do with.

Dude, where's my recession?

This is the meme for those who have noticed that the American economy isn't as bad as people think. And for now, the truth is the American economy is in decent shape. The current data wrt employment and growth are ok if not especially great.

Nonetheless we should not break any arms patting ourselves on the back. The real problem with the economy is the widespread anxiety that things will get substantially worse starting from now. This anxiety is not at all irrational in my view. The credit crisis has more or less been weathered, but we are 50-50 at best to escape the weak dollar, and at the moment there is no answer at all for high oil prices or inflation.

Ever since the Great Depression, American economic downcycles have been milder and milder according to typical common measures. This one might be an exception.

McClellan

I'm with David Frum and Peggy Noonan on this. The public pile-on of Scott McClellan isn't worth it.

It's the chickens coming home to roost for President Bush. President Bush got put a premium on loyalty, and sacrificed competence to do it. Well, the jobs in the White House are big jobs, and as a rule when people are situated in over their heads, they crack. In McClellan's case, W didn't even get loyalty. Though by now, it doesn't make much difference.

The only thing I'll add is if people like McClellan want to write books like this, I just wish they'd stick to White House dirt. I don't care very much about what Scott McClellan thinks about Iraq. Colin Powell or Chuck Hagel has the right to an independent opinion. Scott McClellan doesn't.

Presidential Pincer

Or, why I'd be bullish on John McCain. So far, we've seen that Barack Obama has a big problem with downscale white voters. "Clinging" to guns and religion, Mrs. Obama's lack of pride in America, etc., have rubbed them the wrong way. Unless Obama can pull a rabbit out of the hat with his choice of veep, I suspect that he will never be in play for states like Tennessee, West Virginia, or Kentucky. That's not good news for the Obama campaign, but when push comes to shove Mr. Obama can afford to lose them. It will also hurt in Michigan, Ohio, and Pennsylvania, which are a lot more important in the grand scheme of things. But even though this is somewhat old news, it's only half the story.

What we haven't seen yet, however, is the other half of the pincer. It has flown almost completely under radar so far, but the prospect of Barack Obama as POTUS pushes the stock market down. Expect to see a lot more of this before the election. The stock market probably prefers Republicans to Democrats in the abstract, but I expect it to be especially sensitive to the Presidential race because of the likelihood that the Dems will sweep all the elected arms of the federal government. The investor class is much bigger now than it was, say, 25 years ago. Many upscale voters would otherwise vote for Barack Obama might think again when the stock market gives a sneak preview of what the Obama Presidency might be like.

It's important to emphasize however, that this silver lining for the GOP is only good at the Presidential level, and only works there to the extent that it offsets somewhat, the huge advantage the Democrats currently enjoy. Independently of John McCain, the GOP has to figure out what it stands for and act on it, to be a credible party after this November.