A drop in the ocean

$100 million here, $100 million there - Paul Krugman

I was surprised that Obama really tried to pass this off as a legitimate money-saving exercise. I was pleasantly surprised that just about everybody called him on it. That presidential honeymoon is pretty much over before Obama has 100 days under his belt...

Gallows humor

President Obama has had a rough few months. As the global economy continues its slide, what the crisis means for global trade and financial regulation will dominate discussions in London on Thursday. Rightfully so. After the economy, North Korea's impending missile launch and Afghanistan's gradual decline into disarray dominate any foreign policy discussions. With so much on his plate, not to mention health care reforms and an understaffed Administration, Iraq has fallen by the wayside. The President has admitted as much.

But lest we forget how perilous the gains we've made in Iraq are, Tom Ricks is happy to remind us:

The Maliki government is putting the screws to the Awakening movement (for those who just arrived, that's a mainly Sunni group of about 100,000 people, many of them former insurgents, who in late 2006 and 2007 arrived at ceasefires with the U.S. military presence in Iraq). The American plan was to integrate 20,000 members...into Iraqi security forces, and help the rest find other work...But the Shiite-dominated Baghdad government never really like the idea. Indeed, the first deals were cut by U.S. officials behind the back of the Iraqi government...I think Maliki's gambit is to crack down on the Sunnis while American forces are still available in sufficient numbers to back him up. This is turning into a test of strength, Sunni vs. Shiite.

Sound familiar? 

The President may be better served to focus on actually shoring up our international standing, rather than just paying lip service to the notion while using our current crisis environment to push big government, domestic programs that most independent voters hoped he would avoid.

Is it an onus?

Pundits like to act outraged when they hear Wall Streeters complain that $500,000 isn't that much money. They're right that it's a lot of money...if you don't live an upper crust lifestyle in New York. 

When a basic apartment goes for more than a million, 500k can go pretty quick. Obama and his economic team are quite right that all firms should be cutting back in this " winter of hardship" (seriously?). But capping executive pay is a pretty blunt and inefficient method of forcing companies to do this. Companies receiving federal bailout funds should certainly be subject to strict scrutiny, but if an executive can successfully employ this "bridge" money to shore up balance sheets and lead a return to profitability, shouldn't they be rewarded accordingly? 

Wall Street's "bonus" culture has been entrenched for so long that we seem to forgot exactly what one normally earns a bonus for. We shouldn't embrace it in it's current form, nor should we pay regulators the exorbitant amounts previously earned by execs. As always in times of hardship, we swing from one extreme to the other and suggest heavy handed ways to counter problems we didn't see coming and are all occasionally guilty of hyperbole.

Let's let government service remain just that and reinstitute the true meaning of bonus.

(Photo via c-weiss)

The Daschle debate

Who will replace Tom Daschle? There may not be an equal candidate, one with the experience and potential to drive health care reform, but there is a growing line of qualified applicants for the position of Health Secretary, as well as pressure to fill the opening. The New York Times offered five possible replacements, all of them current or former governors, saying "the effort [needed] to cover the uninsured and rein in health costs...is bigger than one person."

All evidence suggests that President Obama needs to act soon to fill this position and give the new candidate the necessary tools and time to begin drafting any health care reforms. As the Economist reminds us, the longer this issue sits on the table, the uglier it starts to look. Best to handle it in "stealth".

As the financial crisis deepens, so too does the difficulty of health care reform. The costs of health care are tremendous and the complexity of the issue make it a burdensome political topic. In the past, health care has been hung up by sluggish presidencies and waning public support. As national health care benefits for low-income families decline - every 1% increase in unemployment leads to an increase of 1m in the number of unemployed and 1.1m in the numbers joining Medicaid and SCHIP - the difficulty of managing the health care crisis inversely increases.

Among that list of five governors, former Oregon Governor John Kitzhaber, represents a calculated pick. He lacks much of the political clout held by Daschle and others, but as a doctor, his commitment to the issue is sound and noteworthy. America's health care crisis may be stealth, but the man tasked with it's revival certainly shouldn't be. Kitzhaber just may be able to bring attention to this neglected post without a litany of improper tax returns.

(Sweet shorts, Doc)

Obama's first move in the Arab world: LISTENING

In a timely interview with Al-Arabiya news, and signaling a strong break from the Bush administration, President Obama has made it clear that his administration will "start by listening".

According to a transcript of the interview posted on the Al-Arabiya English-language website, President Obama said that he had instructed Mr. George Mitchell (former Senate Majority Leader and current Special Envoy to the Middle East for the Obama Administration) to:

“...start by listening, because all too often the United States starts by dictating... we don't always know all the factors that are involved. So let's listen. ”

I would love to say "I called it!"... but I'm pretty sure my opinion is shared by many people (far smarter than myself) around Washington and, hopefully, throughout the State Department.

"What's smart power?  This is smart power." 

The new administration's approach to China

Most foreign governments have rallied behind the call brought forth by President Obama to restore the spirit and the strength of the United States - even the Chinese (though with a few concerns I will outline here). While most are looking forward to a "new chapter" and anxiously awaiting an opportunity to embrace the forthcoming change, there is cause for some nations to wonder what the rejuvenation of America will bring. After just a few days under the Obama administration, it is clear that China has become one of these, cautiously optimistic, nations. No one is overlooking the longstanding issues between China and the US: especially, China's human rights record, environmental standards, public censorship, fixed currency, and increased military spending. Not listed however, may be a bigger and more subtle challenge for the Chinese: both the United States and the Chinese have developed an insurmountable political ego. A renewed global, American presence means these two countries will inevitably step on each others toes.

Not suprisingly, this happened within minutes of President Obama's Inauguration. During the live broadcast of the Inaugural address, Chinese officials moved quickly to censor remarks on communism and fascism, in addition to a call for an end to the "silencing of dissent." For most of us watching in the United States these comments elicited historical nostalgia, but word of the Chinese censorship highlights how drastically the American worldview differs from the Chinese. In a country where a large portion of the population sees their brand of communism as a centerpiece of national pride and lives a separate struggle for prosperity, it is unlikely that such references would have been well received. More importantly, an educated audience would know that President Obama's words had less to do with the communism we see in China and more to do with American history and its historical rival. What is intriguing, is that the omission of these comments may have been a favor to the United States, in addition to a precaution meant to quell a growing sense of nationalism in China that could easily turn on either government. For the Chinese, it is possible that letting a stab at communism pass without notice would just be plain bad form. China would like to display President Obama as the charismatic leader that he has become and avoid the possibility that the public might falsely interpret his comments as opposition to the Chinese political system.

Post-inaugural remarks were decidely more focused, both in tone and detail. Timothy Geithner's statement to the Senate during his confirmation hearing directly accused China of manipulating its currency. Some sources are claiming the statement marks the beginning of a new era - one of hard line approaches to China's economic policy. China's adjustable currency rate has long been an issue among economists, but why did Geithner bother to bring it up now, except to please Senator Charles Schumer? Especially as the response was no small matter - when the Deputy Governor of the People's Bank of China politely reminds you that the widespread consequences of the current financial crisis and the trade imbalance in the United States will not be leveled by a mere currency revaluation, China means business. That friendly reminder definitely cost a few treasury bonds. Of course Tim Geithner wants our "major trading partners to operate with a flexible exchange rate system" and for "market forces [to] determine the value of the exchange rate." But I am certain that in the future, the Chinese will be quick to remind Mr.Geithner that he can't have everything he wants.

There are plenty of other issues for the United States and China to butt heads over, but I believe that the ball is in China's court. Tibet has been off the radar since negotions between the Dalai Lama and the Chinese came to a standstill and the world is already well aware of the floating smog cloud over the entire continent of Asia. (Also, our environmental woes are now officially mutual: note the literal "Collapse of the Clean Coal Myth" just days ago). However, there is one issue that China has made progress on faster than the Obama Administration likley expected. This is affordable health care. On Wednesday, China announced that it will bring Universal Health Care to 90% of the population by 2011 and spend as little as seventeen dollars per person. This is tough to believe, but if China can pull this one off, then touché. We have our work cut out for ourselves.

(Photo of Chinese currency from toesoxluver's photostream)

Chiding the childish

I was somewhat anxious to be in DC the past few days. As watching more than two minutes of news coverage would have showed, the town was somewhat of a nightmare - especially when you've just come from San Diego. 

I watched the festivities from Ben's Chili Bowl, a historic restaurant in the U St. Corridor, where President Obama first ate when he arrived in town. The Bowl is a legacy of the civil rights movement and the mood was appropriately joyous. Joy is one thing and, given the historic nature of the moment, warranted. But the classless booing of President Bush is not. I don't care for ideologues of either side. Results deserve congratulations more than a win and competence is to be praised above party. This is not to say that Bush delivered good results or was competent but to treat a man who has given 8 years of his life to this country in such a way is childish. In this vein, please indulge me posting pieces of Andrew Levy's most recent "To Don't" list for conservatives. I may not agree with everything he writes or believes, but the core message, that we should act as practical adults, is more welcome than any gloating. 

DON'T question the motives - question the policy...remember that President Obama is doing what he think is best for the country, as President Bush did. Both men love America and want what's best for her. End of story.

DON'T make it personal.

DON'T cozy up to and champion foreign dictators and despots.

DON'T pretend you're being brave when you criticize your government. Not while people in other countries actually, y'know, DIE, when they do that. 

DON'T say you're going to move to Canada and then stay here.

DON'T call people un-American one week, and then talk about how 'We are not blue states or red states, we are the United States' next week.

DON'T automatically think people who disagree with you are stupid or evil. Some of them are, of course. But most of them aren't, and you might actually learn something if you listen to them.

We're facing one of the most difficult periods in our countries history. Squabbling and lingering on past wrongs won't get us anywhere. Both sides need to remember that. 

Social responsibility is the new black

... or in this case, the new venti caramel skim milk, no whip latte:



Ok, so the music is super-cheesy, but the concept is indicative of a new trend: social responsibility. Companies world-wide are making CSR an integral part of their business plans while social entrepreneurship and micro-finance have become new buzz-words in the development arena. As new leadership has come to America, we heard from the steps of the Capitol the new President tell us all that:

Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America. For everywhere we look, there is work to be done. The state of the economy calls for action, bold and swift, and we will act - not only to create new jobs, but to lay a new foundation for growth...We honor [our fallen heroes] not only because they are guardians of our liberty, but because they embody the spirit of service; a willingness to find meaning in something greater than themselves. And yet, at this moment – a moment that will define a generation – it is precisely this spirit that must inhabit us all.

This "spirit of service" was harnessed by the Obama campaign in an unparalleled way which energized a population practically into a grassroots movement... and, arguably, led to the election of President Barack Obama.

With the new administration in Washington encouraging individual responsibility and social consciousness as a necessary part of working towards sustainable change, it seems like service and social responsibility will be seeping deeper into America (and hopefully the world) over the next 4 (maybe 8) years. For, as our new President reminded us yesterday:

...as much as government can do and must do, it is ultimately the faith and determination of the American people upon which this nation relies...Our challenges may be new. The instruments with which we meet them may be new... What is required of us now is a new era of responsibility – a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving our all to a difficult task.

This is the price and the promise of citizenship.

President Obama... thank you, and good luck.

44

Congratulations to the newly-inaugurated President Barack H. Obama. It really has a nice ring to it.

We're constantly reminded of the turbulent times that we live in: a deep recession, a severe financial crisis, multiple wars, and dire foreign policy challenges. President Obama will face a number of tests almost immediately. We wish him the very best, because a bright future for the country depends in no small part on the success of his presidency.

But all that can wait for at least a few hours. For now, let's savor this remarkable, historical, cathartic, and completely uplifting moment in the American story.

Bhagwati on Obama on trade

*This post on trade represents my personal opinions.

Sometimes, it feels like Mr. Obama’s honeymoon period is ending before he even takes office. In an op-ed published earlier this week, Jagdish Bhagwati absolutely savages Barack Obama on trade issues. I am a huge fan of Dr. Bhagwati. He is one of the greatest trade economists and one of the most unrepentant defenders of free, multilateral trade. His work has shaped my own views on trade more than any other single thinker.

Dr. Bhagwati chides Mr. Obama for his “eloquent silence on trade issues” and his tepid support of the Doha Round. He also criticizes the auto industry bailout (no disagreement here), which he believes will be WTO-incompatible, and dismisses Obama’s trade team as a pack of under-qualified, semi-protectionists.

His most interesting argument is against America’s bilateral/regional trade strategy. In Dr. Bhagwati’s eyes, powerful union lobbies and other political forces have produced a trade agenda in which the US negotiates standard-laden agreements with small, poor and comparatively weak countries. The standards, in areas such as environment and labor issues, effectively undermine the smaller partner’s areas of comparative advantage. He characterizes this “free but fair trade” and “an exercise in insidious protectionism that few recognise as such.” Ouch.

As an aside, I wonder how Dr. Bhagwati reconciles this novel argument with the fact that every single one of these bilateral agreements was negotiated by a Republican administration and narrowly passed in Congress by Republican legislators, over the vigorous opposition of Democrats and organized labor?

In any case, the economic logic of Dr. Bhagwati’s arguments cannot be ignored. The US, and the world, would best be served by the successful conclusion of the Doha Round. In terms of regional agreements, negotiating bilateral deals with small trade partners is an exercise in economic futility: any positive gain is a drop in the vast ocean that is the US GDP.

Trade, however, is as much a political issue as it is an economic one. This is unfortunate, but it isn’t very useful to assess trade issues without considering the political ramifications. Dr. Bhagwati acknowledges this: “history shows that the freeing of trade is nearly impossible to achieve in times of macroeconomic crisis.” In assessing where Mr. Obama will fall on trade, we need to examine the political/economic climate he inherits: an American public that is increasingly sceptical of the benefits of trade, an outdated suite of government programs to assist displaced workers, and one of the most vicious recessions in the postwar era. Paradoxically, if Mr. Obama pushes too hard on trade without recognizing these other challenges, he may risk further damaging the 70-year political consensus in the US that freer trade is a good thing. I was thinking out loud about this very issue earlier this week.

As is such, Dr. Bhagwati’s argument is strongest when he calls for more vocal leadership on the issue of trade. I do think that President Obama will need to work hard to resell trade to the American people, so I am bothered by his “eloquent silence.” I wish we had seen a stronger push for Doha last month from the Obama camp. Still, given the current political realities that affect trade, we need to give Mr. Obama more time before sounding the warning on his trade agenda.

Strange bedfellows?

I've been somewhat confused by the skepticism regarding the news that Obama's stimulus plan is largely composed of tax cuts - about 40%. Krugman Lefties think he's succumbing to Republican pressure, others fret that the tax cuts will essentially amount to welfare payments because only people making less than $200,000 a year will qualify.

I've noted before my shock that prominent academics are divided over this issue. But to be frank, I'm following this with cautious optimism (let's keep in mind that the bill has to pass!). Here is a politician actually fulfilling a campaign promise and proposing an idea that both sides of the aisle can get behind.

Until the bill passes speculation remains just that, but what really counts is how the cut is implemented. I agree with Cowen that the tax cuts probably won't drive recovery:

but less money will be wasted and...it shows that the Obama team is willing to flinch and be realistic.

When we're used to hearing figures in the hundreds of billions, saving a little money probably isn't the worst thing in the world. People may not spend the money, but if it helps people avoid defaulting on personal loans or expands credit to enterprise where it wasn't before then that's one less loan the government has to guarantee under TARP.

There's also a bit of pscyhology wrapped into this proposal. Unlike the Bush tax cuts where citizens received one large check in the mail, Obama's plan has a smaller portion taken out of each paycheck. Does this signal a move away from encouraging consumer spending and instead focusing on personal fiscal responsibility? Probably not, but it's an interesting tactic.

Trade counterfactuals

*This post on trade represents only my own opinions.

For the sake of argument, I want to present an alternate viewpoint about President-elect Obama and trade. I’ve been thinking about it a lot about, and specifically whether or not he’s ‘bad’ for trade. He distances himself from protectionist rhetoric all the time, and he likes to reiterate that he both understands the fundamentals of trade and considers himself a free trader. And yet, the conventional wisdom among many trade watchers seems to be that he won’t pursue new agreements and that he won’t try to bring a successful conclusion to the DDA. How do you reconcile these two points of view? Is one of them wrong?

For what it’s worth, I don’t think the two positions are incompatible. I agree that is unlikely that Mr. Obama will do much on trade for the first year or two of his presidency. But this only in part because of the financial/economic crisis over which he will preside – part of it is purposeful as well. Free traders tend to look at the big picture: the aggregate benefits of freer trade outweigh the concentrated losses, and society as a whole gains. Mr. Obama recognizes this, but he is also much more in tune with the distribution of these gains. In other words, his departure point is different.

I think that in Mr. Obama’s mind, the postwar consensus on trade has unraveled. And the public has grown much more skeptical about the benefits of globalization and much more wary of the downsides. In this climate, it is possible that simply continuing the current trade policy is no longer sustainable. To make people more accepting of future trade deals, it might mean that you need better unemployment assistance, better infrastructure investment, better retraining schemes and better health care that is less tied to employment. And Mr. Obama is very eager to do all of these things.

So while trade watchers may be wary of Mr. Obama’s short term stance toward trade, his intended investments in an enhanced social safety net may actually make it more feasible to conduct ambitious trade deals in the future. The remaining question (aside from whether or not this is accurate!) is whether or not the US can afford to take a trade pause while other nations are racing forward.

Any thoughts? This is just a hypothetical counterfactual. Feel free to tear it apart in the comments section.

Predict(able)

Obama may be on vacation, but his proposed stimulus plan has garnered alot of economic debate, which is certainly not of the post-partisan variety. In case you haven't been following it, the huge surprise is a back and forth between Mankiw and Krugman. Shockingly they're duking it out over whether tax cuts or government spending is more efficient to spur economic growth. 

These are both very, very intelligent men, but lest we find ourselves trending to whatever side our political inclinations may lead, let us keep in mind that forecasting is hard. And if it's hard to predict oil or food prices, how can we seriously hope to predict what this stimulus will produce; especially when economic historians still debate the exact causes and escape mechanisms of the Great Depression. 

What we must admit and accept is that the experimentation and bold action our current situation requires could easily be hampered if we require historical precedent. This is not to say that healthy and vigorous debate is not needed; it most certainly is. But let us not forget that debate should eventually produce some action. For now, we can only hope that today's recession fears go the way of the Y2K bug, but until history proves that view, let's have something more than words in place. 

CHAAAAANNNNGGEEE!!! YOU KNOW IT!!!

Nick’s post from the other day got me thinking about what an upcoming Obama Administration will look like and how Mr. Obama will govern. Some disjointed thoughts:

Like most functioning democracies, in the United States, it's better to work for incremental, meaningful, and calculated reform than any sort of systemic change. The US Executive has considerable power, but that power is constrained by the institutional quirks of and large number of veto players in the American political system. It is also important to remember that the President represents the American people. There is a strong appetite for a larger government role in the economy and society given our current woes, but Mr. Obama would do well to remember that the US is essentially a center or center-right nation. I’m not saying that there aren’t policy areas where significant reform would be welcome (climate, energy, and education all spring to mind), but Mr. Obama risks squandering valuable political capital by proposing changes that offend popular sentiment (HilaryCare springs to mind.)

Fortunately, I think he understands this. His advisers are the cream of the Democratic Party establishment, but most of them have been around for years and cut their teeth during the Clinton Administration. To me, this sends a strong signal about prioritizing competence and experience over ideology or grandiose but unworkable plans. I should add that I appreciate the calculus behind the Clinton pick at State and am reasonably optimistic that it will work out fine.

Barack Obama strikes me as a highly intelligent, capable, and confident man poised to govern from the country’s political center. Like Nick,

I voted for the man based on my belief that his Presidency would represent a
return to a thoughtful administration, open to debate among passionate and
intelligent academics with equal weight given to voices, despite their
ideological leanings.

I’m still optimistic that this will largely be the case, save a few issue areas that I will refrain from discussing here.

(I'm in London for business and the LSE graduation ceremony this week, so posting from me will be light.)

Fool me once?

I must admit to being a somewhat lukewarm Obama supporter. I voted for the man based on my belief that his Presidency would represent a return to a thoughtful administration, open to debate among passionate and intelligent academics with equal weight given to voices, despite their ideological leanings.

When assembled, the formidable economic team validated my hopes for open and honest debate in a time when it's most certainly required. Hillary tempered my support just a little. And now this.

President-elect Barack Obama is expected to create what is sometimes called an “energy czar” to coordinate energy and environmental policy among the myriad federal agencies and lead a new National Energy Council...Browner, who’s heading the transition team’s environmental division, has likely landed the job.

I'm starting to fear that instead of real policy decisions, we will have a tepid and limp administration hampered by so many different new agencies, councils and czars that the executive branch will take longer to act than our current Congress. Maybe such a fear is irrational; granted, the man can't really do anything until January 20th, but if this is what he meant by job creation than America just got hoodwinked.

Republican Redux?

Is the Republican party's "big tent" falling apart? Probably not, but worth considering given the very public departure of many realist conservatives from the McCain ticket. Goldenberg's list (via Dan Drezner) includes many besides Colin Powell, who made his very public endorsement this weekend.

Those running away from McCain probably have one of four motives: their advice was ignored by this administration and they want to make that clear to regain public trust; their advice was followed and they want to distance themselves from their failures; they are campaigning individuals who want to ride the "change" wave, and; they believe the Republican party (or at least in the manifestation of John McCain) no longer represents their beliefs.

These certainly aren't hard and fast categories, nor are they mutually exclusive. The first three are rather obvious, but not nearly as interesting as the possibility of the last. The Republican party has relied on a grand coalition of social and economic conservatives (much like the Democrat's labor bent). If those who ascribe to small government, limited spending, and pragmatic foreign policy no longer see their place in the Republican party then the ever more tenuous bargain will collapse. Culture wars have distracted McCain and Bush from their true base. Let's hope the next Republican candidate recognizes that.

Post debate thoughts

Two caveats: first, this is not a partisan assessment, although, for what it’s worth, I spoke briefly with my coauthor after the debate and we both thought it was roughly a draw. You probably didn’t learn much unless you’re tuning into the race for the first time. I found the whole thing rather dull, with both candidates, especially JM, talking past the other. Second, I strongly suspect Tom Friedman will write his next column about roughly these same issues (although I imagine he’ll hone in on energy).

Perhaps it is asking too much, but I am enormously frustrated that the 2008 ‘foreign policy’ presidential debate is still framed almost entirely in terms of the ‘high politics’ of security. Let me be clear: I understand that the US is fighting two wars, and that Iran is trying to acquire nuclear weapons. These issues are of paramount importance, and we need to hear what the candidates think. But there is a lot more going on in the world that Americans need to talk about.

We heard nothing about multilateral trade, little about energy (except when framed as a mercantilist issue of ‘energy independence’), little about China (except when BO framed it as a vague threat), nothing about India or Brazil, nothing about climate change, nothing about reforming the multilateral institutions (except for JM’s patently absurd and impractical “community of democracies” idea). These are enormous issues.

How, in practical terms, should the US encourage China to become a responsible stakeholder in the global political economy? Are they already? Do we view them as a threat? If so, why?

How would either candidate advance multilateral trade negotiations? Would they?

How do we foster links with Brazil, one of the world’s most important and largest emerging markets?

Is it worth weakening the NPT to foster nuclear ties with India? How does that fit into America’s strategic vision?

What practical steps would either candidate take to combat climate change, by definition a global issue?

I am struck by an insightful point that Fareed Zakaria has made recently. US foreign policy focuses on the ‘losers’ of globalization (terrorists, failed states, etc). At best, that’s half the coin. In the long run, the greatest challenges (or if you’re optimistic, opportunities) come from the winners. Whoever chose the questions for this debate did Americans a great disservice by neglecting to address those winners.

All I’m saying is, if you keep telling people that globalization is this scary, negative thing that eliminates jobs and empowers COMMUNIST CHINA, it’s no wonder they’re going to hate it…

Am I asking too much?

On politics, pundits, and prediction markets

I don’t often like to delve into the day-to-day horserace politics of the presidential campaign, although I follow it just about as closely as anybody (one reason it is great being back in Washington.) However, I do feel compelled to make one observation, given the upheaval on all sides after Ms. Palin’s barnstorming speech at last night’s RNC.

Back in July, I wrote a tongue-in-cheek post about how buying Obama Presidency contracts in the prediction markets would be a ‘lock’. My observation was based on a number of presidential race forecasting models which, given our nation’s current perceived economic malaise and the unpopularity of the sitting Republican president, predicted a cakewalk for Mr. Obama. I don’t consider myself a particularly partisan individual, and I won’t explicitly endorse one candidate or the other until much closer to Election Day (though if you read regularly, you can probably tell which one I lean towards). But if you asked me right now from a financial standpoint, I’d still tell you that buying Obama contracts is a smart investment.

As in commodities markets, stock markets, or bond markets, prediction markets are driven by both long term fundamentals and day-to-day news. When it comes to Election 2008, unless you’re trading professionally, you probably don’t need to worry about shorting either candidate. What this means effectively is that you can ignore 95% of what the punditocracy says. Their livelihood depends on keeping their ratings up, which in turn depends on you watching their television shows and reading their articles. You’re much less likely to do this enthusiastically every day if it looks like one candidate is going to win handsomely. In other words, pundits have a personal incentive to make you think the race is closer than it is. Pundits’ careers also extend beyond this race, and they have a reputation to preserve. Even election managers are looking for employment in the next campaign: if for some reason Mr. Obama did lose, and they had been saying the race wasn’t even close, how does that bode for their future job prospects?

But that doesn’t mean you have to listen to them. By nearly any metric you care to use, the long term fundamentals of the election strongly favor Mr. Obama. Most strikingly: voters think the economy isn’t doing well, and the sitting Republican president has been in office for 8 years and is deeply unpopular. This election is Mr. Obama’s to lose. Don’t believe me? Check out the election map at Pollster, which depicts, in my opinion, a nearly impossible scenario for Mr. McCain.

My advice if this election is stressing you out? Take a birds-eye view of the campaign. Check in once every two weeks for a (weighted) national poll and polls in the swing states, check the monthly fundraising numbers, stay tuned for the big announcements, and watch the debates. Most of the rest is filler.

Oh, and maybe think about buying that Obama contract…

(Photo by jmtimage)

Implicit implications

Martin Wolf had a fantastic column today in FT laying out what the 2008 presidential election means for the world at large. You should certainly read the whole piece but Mr. Wolf correctly takes the position that this election will greatly influence the world's development in the next quarter century. The piece certainly reads like an implicit endorsement of Sen. Obama. Wolf is prescient in saying that

the right approach for today's complex world is not that of those who see agreement and appeasement as synonyms. The choice seems clear. It will shape our era. 

In a world where everyone seems to have embraced market capitalism, the great challenge for the next administration is "managing the shifting global power balance." Both Fukuyama and Wolf are correct in understanding that a hegemon continues to exert influence and maintain control not through direct use of force but through coercion and eventual consent of the "commons". 

Bomb, bomb, bomb Iran doesn't seem like the slogan of a leader who understands how to use such a subtle type of force. Like Mr. Wolf, I won't name names but you can read this the way I read him. 

(Image by M. Thompson)

A bunch of hot air

Honestly, this is one of the stupidest, most pointless moments of the campaign.



Money is involved in politics?! How have we been deceived for so long! Seriously, who gives a damn how many homes John McCain owns. Didn't Barack Obama graduate from Harvard Law? Doesn't Bill Clinton charge six figures for a speaking engagement?

I was excited by this election a few months ago. Not because I thought either candidate was especially qualified or groundbreaking but because I actually believed (I know, how stupid am I) that these were men, not politicians, who were capable of engaging each other in a civil and intellectual manner. I am more than disappointed to see this campaign descend into a pissing match at a time when our country deserves so much more.

As usual, McArdle puts it better than most:

I do not think that I am engaged in a titanic battle, in which the forces of good must beat back the cosmic evil that threatens to engulf us all. I think I'm deciding which of two politicians to hand a lot of power I don't want either of them to have. It should be possible to debate the issues in this election at a level above "My guy's awesome and your guy is a big fat doody-head". But it doesn't seem to be. I find this profoundly depressing.

On this happy note, enjoy your weekend.