It’s the (International) Economy, Stupid
Now that tempers have calmed and Hillary Clinton has made a gracious concession speech, the general election campaign begins in earnest. Polls today give Barack Obama only a slight advantage over John McCain, but almost five months remain until November 4th, and surveys of candidate popularity taken this far ahead of the election don’t tell us much about which candidate Americans will favor this fall.
Polls of the American electorate on the issues, however, are much more indicative. Right now, they state clearly that that most Americans are very concerned about the economy. Friday’s jump in oil prices and U.S. unemployment, and the simultaneous fall in the stock markets and the U.S. dollar, were only the latest manifestation of our economic woes. Saturday’s sound bite from McCain acknowledged that things were “very, very serious.”
It does not seem that anything President Bush or Congress is likely to do, or any independent economic development, is likely to alter the U.S. economy’s vector in the next few months. The federal government’s tax rebates, approved early this year in response to the country’s mortgage crisis, have largely been disbursed. Predictably, there was little impact on the overall U.S. economy.
What the United States is facing now is much more a consequence of international developments, particularly the rapidly escalating price of oil, linked to rising international demand. Of course, the Bush Administration did itself no favors by pursuing a weak dollar policy, which bolstered exports but now results in a vicious cycle of weaker currency putting greater upward pressure on dollar-denominated oil and higher oil prices weakening the dollar. Higher oil will eventually foster conservation and greater innovation, but for now we’re locked in an downward economic cycle based on expensive oil.
Respected pollster Andrew Kohut and populist conservative Bill O’Reilly — to name just two commentators of the past week — made the point that Iraq has lost salience as a election issue. O’Reilly says this is because the war is going better. True in part. American casualties were down in May. But, as I write this, the Iraqi government is deep in diplomatic contacts with Iran — you know, the axis-member evil-doer. Not a particularly good outcome for the United States.
Kohut makes the point that Americans are quite ambivalent about what to do now with regard to Iraq. This will shape a new context for the candidates as they prepare to debate the issue: Obama can say he was right about not invading Iraq in the first place, McCain can say it doesn’t make sense to withdraw now so quickly if it strengthens Iran’s influence in Iraq at a time Iran itself is the greatest threat to regional stability.
But the winner this fall will be the candidate who begins with the economy — on Main Street and Wall Street — and presents a coherent plan for getting the U.S. out of recession. Obama and McCain will agree about many aspects of energy policy, but the answer lies not only there. The next President will need to move simultaneously on many aspects of trade, fiscal and budgetary policies — providing stimulus and incentives while keeping oil-inspired inflation in check. Wiser use of the U.S. military is needed to demonstrate to markets and publics that supplies of oil can become more reliable and predictable. Getting Iraq right is a start — but only a start.