April 23, 2008

Taking Stock After the PA Primary

After the American Century

It is time to take stock and get the bigger picture in focus after yesterday's primary. The results are in, and Hillary Clinton has won Pennsylvania by roughly 9.5% over Barack Obama. This was a bit more convincing victory than some polls had predicted, but by no means a surprise. It tells us that voters over who are over 45, women, or working class, cannot easily be won over to Obama's side. Clinton successfully portrayed herself as a local girl, whose father came from Scanton. Its citizens responded by voting for her by a margin of 3 to 1.

This means Hillary will continue to run, and that, in her words, she "won't quit" because "the American people don't quit." For the Democratic Party, however, this is the nightmare scenario, in which the primary campaign does not choose a candidate and the convention risks becoming a free-for-all. Since February 5, the campaign has lost its lofty tone and become increasingly negative. All close observers can see that Clinton is primarily responsible for the change. Today the New York Times, which endorsed her, nevertheless editorialized against her tactics, citing in particular an "advertisement" (if one can call it that) that depicted all the worst crises in twentieth century US history, including the Stock Market Crash of 1929, Pearl Harbor, the Cuban Missile Crisis, the Cold War, 9/11, and even a cameo role for Osama bin Laden. The powerful imagery has nothing to do with the differences between the candidates, but was marshalled so Hillary could once again suggest that she had more experience. (However, McCain will beat "McClinton" on experience, particularly military experience.)

Meanwhile, what is happening outside the bubble of Democratic Party politics? President Bush has fallen even further in the polls. Now just 28% approve of the job he is doing. But Congress is even less popular, with some polls giving it just 20%, although the average of all polls is 22%. The electorate is not happy because the economy is in recession and hundreds of thousands of home buyers teeter on the edge of foreclosure. Because food prices are rising while incomes are stagnant. Because the wars in Iraq and Afghanistan continue. Moreover, many are now making the link between the billions of dollars spent on the war and the weakening economy. Normally, with such dissatisfied voters and such an economy, the Republicans would have no chance in November. But the unresolved race between Obama and Clinton has given them a chance, and McCain is the ideal candidate to make the most of it.

Now step back further, away from the clamor of the election. The dollar has just sunk to a historic low against the Euro. It now costs $1.60 to buy the same Euro that was worth 99 cents on January 1, 2000. This difference will almost certainly get worse, because the US continues to buy more than it sells and because European interest rates are considerably higher than those in the US. America may be in recession, but in much of Europe the problem remains inflation. (Indeed, in Denmark the unemployment rate is less than 2%, foreign workers are streaming in to meet demand, and home loan interest rates are over 5%.) While the downturn in the States will slow growth elsewhere somewhat, the realization is growing that China and India have become large enough to keep the world economy steaming ahead. If the US is only stagnating and not collapsing, the Europeans may have little to worry about. In economics, it's called "decoupling."

The candidates have not talked about this, or what to do about it. While the election preoccupies the US, the nation's economic centrality is fading. The dollar can fall drastically, and the nation can go into recession while the rest of the world as a whole grows at an average annual rate of 3-4% or more. In Pennsylvania, the voters look at their shuttered factories and can sense the problem, but the candidates blame NAFTA. Unfortunately, the reasons for the economic weakening of the US are far more complex and risk becoming more permanent than the next administration. That is why this blog is called After the American Century. The US needs to wake up to the severity of its economic problems.