The financial crisis appears to be favoring Barack Obama who has long been ahead in the polls on economic matters but behind on questions of foreign policy. But if he wins many fear that the mess he will inherit will be crippling. Even if Treasury secretary Hank Paulson successfully spends the $700bn that Congress has granted him and credit markets become unblocked, the real economy is in dire trouble.
Employment and output figures due before the election are likely to show that close to one million jobs have been lost in 2008 while growth has as good as stalled. And that’s on top of 45 million Americans without health insurance, a fiscal deficit likely to hit half a trillion dollars, and American troops serving in two warzones.
But could the crisis actually be a political blessing in disguise for Obama? Certainly no one would choose to enter office with the economy in such peril. But there are several reasons why it may help him. First, much of Obama’s manifesto (healthcare reform, climate change measures, and redistribution) is overtly statist. The Reagan mantra that ‘government is not a solution to our problem, government is the problem’ has long been impervious in Washington. But the partial nationalisation of several banks and the huge programme of government spending advocated in recent weeks by Bush and Paulson may have woken voters up to the idea that government can be part of the solution after all.
Second, the gigantic size of the $700bn that Congress sanctioned (one and a half Big Macs per day for every American) has psychologically overshadowed otherwise expensive spending measures. For example, the bail-out plan that actually passed Congress included an additional $150bn of tax measures (mainly sensible). McCain announced last week that he wants to spend $300bn buying up bad mortgages. Meanwhile, Obama announced on Monday that he plans to spend an additional $60bn bringing forward some of his economic proposals including help for the unemployed, automakers and homeowners. This raises the cost of his economic stimulus plan to $175bn.
Finally, since the foundation of the Obama campaign’s success has been his ability to reach out across the aisle (he wrote in The Audacity of Hope that, ‘I serve as a blank screen on which people of vastly different political stripes project their own views’), he runs the risk of upsetting supporters as president. ‘Netroots’ campaigners had a glimpse of this when Obama decided to support surveillance legislation and opt out of state funding. But the economic crisis now gives him an excuse to focus on a few issues and let coalition building measures slip by the wayside. For example, Joe Biden said in the VP debate that Obama’s plan to double foreign aid may have to be slowed down while the economy recovers.
A President Obama will clearly have to use all his many gifts to avoid looking opportunistic or cynical but there is one suggestion doing the rounds that would appear to insulate the Illinois senator from the considerable risk of things getting worse. By retaining Paulson – a man whose personal stock has risen while shares more generally have taken a tumble – Obama would signal a genuine commitment to post-partisanship while cleverly institutionalising the game ‘heads I win, tails you lose’.