Death and Taxes

Rhetoric aside, none of the candidates will really be able to avert an economic downturn. With Obama pushing the connection between the economy and the Iraq war, perceptions could make all the difference come November.

The economic malaise has not broken the dead heat between the presidential candidates-yet. Although the economy has now overtaken the Iraq War as the main concern of Americans and could come to significantly change the way voters regard the candidates, the three top contenders are still polling in a statistical tie. Senator John McCain is particularly fortunate to remain unhurt by the downturn, since voters tend to associate a lagging economy with the candidate from the incumbent party.

Americans rightly believe this could still be the economic crisis that wasn't. It remains unclear just how exposed large institutions are to subprime mortgages and how widespread default on those obligations could be going forward. The attendant problems that have come with the subprime crisis-such as the liquidity crunch and darkening of consumer and investor confidence-could be alleviated by the Fed's serial reductions in interest rates, absorption of some debt obligations and the opening of its discount window to broker dealers for the first time since the Great Depression.

But the economy could still be this election's October surprise. If financial instability morphs and intensifies yet again, the candidates will sharpen their focus. The subprime crisis that is now giving way to a recession could lead to stagflation. Given low interest rates and the weakness of the dollar, the relative cost for Americans of commodities, particularly imported commodities such as oil, could rise even further. Still, under those circumstances, it would still be difficult to cast a bet on a political trifecta. While McCain, with his support of the Iraq War, could come to be blamed for a relative increase in the cost of oil and outlays for the war, Americans could also be more supportive of maintaining tax cuts even for wealthy Americans to maintain spending and investment activity. And while Obama is in a superior position to link the economic troubles to the Iraq War, Clinton's perceived experience may become more desirable in the event of a crisis.

What does seem somewhat bankable, though, is that, come January, a crisis either will have or won't have been. The underlying risks to the economy will have receded or become manifest. Should the latter occur, any economic and regulatory plan would have little effect and the country would have to await a new economic cycle. But as a campaign issue, of course, a crisis would be a focus.

Indeed, the presidential candidates can discuss how they might avert future problems related to risky investments in debt or how they may be able to quicken a recovery should a crisis occur. They can also tout their economic proposals in general. But if the economy is headed towards a bust, it is unlikely any of the three candidates could, as president, avert it. Voters are therefore more or less left with looking at the broader aspects of each candidate's economic plans.


War and Taxes

A recent CNN/Opinion Research Poll found that 42 percent of Americans say that the economy is the most important issue facing the next president-nearly double the 22 percent who took that position in October. The war is now the top priority of just 21 percent of voters, down from 28 percent in October when it was the top issue.

Obama last week linked economic hardships to the Iraq War. If he can successfully tie the two in voters' minds, then he could gain the advantage on the two issues that most concern voters. But Obama appears to have only begun testing that message. In his speech in West Virginia, Obama illustrated the personal burden the war is placing on Americans. "When you're spending over $50 to fill up your car because the price of oil is four times what it was before Iraq, you're paying a price for this war," said Obama. "When Iraq is costing each household about $100 a month, you're paying a price for this war." The senator did not stress the war's broader economic impact in that speech of just over five minutes, such as the significance of the fiscal imbalance and high price of oil. In the last six years, the federal government has spent some $1.8 trillion more than it has taken in. This year, the deficit will hit an estimated $410 billion. 

Obama did keep the glare on McCain, claiming that a victory by the senator would amount to a third Bush term. Obama also reminded his audience that Hillary Clinton voted in 2002 in favor of authorizing the war.

Obama's attacks have forced McCain's officials to respond in categorical support of the Iraq War and drop the politically effective caveats that allow the campaign to criticize the way the war has been prosecuted but still support the war itself. Indeed, in response to Obama's criticisms, McCain spokeswoman Jill Hazelbaker adopted a somewhat platitudinous, self-righteous tone, reminiscent of a Bush Administration official: "On national security, Senator Obama would rather rehash the past than look forward with resolve to address fundamental challenges and opportunities we have today to secure our future."

Clinton, meanwhile, has not surrendered to Obama the linking of the war with the troubles in the economy. "We spend $12 billion a month in Iraq, and that does affect the economy," she said in southern Indiana on Thursday. "That's one of the reasons we've gone into more and more debt. We've got to begin not only to withdraw our troops, but bring that money back home. We need to put that money to work here in Indiana." Clinton is in a weaker position to make this argument vis-à-vis Obama. But in a face-off with McCain, she could-and indeed would have to-send that message forcefully.