Parts to Wholes: the Socionomic Systems Nexus

Otto, Furst von Bismarch, was not only a great statesman but an experienced, wise and witty politician; author of the "Sausage Factory" epigram we keep re-using. He had another, actually several but this one sticks, that when a crisis goes by grab its' coattails and ride for all it's worth. In this case we're facing multiple inter-lacing policy crisis that have been accumulating for decades, which nobody was willing to tackle to the can kept getting kicked in the ditch until it put itself back on the road and, worse, we actually knew what to do about all the cans. The thing about a crisis is that it not only represents danger but opportunity since it's likely that the will to change and do what is NOW clearly necessary can be mustered instead of continuing in denials. We're so much in that position that many on the inside of things are actually excited to finally get a chance to do what they've known needed doing for a long time. So much so that my alternative title was Economic Crisis=Opportunity, Danger and Change. While we're in the midst of the worst financial crisis since the '30s and the most serious economic downturn since the early '70s the cartoon is still more black humor than reality; but if we don't seize this opportunity it'll be more truth than anything. Fortunately not only is Barry picking the best economic team since Bretton Woods or the Marshall Plan with outstanding people in the right jobs (Hit the Decks aRunnin...Git 'er Done Barry) but he and they are moving with speed, urgency, accuracy and skill. He's already made more progress that's the right kind than the last three Presidents did in their first 18 months. Amazing and startling but to establish why we're going to have to take rather deep dive on the subject of economic policy by poking at the nature of business cycles and fiscal stimulus. In the readings below are some URL addresses for a key press conference, a couple of critical interviews and some commentary. After you finish here watch the press conference carefully - you'll hear a thoughtful, forceful, true and nuanced but workable discussion of staged economic policy that moves from very short-term tactics to intermediate-term initiatives to strategic investments. (Populist Panderings, the Candidates and Real Solutions) It couldn't be better IOHO.

Nature of Economic Cycles

 Economic cycles are like waves in the ocean - they move in predictable and repetitive patterns. Depending on the forces acting on them sometimes you get small waves, sometimes you get storm-driven huge surf that's scary and dangerous and sometimes you get tsunami's. We're facing heavy storm surf that we want to keep from getting worse. Economic cycles are inescapable - trying to avoid them entirely leads to the kind of malaise we had in the '70s. Post WW2 we had fairly normal, consumer-driven cycles shown by the heavy line. The Tech Boom/Bust was investment-led where over-spending on technology led to a bubble that, when it burst, could in fact have driven a huge downturn (GD II ? Possibly). To mitigate that the Fed and the Administration moved to cut interest rates and cut taxes and it worked. You'll hear a lot about that being a screwup but employment didn't recover until '03, rates were raised in '04 and Housing didn't turn into a new bubble until '05 with the worst insanities in '06/'07 after the coming collapse was already predictable and predicted. Now we're dealing with the aftermath of another burst bubble combined with a crisis in the credit markets brought about by self-serving and non-adult behavior in the financial markets and industry.

Current Economic Cycle and Alternatives

The next graphic shows you where we're at and what we're trying to avoid. The short and shallow downturn meme has finally been put to sleep after getting over-used, and being just plain and grossly wrong. On the other hand we're also avoiding, so far, a major downturn of the worst sort (the tsunami) and are instead trying to mitigate the worst effects while not denying their inevitability.  The green line would be a normal cycle which the Dotcom bust took away as an option while the light purple line is the fantasy that's not possible. At the same time we're avoiding and should be able to avoid the disaster of the red line if we can get some pump priming in the economy (otherwise known as fiscal stimulus) and get the financial markets working again. So what we're really debating is the region between the yellow and black lines (the yellow area) and where we're at. The bad news of course is that it's really just taking off, so-to-speak.

Credit Crisis and Vicious Cycles

We've "enjoyed" nearly two-three decades of increasing de-regulation of the financial markets. What people forgot and are re-discovering is that markets require rules and governance to function; nor are the participants apparently capable of self-responsible adult supervision. Instead they exploited their positions in pursuit of their own immediate, narrow advantages at huge and systemic costs to the rest of us. We're going to need to re-regulate and provide that supervision while finding the proper balance between excesses of too little and too much regulation. This means that an industry that depended on lax supervision, bad business judgment and excess leverage (that's where you have a $1 and loan out $7 instead of $3 btw) to create a liquidity bubble. Unfortunately we still have a lot to work thru until that process is complete so all we can do is keep the wheels on the wagon and find ways to inject credit into the economy where businesses and consumers can get to it instead of being trapped in a corner where no amount of lower interest rates increases lending. Economists call this a liquidity trap - the bad corner of the economic universe where no amount of money causes people to spend or lend. While we're not back to normal by any means things would have been enormously worse without the Fed and the Treasuries amazing innovations and skills. Sadly the only senior politician who appears to get that is Barry himself - wait that's not sad. The next President gets it ! Hallelujah !! Hopefully the graphic almost speaks for itself but it shows breakdowns in Housing leading to accelerating breakdowns in Credit Markets and the feedback between them turning the situation worse until it spills over in the real Economy. Which in turns weakens the ability borrow and loan and so on and so on. Welcome to a malfeasant world which we need to fix; but first we need to survive it.

Employment, Downturns and Policy Strategy

One of the key initiatives announced is a fiscal stimulus program exact nature TBD, to create 2.5 million jobs by Jan11. That's good, necessary, conservative and likely doable. The number probably sounds great until you realize that this was the weakest recovery on record for job creation (the top and middle panels of the graphic) and when you look at job creation this decade was the weakest of the period.

Sorry for the business of the chart - hopefully you're head won't hurt too much but we're compressing a lot of data into one graphic. The bottom panel shows net new jobs over the amount required to keep up with growth in the labor force and productivity. When you take the running total it turns out we're in the hole by almost five million jobs and we still have a long ways to go. To get back to where we're actually growing the economy we need new industries creating new jobs for people who need new and suitable educations. So there you have it in a "nutshell".

Key Steps to Economic Recovery 

1. Find immediate and emergency fiscal stimulus through things like tax cuts, extended unemployment benefits and direct spending while

2. Keeping the wheels on the credit markets by injecting loanable funds directly but then we need

3. Substantive direct spending programs that should also not be simple consumption in disguise but improve the long-term performance of the Economy. Investment in Infrastructure perfectly fits that intermediate term bill. But then...

4. Invest in the creation of new industries that lower costs in the economy, create new technologies and new jobs. Strategic investment in Energy and Healthcare happen to fit that bill perfectly. And then...

5. Make sure enough people have the right qualifications - in other words we need to re-think how we deliver Education for the 21rst Century. Finally...

6. Quite wasting money on pork barrel projects driven by special interests and political manipulations and

7. Re-regulate the Financial Markets without destroying their creativity. 

As you skim over the readings below and listen to the various vidclips see if that's not exactly what's being proposed. 

Why Obama is the new Reagan   Barack Obama now stands in broad daylight, where skeptical investors in Tokyo, Singapore, Beijing and London can assess the real man instead of the political animal running for election. I think they will find his intelligence, his oratory, his dedication to public service, his ease at gathering smart advisers, his ability to inspire confidence and his tight management of a brilliant political campaign are all the real deal. As a result, despite his incredibly thin résumé, investors will come to believe he is ready to take on this august job. But now comes the tough part: Obama faces a domestic economy ravaged by falling home prices, rising unemployment and thinning industrial production. He faces a banking system savaged by epic greed. He faces a public that's more cynical than ever about its leaders. And he faces two wars. It's almost impossible to say with certainty how Obama will govern as these difficulties arise, for there is nothing in his background that will help us judge. We can only pray that he approaches issues in a holistic way -- not reactively but with a grand plan into which each fresh nuance is thoughtfully fit -- much as he conquered the intricacies of the long presidential race. I'm hopeful Obama will turn out to be as successful as Ronald Reagan in this regard. Reagan was no genius in the classic sense, but he had a thoughtful, humanistic vision that guided his path. And for the most part he had a good economic team that cleaned up the titanic mess of the 1980-81 recession and, after an initial 20% decline in the stock market in his first 20 months, delivered us into a bull market that generally prevailed for 25 years. Obama was sometimes criticized during the campaign for being more of a speechmaker than a lawmaker, but that is not such a bad thing. Smart words, delivered well in public, have incredible power. The ability to inspire confidence in a well-articulated vision can help drive men and women to achieve things that may be well beyond their own imagined abilities.

Economic Situation and Outlook

A Date With Scarcity Nov. 4, 2008, is a historic day because it marks the end of an economic era, a political era and a generational era all at once. Economically, it marks the end of the Long Boom, which began in 1983. Politically, it probably marks the end of conservative dominance, which began in 1980. Generationally, it marks the end of baby boomer supremacy, which began in 1968. For the past 16 years, baby boomers, who were formed by the tumult of the 1960s, occupied the White House. By Tuesday night, if the polls are to be believed, a member of a new generation will become president-elect. So today is not only a pivot, but a confluence of pivots. When historians look back at the era that is now closing, they will see a time of private achievement and public disappointment. In the past two decades, the United States has become a much more interesting place. Companies like Starbucks, Apple, Crate & Barrel, Microsoft and many others enlivened daily life. Private citizens, especially young people, repaired the social fabric, dedicated themselves to community service and lowered drug addiction and teenage pregnancy. Yet, at the same time, the public sphere has not flourished. Despite decades of affluence, longstanding issues like health care, education, energy and entitlement debt have not been adequately addressed. The baby boomers, who entered adulthood promising a lifetime of activism, have been a politically undistinguished generation. They produced two presidents, neither of whom lived up to his potential. They remained consumed by the culture war that divided their generation. They pass their political supremacy today having squandered the fat years and the golden opportunities.  Month by month, frustration has mounted. Americans are anxious about their private lives but absolutely disgusted by public leaders. So change is demanded.

Will the Safety Net Catch Economy’s Casualties? Economists rarely agree on anything, but a great many do agree on one unfortunate matter these days: the current economic downturn is likely to develop into the worst recession since the downturn of 1981-82.The United States is a far different place. Government programs in place then to cushion and counter recessions have been scaled back sharply, raising questions about whether they are up to the task as the economic outlook darkens today. Unemployment insurance is not as generous now. Yet the unemployment rate is at 6.5 percent and some forecasters say it could top 8 percent next year. It hit 10.8 percent in the early 1980s. This is also the first severe economic slump since President Bill Clinton overhauled the welfare system and made it tougher to qualify for, and keep receiving, benefits. Many people who lose their jobs now and fall into poverty may not qualify for public assistance. Other programs designed in part to counter hard times — like job training and housing subsidies — have also been cut back.

The Surest Path Back to Prosperity – George W. Bush As we have seen in recent months, financial turmoil anywhere in the world affects economies everywhere in the world. And so this weekend I'm going to host a Summit on Financial Markets and the World Economy with leaders from developed and developing nations that account for nearly 90% of the world economy. The leaders attending this weekend's meeting agree on a clear purpose -- to address the current crisis, and to lay the foundation for reforms that will help prevent a similar crisis in the future. This crisis did not develop overnight, and it's not going to be solved overnight. There's going to be difficult days ahead. But the actions taken by the U.S. and other nations are having an impact. Credit markets are beginning to thaw. All these steps require decisive actions from governments around the world. But we must recognize that government intervention is not a cure-all. For example, some blame the crisis on insufficient regulation of the American mortgage market. But many European countries had much more extensive regulations, and still experienced problems almost identical to our own. History has shown that the greater threat to economic prosperity is not too little government involvement in the market, it is too much government involvement in the market. All this leads to the most important principle that should guide our work: While reforms in the financial sector are essential, the long-term solution to today's problems is sustained economic growth. And the surest path to that growth is free markets and free people. In the wake of the financial crisis, voices from the left and right equate the free-enterprise system with greed and exploitation and failure. It's true this crisis included failures -- by lenders and borrowers and financial firms, and by governments and independent regulators. But the crisis was not a failure of the free-market system. And the answer is not to try to reinvent that system. It is to fix the problems, make reforms, and move forward with the free-market principles that have delivered prosperity and hope to people all across the globe. Capitalism is not perfect. But it is by far the most efficient and just way of structuring an economy.
Bush Calls on Leaders to Spurn Regulation, Push for Global Trade Agreement

A long, shaky bridge to recovery The lessons of Japan’s stumbling path out of deflation and recession suggest that government spending can help stave off an extended recession, but it may take years not months and require an unlikely combination of political will and consensus. That’ll be a lot of bridges to nowhere. The particular type of recession the United States faces, a balance sheet one, means that cutting interest rates will be really pretty ineffective, and while you can throw everything you have at saving the banking system, you can’t make people and businesses borrow and put the money to work. They too have their own balance sheet problems, having loaded up on debt and holding as they are assets like real estate and stocks that have fallen in value. Banks too are about to get whacked by another hit to their assets, as corporations respond to newly lousy economic conditions by, well, defaulting. In short, it’s a negative self-reinforcing cycle that low interest rates do little to break and that is bigger, though related, to the problems in the financial system. Government spending can break the cycle. Not tax cuts, which will only go to pay down debt or are saved into a banking system that isn’t working, but actual bricks and mortar. Think the New Deal’s Works Progress Administration super-sized or Japan building highways and bridges over seemingly every river, stream and rivulet. Lessons from Japan’s Great Recession. “I don’t think it will be over quickly. I am recommending at least three to five years seamless medium-term fiscal stimulus measures to give enough time for the private sector to repair its balance sheet.” Three to five years is an eternity in political life. It is an absolute sure thing that incoming President Barack Obama will design and implement a pretty chunky fiscal stimulus package even if President Bush does not pass one in his waning days in office. But think about how difficult it will be to maintain both the will and power to maintain a huge borrow and spend program for several years. Koo thinks that Japan, which was facing a far more serious destruction of assets, derailed its recovery with premature fiscal reform. “If we had known in advance that this kind of recession will never be over until private balance sheets are repaired and fiscal stimulus is needed to keep the economy growing, we could have done it in seven or eight years perhaps instead of 15,” he said.

Welcome to the New Ickonomy This just in: The folks who told you last year that there would be no recession, and early this year were saying there might be a just a mild recession, are now saying there definitely won't be a depression. This time they might finally be right, technically, in a squeaker. But it sure won't feel that way, as a downturn that has already destroyed the savings and livelihoods of hundreds of thousands of Americans is growing more pervasive by the hour, and every attempt by the government to make things better is making things worse in ways that most of us can barely imagine. The environment is growing so hostile to jobs and capital -- as layoff and bankruptcy rates rise to multidecade highs -- that I need to coin a fresh name for our era. So let's call it the New Ickonomy. The distinguishing feature of the New Ickonomy is the virtually unprecedented way that all asset classes, economic classes, industries and regions are now correlated with each other. It's about 90%, the highest since at least 1974, according to one study, which means for investors and job seekers alike there is nowhere to hide. Since 1940, the United States has gone through 10 recessions, or about one every seven years. But data from the Economic Cycle Research Institute show that from 1790 to 1930, there were 35 recessions, about half of which deepened into depressions (essentially severe, prolonged recessions). The fact that we haven't had a depression since the 1930s, in other words, is an anomaly in U.S. history -- not the norm. We're about 300,000 job losses away from the worst of the 1991 recession, which is one month's total lately, and about 1 million losses away from the worst of 1982, which could be reached by February. Meanwhile, service job losses alone are already worse than a level last seen in 1974. Negative feedback loops, which start slowly and gather speed, are now the only conveyor belts working overtime in the world today. The terror of the New Ickonomy might have started with banking and homebuilding, but their toxins spread quickly to technology (fewer banks need fewer computers), commodities (fewer homes need less lumber) and manufacturing (fewer floors need less carpeting). The terror may have started in the U.S., but it has spread to China, Europe and Latin America. The terror might have started with lower-income people losing their homes to foreclosure, but it has spread to corporate tycoons such as Sheldon Adelson of Las Vegas Sands (LVS, news, msgs) losing billions in stock holdings bought on credit, the superrich losing tens of millions of dollars on land, stocks and yachts bought on credit, the middle class losing middle-management jobs ranging from high finance to automaking, and the poor losing jobs ranging from restaurants to construction. The terror might have started with equities, but it has moved on to bonds, oil, timberland and private equity. The terror might have started as something happening to someone else, but it has moved on to affect virtually everyone, everywhere.
Have past crises taught us anything?

Economic and Financial Policies

Obama Aims to Create 2.5 Million U.S. Jobs Amid `Historic' Economic Crisis President-elect Barack Obama said he aims to save or create 2.5 million jobs in a two-year plan to stimulate an economy facing a “crisis of historic proportions.” “It’s likely to get worse before it gets better,” Obama said today in his weekly radio address. He said that this week “financial markets faced more turmoil,” potentially leading to a “deflationary spiral” that may plunge the nation further into debt and cost millions more jobs. The economic slowdown has been exacerbated by the worst credit crisis in seven decades. More firings will weigh on the economy and consumer spending, putting pressure on Obama and Congress to agree on legislation that will stimulate growth. The incoming 44th president is expected to announce, as early as Monday, his economic team, to be headed by Timothy Geithner, head of the Federal Reserve Bank of New York, as Treasury secretary. Others include Jacob Lew, former President Bill Clinton‘s White House budget director, who will serve as National Economic Council director; and Peter Orszag, head of the Congressional Budget Office, who will be the next White House budget director. Obama hailed this week’s enactment of a $6 billion extension of unemployment benefits, and said more needs to be done, and quickly. “We have now lost 1.2 million jobs this year, and if we don’t act swiftly and boldly, most experts now believe that we could lose millions of jobs next year,” Obama said. The president-elect’s address was also recorded on video and was posted on the official presidential transition website - - http://www.change.gov/
!!! Obama: "Act Swiftly and Boldly"

Obama Says Spending Overhaul Is `Imperative,' Names Orszag Budget Director President-elect Barack Obama said overhauling the federal budget is “imperative” and vowed to eliminate unnecessary spending in areas from health care to agricultural subsidies. “We cannot sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness, or exist solely because of the power of a politician, lobbyist or interest group,” Obama said at a press conference in Chicago, his second in as many days. Still, he said his first priority would be to find ways to stimulate the economy -- a move that will cost hundreds of billions of dollars -- and then take on spending cuts after the recovery is well under way. Obama announced his choice of Peter Orszag, head of the Congressional Budget Office, as his White House budget director. Rob Nabors, the staff director on the House Appropriations Committee, will be Orszag’s deputy. Orszag will put together Obama’s proposed spending plan as the federal budget deficit may top $1 trillion next year.

Bush says Citigroup deal needed to protect system President Bush argued Monday that the government's dramatic rescue of Citigroup was necessary to "safeguard the financial system" and help the economy recover, and he said there could be more such moves if other institutions need help. Bush said he approved the action, recommended by Treasury Secretary Henry Paulson, while flying back to Washington on Sunday evening from meetings in Peru with Pacific Rim leaders. He said he also spoke with President-elect Barack Obama on Monday morning, part of what he has promised will be "close cooperation" between his administration and the Obama camp until the transfer of power on Jan. 20. Referring to the Citigroup rescue, Bush said: "We have made these kind of decisions in the past. We made one last night. And if need be we will make these kind of decisions to safeguard our financial system in the future." The president has repeatedly sought to defend his administration's unprecedented intervention in the financial markets in recent months, arguing against criticism from some fiscal conservatives by saying that the moves go against his free-market instincts but are necessary because of the dire times. He also has said that he was warned that the economy could fall into a slowdown worse than the Great Depression of the 1930s if the government did not act. Analysts said a Citigroup failure would have seized up still-fragile lending markets and caused untold losses among institutions holding debt and financial products backed by the company. At the meetings in Lima, Peru, over the weekend, Bush succeeded in getting the nations there to endorse the action plan drafted a week earlier at an international summit Bush hosted in Washington. That means that both the so-called Group of 20 nations and the Pacific Rim countries are now on record behind overhauling financial regulation and avoiding the temptation to erect new trade barriers during the current downturn.

Ben Bernanke and the financial crisis. At Princeton, where Bernanke taught economics for many years, he was known for his retiring manner and his statistics-laden research on the Great Depression. For more than a year after he was appointed by President George W. Bush to chair the Fed, in February, 2006, he faithfully upheld the policies of his immediate predecessor, the charismatic free-market conservative Alan Greenspan, and he adhered to the central bank’s formal mandates: controlling inflation and maintaining employment. But since the market for subprime mortgages collapsed, in the summer of 2007, the growing financial crisis has forced Bernanke to intervene on Wall Street in ways never before contemplated by the Fed. He has slashed interest rates, established new lending programs, extended hundreds of billions of dollars to troubled financial firms, bought debt issued by industrial corporations such as General Electric, and even taken distressed mortgage assets onto the Fed’s books. (In March, to facilitate the takeover by J. P. Morgan of Bear Stearns, a Wall Street investment bank that was facing bankruptcy, the Fed acquired twenty-nine billion dollars’ worth of Bear Stearns’s bad mortgage assets.) These moves hardly amount to a Marxist revolution, but, in the eyes of many economists, including supporters and opponents of the measures, they represent a watershed in American economic and political history. Ben Bernanke, who seemed to have been selected as much for his predictability as for his economic expertise, is now engaged in the boldest use of the Fed’s authority since its inception, in 1913. Bernanke, working closely with Henry (Hank) Paulson, the Treasury Secretary, a voluble former investment banker, was determined to keep the financial sector operating long enough so that it could repair itself—a policy that he and his Fed colleagues referred to as the “finger-in-the-dike” strategy. As recently as Labor Day, he believed that the strategy was working. The credit markets remained open; the economy was still expanding, if slowly; oil prices were dropping; and there were tentative signs that house prices were stabilizing. “A lot can still go wrong, but at least I can see a path that will bring us out of this entire episode relatively intact,” he told a visitor to his office in August. By mid-September, however, the outlook was much grimmer.

Consequences and Impacts

The Formerly Middle Class At the beginning of every recession, there are people who see the downturn as an occasion for moral revival: Americans will learn to live without material extravagances. They’ll simplify their lives. They’ll rediscover what really matters: home, friends and family. But recessions are about more than material deprivation. They’re also about fear and diminished expectations. The cultural consequences of recessions are rarely uplifting. The economic slowdown of the 1880s and 1890s produced a surge of agrarian populism and nativism, with particular hostility directed toward Catholics, Jews and blacks. The Great Depression was not only a time of F.D.R.’s optimism and escapist movies, it was also a time of apocalyptic forebodings and collectivist movements that crushed individual rights. The recession of the 1970s produced a cynicism that has never really gone away. The share of students who admitted to cheating jumped from 34 percent in 1969 to 60 percent a decade later. More than a quarter of all employees said the goods they produced were so shoddily made that they wouldn’t buy them for themselves. As David Frum noted in his book, “How We Got Here,” job dissatisfaction in 1977 was higher than at any time in the previous quarter-century. This recession will probably have its own social profile. In particular, it’s likely to produce a new social group: the formerly middle class. These are people who achieved middle-class status at the tail end of the long boom, and then lost it. To them, the gap between where they are and where they used to be will seem wide and daunting. The phenomenon is noticeable in developing nations. Over the past decade, millions of people in these societies have climbed out of poverty. But the global recession is pushing them back down. Many seem furious with democracy and capitalism, which they believe led to their shattered dreams. It’s possible that the downturn will produce a profusion of Hugo Chávezes. It’s possible that the Obama administration will spend much of its time battling a global protest movement that doesn’t even exist yet. Recessions breed pessimism.

Poverty spreading in suburbs: study Poverty in the United States is spreading from rural and inner-city areas to the suburbs, according to a study, a situation that can worsen as the economy confronts what may be a protracted recession. The study by the Federal Reserve's Community Affairs department and the Brookings Institution Metropolitan Policy Program found that poverty levels in the world's richest nation were on the rise. "It shows that concentrated poverty is still very much with us, and that it can be found among a much more diverse set of communities and families than previous research has emphasized," said Bruce Katz, a director Brookings Institution Metropolitan Policy Program. "Poverty is spreading and may be re-clustering in suburbs, where a majority of America's metropolitan poor now live." The study was released ahead of next week's conference on concentrated poverty at the Fed. It shied away from explaining the causes of poverty, but past research have linked the phenomenon to loss of jobs in manufacturing, agriculture and mining. With the U.S. economic outlook rapidly deteriorating, poverty could get worse. The U.S. housing market collapse has unleashed the worst financial crisis since the Great Depression, forcing business to scale back on investments and driving the unemployment rate to a 14-year high. Data on Tuesday showed the U.S. economy contracted 0.5 percent in the third quarter, its fastest pace in seven-years, with consumer spending dropping to a 28-year low. Many analysts believe the United States already has joined Europe in recession, though it will take another quarter of contraction to meet a widely used definition for it -- back-to-back quarters of declining output. The study noted that a strong economy had helped to reduce the incidence of concentrated poverty across the United States, but the process might have stalled during the current decade.

Bailing out the Busted Three

Just Say No to Detroit Today, our government is being asked to put tens of billions of dollars in GM, Ford and Chrysler, but we would be much better off if Washington allowed these companies to go bankrupt and disappear. In 1993, the legendary economist Michael Jensen gave his presidential address to the American Finance Association. Mr. Jensen's presentation included a ranking of which U.S. companies had made the most money-losing investments during the decade of the 1980s. The top two companies on his list were General Motors and Ford, which between them had destroyed $110 billion in capital between 1980 and 1990, according to Mr. Jensen's calculations. Over the past decade, the capital destruction by GM has been breathtaking, on a greater scale than documented by Mr. Jensen for the 1980s. GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM's physical plant during this period was $128 billion, meaning that a net $182 billion of society's capital has been pumped into GM over the past decade -- a waste of about $1.5 billion per month of national savings. The story at Ford has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998. As a society, we have very little to show for this $465 billion. At the end of 1998, GM's market capitalization was $46 billion and Ford's was $71 billion. Today both firms have negligible value, with share prices in the low single digits. Both are facing imminent bankruptcy and delisting from the major stock exchanges. Along with management, the companies' unions and even their regulators in Washington may have their own culpability, a topic that merits its own separate discussion. Yet one can only imagine how the $465 billion could have been used better -- for instance, GM and Ford could have closed their own facilities and acquired all of the shares of Honda, Toyota, Nissan and Volkswagen.
Stimulate Car Buyers, Not Car Makers ,

A Bridge Loan? U.S. Should Guide G.M. in a Chapter 11 G.M is using money so quickly that a $10 billion infusion made today would disappear by February. That is why taxpayers shouldn’t fork over a cent, at least until shareholders are wiped out, management is tossed out and the industry is completely reorganized. But there is a fix. Call it a government-sponsored bankruptcy, a G.S.B., if you will. It might sound a bit like an oxymoron, but it is an idea that has been quietly making the rounds in Washington. It makes a lot of sense. Here’s how it could work: First, let’s recognize that G.M. doesn’t need life support. What it needs is Chapter 11. The bankruptcy process is not a bad thing — indeed, it should be embraced. Bankruptcy allows companies to do tough things they could never do in the normal course of business. It has helped many companies turn themselves around and come out even stronger. Bankruptcy would give G.M. enormous leverage with its debt holders — and, perhaps more important, with the U.A.W., whose gold-plated benefits are one reason G.M. is no longer competitive. A bankruptcy filing would also give G.M. the cover to close plants, rid itself of unprofitable brands and shed dealerships. In fact, unless G.M. files for bankruptcy, state laws would make it prohibitively expensive to shut dealerships.

An Auto Bailout Would Be Terrible for Free Trade – Matthew J. Slaughter The first global cost of a bailout could be less foreign direct investment (FDI) coming into the United States. On Sunday, President-elect Barack Obama asked, "What does a sustainable U.S. auto industry look like?" Well, it looks a lot like the automotive industry run by "foreign" car companies that insource jobs into the U.S. In 2006 these foreign auto makers (multinational auto or auto-parts companies that are headquartered outside of the U.S.) employed 402,800 Americans. The average annual compensation for these employees was $63,538. At the head of the line of sustainable auto companies stands Toyota. In its 2008 fiscal year, it earned a remarkable $17.1 billion world-wide and assembled 1.66 million motor vehicles in North America. Toyota has production facilities in seven states and R&D facilities in three others. Honda, another sustainable auto company, operates in five states and earned $6 billion in net income in 2008. In contrast, General Motors lost $38.7 billion last year. Across all industries in 2006, insourcing companies registered $2.8 trillion in U.S. sales while employing 5.3 million Americans and paying them $364 billion in compensation. But as the world has grown smaller, today the U.S. faces increasingly stiff competition to attract and retain insourcing companies. Indeed, the U.S. share of global FDI inflows has already fallen. From 2003-2005 the U.S. received 16% of global FDI. That's down from 31.5% it received in 1988-1990. Will fewer companies look to insource into America if the federal government is willing to bail out their domestic competitors?

The Nation: Is Steel’s Revival a Model for Detroit? A FEW years ago, an industry whose history and mythology were indelible parts of the American identity was dying. The great steel mills of Pennsylvania and the Midwest had literally built this country, but the twin burdens of competition and self-inflicted wounds had brought them to the edge of extinction. If they were allowed to go under, their partisans warned, the consequences would ripple through the economy at a cost too high to bear. The old saying, “As steel goes, so goes the nation,” was as much a threat as a boast. Yet steel’s savior was not the government bailouts it ardently sought but exactly what it so long tried to avoid: bankruptcy. Only when the companies failed were they successfully slimmed down and retooled into smaller but profitable ventures. As debate continues over what, if anything, should be done for G.M., Ford and Chrysler, the steel industry may offer a model. The steel and auto industries are both capital-intensive enterprises that peaked a half-century ago and have been intermittently embattled ever since. Both secured peace with their unions by vastly expanding benefits, a bargain that eventually hobbled them. Both had entrenched layers of management that believed — despite all evidence — they could wish away change.There are also key differences. Steel is essentially a straightforward commodity industry: the companies compete on price. Auto sales are often ruled by consumer perceptions. This has been a problem for Detroit. Many of its customers long ago fled for Toyota and Honda and a bankruptcy would scare away many more. The steel industry was beginning its long stumble when it turned to Washington for help in the late 1970s. The Carter administration responded by committing $300 million in loan guarantees to five struggling companies. Nearly a third of the funds went to help Wisconsin Steel, a Chicago outfit that had been around since the previous century.

Posted by dblwyo at 06:13 AM | Permalink | Comments (0)

For someone who ran a careful and cautious, but well organized, led and managed campaign, where few risky positions were taken, not a lot of truth was told to power (the voters) and substance was somewhat downplayed in favor of labels (supwise, supwise,....heh, heh) Barry has really hit the decks arunnin indeed. Starting with his accepetence speech which you really ought to listen to carefully, with the caveat that his moved so far and fast beyond that it seems like ancient history. Nonetheless here it is and it really is well worth listening to: Barry's Victory Speech.

An interesting compare and contrast between the tone, direction and content of that speech lies in comparing it to David Brooks on Charlie Rose (A conversation with David Brooks) where, the day before the election, he summarizes things from his perspective. His view of the world and ours are quite similar. We were both hoping that we could finally have the serious and substantive debate over issues, directions and identities required to move beyond two decades of culture wars. And our take on the respective campaigns, reasons for failure/success, history of the Culuture Wars, etc. etc.) are nearly identical. (Populist Panderings, the Candidates and Real Solutions,Rope-a-Dope at Hofstra: Handicapping the Debate and Results, Campaigns, Candidates, Consequences: Some Assessments).

So, in other words, we highly recommend listening to the interview. But in some ways that almost doesn't matter because in the last three weeks Pres. (elect ?) Obama has covered more ground in terms of staffing and transition, establishing a tone and standard for his team and addressed the most critical issues facing the country than most administrations accomplish in the their first six months, or even year. One of the thing's we learn, slowly, about Barry is that he's very self-possessed, incredibly disciplined and able to adjust/adapt (with some caveats) and believes as fiercely in self-development as anybody ever has. And he started with his victory speech and kept going from there. Strangely enough a lot of folks are having trouble grasping the speed, focus and level of execution on display here, as shown by the cartoon.

 Change Indeed

To appreciate what's going on listen to Barry's Victory Speech on C-Span. Aside from being historic in it's own right there's lots to see and hear and reflect on. Start with Oprah and Jesse Jackson with tears in their eyes and savor Barry's ability to cast the moment in a historical narrative. To tell a story. But he does more than that. Aside from a view special thanks (unusual in who was thanked btw, very) it was no end-zone dance or even celebration. Instead it was a sober assessment and the beginnings of a rallying cry - telling truth to power indeed. It was also perfectly staged to set a tone and well-executed - hallmarks of the B-Style. As was the depth of thinking and preparation that went into that speech. And the transition.

Some of the more astute observers (again David Brooks get it) but the hallmark of this team so far is a combination of pragmatism, grounded idealism, savvy and sheer smarts along with experience. Along with some very clever to solid to brilliant choices. And a demonstrated ability to function well under fire.

The Team 

Economics - given the depth and speed of the financial and economic crisis this is probably the most important set of staffing decisions. And Barry went from having a world class, hall-of-fame advisory team to picking too extraordinary men for jobs perfectly suited to their backgrounds and temperaments. Geithner at Treasury has been a ground-zero for finance for decades and a key player in the last several years. Summers as head of economic policy both elevates that position and puts a brilliant economist and policy wonk into a job where he can guide policy without having to PR policy (something at which he's demonstratably not to good). And, btw, putting Summers there may downplay the Council of Economic Advisers but Christian Romer is a first class choice as well.

Foreign Policy - despite the rumors and fantasies Barry looks to do what he always did as a prof. - learn the data, be guided by the facts, apply reason and discipline to searching for a workable answer. In that vein it looks as if he'll ask Gates to stay which would be a solid move on his part. Asking Hillary to take State led to my most lizard-brain and visceral response - which was rejection. Yet on further reflection it makes tremendous sense. The Dems have narrow and limited bench strength in their foreign policy funnel (typically pundits, admin. officers, etc.) track themselves over a career in and out of government by focusing on Defense, Foreign Policy, Econ, etc. Hillary's way outside the box but brings a toughness, some experience and a no-nonsense approach along with a hard-learned willingness to confront where necessary. And if, like Lincoln, Barry can get her to learn to pull in harness and follow direction then he'll have something.

Domestic policy - in the same vein Richardson at Commerce, Daschle at HHS and Napolitano at Homeland Security puts a bunch of tough, centrist, experienced, politically savvy and powerful people in key posts. With in some ways perfect backgrounds.

And the piece de reistance' is how Barry's building his White House team (notice by the way he's building from the inside out - key staff then secretaries). The extremely early and fast choice of Rahm Emmanuel sent all the messages one needed to hear if you were listening. This is Josh Limon in the flesh but with more savvy, more in-dept grasp on policy and a demonstrated set of abilities to get things while providing a president with workable recommendations instead of fuzzy, think-tank ideas.

Final Thoughts 

This is a team that should sail thru the nomination process unless somebody is out to make fools of themselves or try to score political points. And given the scope of the Dem. victories in other elections even the small-minded dinosaurs among House Rips who survived may be smart enough to keep their heads down. 

We'll have to see of course but IOHO picking Rhammie set the tone, direction and strategic intent as clearly as anything could. Combine that with the Inauguration (oops Victory) Speech and "these are serious people, for serious times" working for a President who's proving more serious and adept than anybody anticipated. This is what you have to have if you want change - not a morass of ideologues who'd spend their time in futilities chasing dreams and theories. We're getting more than we asked for and about as good as hoped for. There may be better folks out there but this is as fine a team as we've seen assembled since when. Let me let David Brooks have the last words. As an avowedly articulate conservative who's also demonstrated a pronounced ability to go where the fact take him this is what he said:

"... the team he has announced so far is more impressive than any other in recent memory. One may not agree with them on everything or even most things, but a few things are indisputably true. Finally, there are many people on this team with practical creativity. Any think tanker can come up with broad doctrines, but it is rare to find people who can give the president a list of concrete steps he can do day by day to advance American interests. Dennis Ross, who advised Obama during the campaign, is the best I’ve ever seen at this, but Rahm Emanuel also has this capacity, as does Craig and legislative liaison Phil Schiliro."

The Change Gamble ?

Their Turn: Whose President Is He Anyway? Reconciling all those different impressions of who Mr. Obama is and what he stands for may prove as defining a challenge as fixing the economy. Whose president is he? The standard line from his advisers would naturally be that he’s the president of all Americans. But it rarely works out that simply. Ultimately, the gauzy picture of the campaign trail sharpens in the act of governing. Ultimately, choices are made and illusions shattered. And so many of Mr. Obama’s supporters invested so much passion in him that the potential for let-down seems considerable. The president-elect’s first few actions and statements since the election have provided some initial clues that are already being scrutinized for larger meaning. His first appointment, for instance, was to make his friend Representative Rahm Emanuel of Illinois his White House chief of staff. Some critics saw that as a betrayal of Mr. Obama’s campaign pledge to foster a “new politics” reaching across the aisle in Washington since Mr. Emanuel is such a skilled specialist in the razor-edged old politics of slicing up the opposition. But others saw ideological significance in the fact that Mr. Emanuel has been an advocate for more centrist policies when it comes to issues like trade, crime and welfare.
Declarations: America Throws Long – Peggy Noonan

Staffing and Transition

Old Hands Meld Continuity, Change Three chiefs of staff -- former, current and future -- will be on the front lines of one of the most sensitive presidential transitions in modern times. The public face of the transition was on display Monday, when Mr. Obama visited the White House, shook hands with Mr. Bush and sat down in the Oval Office he soon will occupy. That the transition is, by all accounts, going smoothly and intelligently so far owes much to these two leaders, of course. Mr. Bush has chosen to rise above months of campaign-trail bashing of him and ensure that his administration provides a smooth and thorough handoff to Team Obama. His performance will serve as a model for future outgoing presidents. Mr. Obama, in turn, has shown the kind of presidential demeanor that helped him to a comfortable victory, and has been careful to say the one essential thing: The U.S. has only one president at a time, and that remains Mr. Bush. But much of the task of transferring power during the 70 days until Mr. Obama's inauguration will fall on the shoulders of this staff troika -- Messrs. Emanuel, Podesta and Bolten -- that will be on the front lines every day. They form an intriguing group, Washington veterans all, with careers that have quietly crossed paths in ways that leave them well-suited to the assignment history has dealt them. The one who has attracted the most attention so far is Rep. Emanuel, who has the most public face of the three. He was a White House aide to former President Bill Clinton who subsequently went into the banking sector, won a seat in Congress, and led the Democrats' House campaign committee when the party took control of Congress in 2006. He since has been the hard-charging, sharp-tongued head of the Democratic caucus in the House. Because of Rep. Emanuel's elbows-out style, much of the instant analysis of his selection has suggested that the Obama White House will have a partisan tone. But that misses the more subtle signal his choice emits. He comes from the ideological center of the Democratic Party, not its left wing, and some of the issues on which he worked most diligently in the Clinton White House -- crime legislation, welfare reform, trade agreements -- were most important to moderate and conservative Democrats and required cooperation with Republicans.

Discussions With Clintons as Obama Creates Team The discussions came as Mr. Obama moved forward in putting together the team he will bring to office in January. Mr. Obama has decided to nominate Tom Daschle, the former Senate Democratic leader, as secretary of health and human services, Mr. Obama’s advisers said Wednesday. Mr. Daschle has accepted the offer, which would make him a point man in Mr. Obama’s ambitious plan to expand health care coverage. Although Mr. Daschle’s nomination will not be officially announced for a while, the transition team did make public several expected White House appointments on Wednesday. They included David Axelrod, who was Mr. Obama’s chief campaign strategist and now will serve as senior adviser to the president, and Gregory B. Craig, who was Mr. Clinton’s impeachment defense lawyer and now will serve as White House counsel. Two other leading contenders for cabinet positions emerged late Wednesday, Democrats with knowledge of the process said. Gov. Janet Napolitano of Arizona was poised to be offered the position of homeland security secretary, and Penny Pritzker, a Chicago businesswoman and national finance chairman of the Obama campaign, was in the final stages of vetting for commerce secretary.

'Do What You Got Elected to Do' Recently, I spoke with Mr. Emanuel during a short layover at the Detroit airport. Officially, he hadn't yet been offered the new post, and when queried about the prospect of serving in the Obama White House he demurred. But Mr. Emanuel, who turns 49 later this month, was eager to discuss Congress's agenda going forward. He explained how Democrats can avoid the mistakes that felled the Republican majority, and he reflected on the lessons learned as a high-ranking member of President Clinton's brain trust in the 1990s. Asked what Barack Obama was elected to do, and what legislation he's likely to find on his Oval Office desk soonest, Mr. Emanuel didn't hesitate. "Bucket one would have children's health care, Schip," he said. "It has bipartisan agreement in the House and Senate. It's something President-elect Obama expects to see. Second would be [ending current restrictions on federally funded] stem-cell research. And third would be an economic recovery package focused on the two principles of job creation and tax relief for middle-class families."

Intelligence Policy to Stay Mostly Intact President-elect Barack Obama is unlikely to radically overhaul controversial Bush administration intelligence policies, advisers say, an approach that is almost certain to create tension within the Democratic Party. Civil-liberties groups were among those outraged that the White House sanctioned the use of harsh intelligence techniques -- which some consider torture -- by the Central Intelligence Agency, and expanded domestic spy powers. These groups are demanding quick action to reverse these policies. Mr. Obama is being advised largely by a group of intelligence professionals, including some who have supported Republicans, and centrist former officials in the Clinton administration. They say he is likely to fill key intelligence posts with pragmatists. "He's going to take a very centrist approach to these issues," said Roger Cressey, a former counterterrorism official in the Clinton and Bush administrations. "Whenever an administration swings too far on the spectrum left or right, we end up getting ourselves in big trouble." The intelligence-transition team is led by former National Counterterrorism Center chief John Brennan and former CIA intelligence-analysis director Jami Miscik, say officials close to the matter. Mr. Brennan is viewed as a potential candidate for a top intelligence post. Ms. Miscik left amid a slew of departures from the CIA under then-Director Porter Goss. Advisers caution that few decisions will be made until the team gets a better picture of how the Bush administration actually goes about gathering intelligence, including covert programs, and there could be a greater shift after a full review. The Obama team plans to review secret and public executive orders and recent Justice Department guidelines that eased restrictions on domestic intelligence collection. The early transition effort is winning praise from moderate Democrats. "He's surrounded himself with excellent people -- an excellent bipartisan group," said Rep. Jane Harman, a California Democrat who is chairwoman of the House homeland-security subcommittee on intelligence. Most of those being discussed as candidates for director of national intelligence and director of the CIA have staked out a middle ground between safeguarding civil liberties and aggressively pursuing nontraditional adversaries. Mr. Brennan is a leading contender for one of the two jobs, say some advisers. He declined to comment on personnel matters. Gen. James L. Jones, a former North Atlantic Treaty Organization commander; Thomas Fingar, the chief of analysis for the intelligence director; Joan A. Dempsey, who served in top intelligence and Pentagon posts; former Rep. Tim Roemer of Indiana, who served on the 9/11 Commission; and Ms. Harman have also been mentioned. Ms. Harman has also been cited as a potential secretary of homeland security.Obama Leans Toward Asking Gates to Stay

Clinton Set for Secretary of State; Obama Narrows Security Adviser Choices Senator Hillary Clinton’s discussions about becoming Barack Obama’s secretary of state were “on track,” a spokesman said, as the president-elect narrowed his choices for White House national security adviser. Retired Marine General James Jones and James Steinberg, a former White House and State Department aide, have emerged as top candidates for the national security adviser post, according to people familiar with the selection process. Obama also is considering New Mexico Governor Bill Richardson as Commerce Department secretary, according to a Democratic aide, who spoke on condition of anonymity. Clinton’s selection as secretary of state nominee is likely to be formally announced after the Nov. 27 U.S. Thanksgiving holiday, according to the Obama aide. Clinton would be Obama’s highest-ranking Cabinet officer -- the secretary of state is fourth in the line of presidential succession. Backers say the popularity of both Hillary and Bill Clinton overseas would be a boon to the U.S.’s global reputation. Obama also is assembling his national security team. Jones, 64, served as supreme commander of the North Atlantic Treaty Organization from 2002 to 2006 and commandant of the Marine Corps from 1999 to 2002. After leaving the NATO post, he was named last year as special U.S. envoy to the Middle East.

Geithner Chosen to Be Treasury Secretary; Summers to Serve in White House President-elect Barack Obama picked Timothy Geithner, head of the Federal Reserve Bank of New York, to be his Treasury secretary, with Lawrence Summers getting a senior White House role, a Democratic aide said. Summers, former President Bill Clinton’s last Treasury chief, would be positioned to succeed Ben S. Bernanke as Fed chairman in 2010. Obama is likely to announce his economic team on Nov. 24, the aide said on condition of anonymity. Geithner is a veteran who has helped lead the effort to end the deepest financial crisis in seven decades and at the same time has spent most of his career outside the public eye. The top task of the new team will be assembling Obama’s pledged stimulus package to buttress an economy that may be in its worst recession in a quarter century. Obama is assembling “very strong people, very qualified people,” said Allen Sinai, chief economist at Decision Economics in New York. “But the reality of the problems of the economy, the financial markets, our banking system both domestically and globally, and the long list of problems we have to deal with as a society, that is very daunting.”

Summers to Join Obama White House as Spending Advocate, Candidate for Fed Harvard University professor Lawrence Summers will join the Obama administration with a ready-made sales pitch for substantial economic stimulus and a chance that the role springboards him to the Federal Reserve. Summers, 53, was Bill Clinton's last Treasury secretary. He will have a wide-ranging portfolio and help craft Obama's economic policies, a Democratic aide said. Summers's appointment, along with the nomination of Federal Reserve Bank of New York President Timothy Geithner to be the next Treasury secretary, will be announced Nov. 24, the aide said. The return of Summers to Washington after eight years at Harvard gives President-elect Barack Obama a fierce advocate for fiscal stimulus to revive the economy. It also positions him to succeed Fed Chairman Ben S. Bernanke, whose term at the helm of the central bank expires in January 2010, said Vincent Reinhart, former director of the Fed's Division of Monetary Affairs. Economic stimulus should be ``speedy, substantial and sustained over a several-year interval,'' Summers said in a panel discussion with Treasury Secretary Henry Paulson and former secretary Robert Rubin. Without saying how big a stimulus package was needed, Summers said each dollar of spending generates an extra $1.50 for the economy. ``We're going to need some impetus to the economy for two to three years,'' he said. ``It's particularly important that the fiscal stimulus be linked to the country's long-term priorities around infrastructure, around energy, particularly renewable energy, around health care.''

Assessments

Expertise Trumps Ideology in Obama's Early Picks After he waged a campaign built around a stirring message of change, many of President-elect Obama's supporters expected him to begin stocking his administration with passionate progressives bristling to challenge the status quo. Conservatives anticipated something akin to the second coming of the New Deal. Neither scenario has materialized. At the quarter point in the transition process, Obama has surrounded himself with a cadre of seasoned political operatives and Clinton administration veterans known more for their expertise than ideology. Beltway savvy and centrist policy chops have, so far, trumped partisanship. Some of this is to be expected, as Obama's team shifts from the frenetic pace of a presidential campaign to the more deliberate realm of governing. And remember that as a candidate, Obama portrayed himself as a new breed of politician capable of transcending traditional political fault lines. But the selection of so many centrist insiders has skeptics wondering whether the idealistic ex-community organizer is capable of backing up his promises to shake up Washington and promote a more activist government. The difficulty in pinning down the part of the political spectrum from which Obama will govern shows, experts say, that he is being careful not to repeat the mistakes former President Bill Clinton made during his 1992 transition. By building his administration from the inside out and focusing on filling key White House positions like the chief-of-staff, counsel and his senior advisers, he will have a brain trust that can help guide remaining personnel decisions, alert him to potential conflicts and even begin moving an agenda.

Clinton, in contrast, focused on selecting nominees for his Cabinet and filled out most of his White House staff at the last minute. That created a steep learning curve and the prospect for miscues, such as when Clinton nominated Zoe Baird to be his attorney general without knowing that her husband had employed undocumented workers. The ensuing embarrassing headlines dominated the news for more than a week, including on the day of Clinton's inauguration. Clinton ended up needing three tries to get the attorney general choice done right in 1993. Political scientists who study presidential transitions say the most obvious thing to be gleaned from Obama's selections is that he prizes trust and an individual's ability to deliver.

The Insider’s Crusade The next administration will be a valedictocracy rule by those who graduated first in their high school classes. If an enemy attacks the United States during a Harvard-Yale game, we’re in trouble. Already the culture of the Obama administration is coming into focus. Its members are twice as smart as the poor reporters who have to cover them, three times if you include the columnists. They typically served in the Clinton administration and then, like Cincinnatus, retreated to the comforts of private life — that is, if Cincinnatus had worked at Goldman Sachs, Williams & Connolly or the Brookings Institution. So many of them send their kids to Georgetown Day School, the posh leftish private school in D.C., that they’ll be able to hold White House staff meetings in the carpool line. And yet as much as I want to resent these overeducated Achievatrons (not to mention the incursion of a French-style government dominated by highly trained Enarchs), I find myself tremendously impressed by the Obama transition. The fact that they can already leak one big appointee per day is testimony to an awful lot of expert staff work. Unlike past Democratic administrations, they are not just handing out jobs to the hacks approved by the favored interest groups. They’re thinking holistically — there’s a nice balance of policy wonks, governors and legislators. They’re also thinking strategically. As Norman Ornstein of the American Enterprise Institute notes, it was smart to name Tom Daschle both the head of Health and Human Services and the health czar. Splitting those duties up, as Bill Clinton did, leads to all sorts of conflicts. Most of all, they are picking Washington insiders. Or to be more precise, they are picking the best of the Washington insiders. As a result, the team he has announced so far is more impressive than any other in recent memory. One may not agree with them on everything or even most things, but a few things are indisputably true. Finally, there are many people on this team with practical creativity. Any think tanker can come up with broad doctrines, but it is rare to find people who can give the president a list of concrete steps he can do day by day to advance American interests. Dennis Ross, who advised Obama during the campaign, is the best I’ve ever seen at this, but Rahm Emanuel also has this capacity, as does Craig and legislative liaison Phil Schiliro.

Posted by dblwyo at 08:50 AM | Permalink | Comments (1)

By and large in terms of evaluating the candidates and their positions as well as their behaviors we stand by the two previous posts. (Populist Panderings, the Candidates and Real Solutions,Rope-a-Dope at Hofstra: Handicapping the Debate and Results) So much so that from certain perspectives we have nothing to add excepts some reflections and assessments. In our reflections we have two major learnings to share, three strategic assessments and a final conclusion. Which we'll preface by sharing a couple of anecdotes. A friend of our recently accused us of gradually slipping over into being a closet Barry supporter while another suggested that if we keep taking a dispassionate stance and attempting to be both balanced and nuanced the nutjobs would hunt us down. C'est la vie. For the record we think we've been following the data where it leads.

Two Key Learnings

1. First off we've been surprised by the dominance of the hindbrain in most decision-making in this election, even among our friends and acquaintences. Our second anecdote is a barside conversation with a lovely young lady who somewhat more than in her cups confessed that she found Barry to be the embodiment of evil. More than a tad extreme in our humble opinion and factually wrong from the point of view of her interests - Barry's proposed tax cuts would work more to her benefit than Johnboy's if they prove feasible which they won't. And his economic strategies are pretty dead on with our checklists of the short-, intermediate and long-term requirements backed up by a better team than any seen since Lord Keynes architected the post-war world at Bretton Woods.

2. Our second big learning was the extent to which these guys are actually both very self-aware, reflective and haven't missed anything (the last post gave the URL addressess  for their Smith Dinner roasts which prove that point). Complementing that observation is that one that it takes a crisis to force change - we've known what to do about Healthcare, Energy, Education, et.al. and etc. for decades but couldn't get the necessary political support while all the grasshoppers partied on. (Oil and Other System Shocks: Beyond Iraq & Georgia,911 Memorial: Fix the Problem Don't Repeat the Crash). It's truly time for some substantive changes but it's not entirely clear that the voters either grasp reality, are aware of how hard this is going to be and neither candidate has laid it out so it's graspable.

Three Observations

1. First off appeals to the hind (or lizard) brain have dominated the political discourse with extensive perjoration by both sides but much more so on Johnboy's part. We've learned, the hard way, that it's necessary first to sell the heart, i.e. appeal to the emotions, before persuading the forebrain thru reason. On the whole, again IOHO, Barry has done a much better job of speaking both to the center and injecting substantive content into the discussion. While Johnboy has waffled from one tactic du jour to another, never settling on a clear theme, messages or even tactics. Which would tell us that certain requisites for leadership are lacking in the man who's running on his leadership capacities.

2. The voters as a whole continue to be extremely uncomfortable with Barry; he's never managed to connect with them on an emotional level as best we judge it. Part of this is his clear, cool, cerebral style and personality. A bigger part, we think, is that he represents a major generational change and his nuanced, pluralistic approach to things is more consistent with the style of the younger generation and its' sensiblities while JB's style attempts to be more certain, blunt and straight-forward. We think this lack of connection, not the race issue, is the real lingering doubt in voter's minds. On the other hand JB has run such a terrible, ill-organized and badly led campaign with a terrible organizational execution that he hasn't had to step forward. In an odd way he's been free to play the strategic offense and the tactical defense. JB has never established a strategy and has, as said, waffled on tactics du jour.

3. As a result of which we haven't seen much truth-telling in this campaign. Some...but not a lot. But people are definitely running scared. How that plays out will determine who wins - and the economic rescue fiasco pretty well destroyed JB's credibility - not to mention the fact that his general discussions of the most serious problems we face has been backward-looking, simple-minded and un-resonate with the voters. 

A Final Reflection

At the end of the day you man up and make the best choice you can based on the available data. We consider it strangely and strongly ironic that those in our network who're die-hard McCain supporters have watched him fail to get organized, fail to establish a clear leadership position and violate his own ethical standards; or at least permit his campaign to do so.

The choice may turn out to be wrong - even badly so - but since push comes to shove right now the data drive us to make our best choice and then deal with the consequences. What we've attempted to do in these posts is filter out the emotionally appealing labels each has tried to stick on the other, call foul when the perjoration gets excessive and focus on what each is saying of some substance. And we've attempted to do so by laying out things so you can do your own analysis.

But choices must be made...and lived with. So, and on balance, we'll be supporting Barry this time around. With all the downside risks that his naivte in foreign policy and the pronounced weaknesses of the Dimowackic FP bench are more than offset by the depth and breadth of his economic policies. 

Normally our weightings are 50% Foreign Policy, 30% Economic Policy and 20% Domestic. In these circumstances our weightings are 30%, 60% and 10%. First keep the economy turning over - it is after all the sine qua non of everything else.

Good luck to us all ! We're entering a brave new world where the Grasshopper's of the '90s is now going to have be paid for by us all turning into hard-working ants. So be it. 

After the break there's a very extensive and deeply informative collection of excerpts - if you haven't already decided or are prepared to weigh things in the balanced we highly recommend them. And, looking beyond tomorrow to the real consequences, we recommend them even more. One way/weigh or another it'll be shaping our collective futures at the cusp point of a critical election. 

Politics

Patio Man Revisited Patio Man is surprised at how much the bankruptcy of Sharper Image has upset him. In the vast expanse of teenage clothing stores at the mall, Sharper Image at least offered him a moment of interest and delight. The store allowed him to indulge his curiosity in noise-canceling headphones, indoor putting greens and overly expensive toy cars. Now it seems that might all come to an end, and he will have to adjust to life without. He is adjusting to a lot of changes these days. If you wanted to pick words to capture Patio Man’s political ideals, they would be responsibility, respectability and order. Patio Man moved to his home because he wanted an orderly place where he could raise his kids. His ideal neighborhood is Mayberry with BlackBerries. He doesn’t expect much of government. He believes that he is responsible for his own economic destiny. But he does expect government to provide him with a background level of order. In times of turmoil, he has gravitated toward the party that could restore his sense of order. In the 1970s, crime and social breakdown seemed like the biggest threats to order, and he gravitated to the G.O.P. In the late 1990s, Republican revolutionaries seemed to bring instability, and he softened on Clinton. Then terrorism threatened his equilibrium and he helped re-elect Bush. Then, post-Iraq and post-Katrina, administrative incompetence led him a bit the other way.  Now disorder has come from an unexpected direction, not from foreign enemies or domestic zealotry but from a society-wide contagion of financial risk-taking. Government programs like Fannie Mae and Freddie Mac seduced people into homes they could not afford. Private bankers took on too much risk with too little capital. Consumers, including Patio Man himself, racked up an enormous personal debt. The effects threaten everything he has achieved. There are foreclosures in his neighborhood. Like all taxpayers, he’s been asked to backstop Wall Street’s losses. He braces for recession. But the shift in public opinion is not from right to left, or from anti-government to pro-government, it’s from risk to caution, from disorder to consolidation. There is a deep current of bourgeois culture running through American suburbia. It is not right wing, but it is conservative: a distrust of those far away; a belief in convention and respectability; and a strong reaction against anything that threatens to undermine the stability of the established order. Democrats have done well in suburbia recently because they have run the kind of candidates who seem like the safer choice — socially moderate, pragmatic and fiscally hawkish. They, or any party, will run astray if they threaten the mood of chastened sobriety that has swept over the subdivisions. Patio Man wants change. But this is no time for more risk or more debt. Debt in the future is no solution to the debt racked up in the past. This is a back-to-basics moment, a return to safety and the fundamentals.

The Party of Yesterday Two years ago, a list of the nation’s brainiest cities was put together from Census Bureau reports — that is, cities with the highest percentage of college graduates, which is not the same as smart, of course. These are vibrant, prosperous places where a knowledge economy and cool things to do after hours attract people from all over the country. Among the top 10, only two of those metro areas — Raleigh, N.C., and Lexington, Ky. — voted Republican in the 2004 presidential election. This year, all 10 are likely to go Democratic. What’s more, with Colorado, New Hampshire and Virginia now trending blue, Republicans stand to lose the nation’s 10 best-educated states as well. It would be easy to say these places are not the real America, in the peculiar us-and-them parlance of Sarah Palin. It’s easy to say because Republicans have been insinuating for years now that some of the brightest, most productive communities in the United States are fake American — a tactic that dates to Newt Gingrich’s reign in the capitol. Brainy cities have low divorce rates, low crime, high job creation, ethnic diversity and creative capitalism. They’re places like Pittsburgh, with its top-notch universities; Albuquerque, with its surging Latino middle class; and Denver, with its outdoor-loving young people. They grow good people in the smart cities. But in the politically suicidal greenhouse that Republicans have constructed for themselves, these cities are not welcome. They are disparaged as nests of latte-sipping weenies, alt-lifestyle types and “other” Americans, somehow inauthentic. If that’s what Republicans want, they are doomed to be the party of yesterday. Not only are we becoming more urban as a nation, but we’re headed for an ethnic muddle that could further shrink the party of small-mindedness. By 2023, more than half of all American children will be minority, the Census Bureau projects. Ronald Reagan was lashed by liberals for running a “Morning in America” campaign, but he knew this country, at heart, was always tomorrow-looking — and he fared very well in educated cities as well as small towns. “Whatever else history may say about me when I’m gone,” said Reagan, “I hope it will record that I appealed to your best hopes, not your worst fears.” Barack Obama, who brings that music to the stage, leads by 30 points on the “hope and optimism” question in polls.

Ceding the Center There are two major political parties in America, but there are at least three major political tendencies. The first is orthodox liberalism, a belief in using government to maximize equality. The second is free-market conservatism, the belief in limiting government to maximize freedom. But there is a third tendency, which floats between. It is for using limited but energetic government to enhance social mobility. Members of this tradition are Americanized Burkeans, or to put it another way, progressive conservatives. This tendency thrived in American life for a century and a half, but it went into hibernation during the 20th century because it sat crossways to that era’s great debate — the one between socialism and its enemies. But many of us hoped this Hamilton-to-Bull Moose tradition would be reborn in John McCain’s campaign. McCain shares the progressive conservative instinct. He has shown his sympathy with the striving immigrant and his disgust with the colluding corporatist. He has an untiring reform impulse and a devotion to national service and American exceptionalism. His campaign seemed the perfect vehicle to explain how this old approach applied to a new century with new problems — a century with widening inequality, declining human capital, a fraying social contract, rising entitlement debt, corporate authoritarian regimes abroad and soft corporatist collusion at home. In modernizing this old tradition, some of us hoped McCain would take sides in the debate now dividing the G.O.P. Some Republicans believe the G.O.P. went astray by abandoning its tax-cutting, anti-government principles. They want a return to Reagan (or at least the Reagan of their imaginations). But others want to modernize and widen the party and adapt it to new challenges. Some of us hoped that by reforming his party, which has grown so unpopular, McCain could prove that he could reform the country. But McCain never took sides in this debate and never articulated a governing philosophy, Hamiltonian or any other. In Sunday’s issue of The Times Magazine, Robert Draper describes the shifts in tactics that consumed the McCain campaign. The tactics varied promiscuously, but they were all about how to present McCain, not about how to describe the state of country or the needs of the voter. It was all biography, which was necessary, but it did not clearly point to a new direction for the party or the country.
McCain Campaign Has Run Out of Ideas

Rethinking the Notion of Political Dominance Despite the nation’s polarization along partisan and ideological lines, the number of swing voters remains large enough to rapidly undercut any Democratic or Republican coalition in reaction to shifting events. “The map of 2004 was a delusion,” said Bernadette Budde, a political strategist for the Republican-friendly Business Industry Political Action Committee in Washington. A new generation of voters, consuming political information in different ways than their forebears, is “very action-oriented, very issue-driven, very solutions-oriented,” Ms. Budde said. “It would be very foolhardy for either political party to think they could dominate the age politically.”  Democrats’ prospects have brightened as they improve their competitiveness in the South, where religious, military and anti-tax conservatives have been a bedrock of support for the Republican Party since the Nixon administration. Democrats also threaten to wrest parts of the Rocky Mountain West from Republican control. But Western Democrats acknowledge that enduring success will depend on the nomination of candidates with credibility among moderate voters, whom Republicans have lost in some recent elections while emphasizing social issues and opposition to government spending on education and infrastructure. “There’s no brand loyalty here,” said Laura Chapin, a Democratic strategist in Colorado. Republicans have begun contemplating new political formulas that might restore their dream of dominance that so quickly faded. A major focus will be strategies for regaining the party’s edge among working-class voters, whom Mr. Obama has courted with a tax cut plan that the McCain campaign has portrayed as socialist. In their recent book, “Grand New Party,” Ross Douthat and Reihan Salam identify “Sam’s Club voters” as the critical constituency for Republicans. “Some combination of the populist left and the neoliberal center is likely to emerge as America’s next political majority,” they write, “if the conservative movement can’t find innovative ways to address the anxieties of working-class America.”

The Audacity of Barack Obama Any politician who has taken on Bill and Hillary Clinton's national political machine and won should not be underestimated. Yet Republicans as well as many Democrats persist in underrating Barack Obama's electoral talents and, above all, his soaring political ambition. His writerly mind, professorial bearing and effortless self-control make it difficult to take his measure as a politician. He can seem cool, detached, unusually introspective. As a wag at the Financial Times put it, if John McCain's life story is the stuff of Hollywood movies, Mr. Obama's is like an off-Broadway play—it lacks action but is full of internal monologues. Eager to find himself by finding a community to which he could belong, he was struck, nonetheless, by the flaws or limits of every race, culture and country he encountered. Unlike other intelligent human beings who have made the same discovery, Mr. Obama did not lower his expectations but decided that, just as he could and did choose to refashion his own identity, communities could do the same, with a little help. He spent three years as a community organizer in Chicago, but was disillusioned with the results. Eventually he found in politics, and especially in political oratory, the path he was seeking: the way to redeem the sins of an existing community by leading it to a vision of its future, better self; and to introduce himself, proudly biracial, multicultural and progressive, as living proof that the divisions and disappointments of the past can be overcome, if never quite left behind. Reflecting on the elections of 2000 and 2004, he confesses that "I sometimes felt as if I were watching the psychodrama of the Baby Boom generation—a tale rooted in old grudges and revenge plots hatched on a handful of college campuses long ago." Mr. Obama praises Bill Clinton more highly than any other contemporary Democrat, because Mr. Clinton recognized the staleness of the old political debate between left and right and came close to moving beyond it with his politics of the Third Way, which "tapped into the pragmatic, nonideological attitude of the majority of Americans." But Mr. Clinton blew it, and the author gradually lets you know it. First, he regrets Mr. Clinton's "clumsy and transparent" gestures to the Reagan Democrats, and his "frighteningly coldhearted" use of other people (e.g., "the execution of a mentally retarded death row inmate" before a crucial primary). Then Mr. Obama notes sadly that Mr. Clinton's policies—"recognizably progressive if modest in their goals"—had commanded broad public support, but that the president had never been able, "despite a booming economy," to turn that support into a governing coalition. Finally, he gently accuses Mr. Clinton of the worst offense of all: strengthening the forces of conservatism. Due to his "personal lapses" and careless triangulations that ceded more and more ground to the right, Mr. Clinton prepared the way for George W. Bush's victory in 2000. In his campaign speeches, Mr. Obama can't afford to be so candid—he needs Hillary and Bill's supporters, after all—but he subtly makes his point. For example, in his acceptance speech in Denver, the single biggest speech of the campaign, he laid at Bill Clinton's feet the oldest backhanded compliment in the books, thanking the former president "who last night made the case for change as only he can make it." That's a disguised double insult: It reminds the discerning ear of Mr. Clinton's characteristic bloviation, and then of his political failings (when you see Mr. Clinton, you're reminded why the Democrats need Mr. Obama).

Building a White House Team Before the Election Is Decided With the economy in tatters at home and two wars still raging abroad, Senator Barack Obama’s team is preparing for a fast start, should he win the election, to what could be the most challenging and volatile transition between presidents in 75 years. Mr. Obama’s advisers are sifting résumés, compiling policy options and discussing where to hold his first news conference as president-elect. Democrats say Mr. Obama hopes to name key members of his White House, economic and security teams soon after the election. His transition chief has even drafted a sample Inaugural Address. Presidential nominees typically start preparing for transitions before the election, but Mr. Obama’s plans appear more extensive than in the past and more advanced than those of Senator John McCain, his Republican opponent. Mr. McCain has also assigned confidants to prepare for a transition but instructed them to limit their activities as he tries to rescue his foundering campaign, Republicans said. Both campaigns have been forced to recalibrate their post-election thinking and consider how involved the president-elect should be in asserting leadership in the 77 days between the election and the Jan. 20 inauguration. In setting economic policy, Mr. Bush would presumably be willing to defer to some degree to Mr. McCain should he win; the Democratic Congress would presumably follow Mr. Obama’s lead. The Obama team has four groups, which in turn are divided into roughly a dozen subgroups, according to Democrats informed about the effort. At first, they said, there were three main groups — for personnel, executive actions and legislative strategy — but the team recently added a fourth reflecting the imperatives of the economic crisis and known as lame duck. The Bush administration has extended more help to its would-be successors than any past White House, relying on an intelligence law Mr. Bush signed after the 2004 election authorizing the government to conduct pre-election background checks on transition officials designated by the campaigns. For the first time, the president-elect’s advisers will be given interim security clearances and access to classified information the day after the election. The White House also formed a 14-member transition council that met last week for the first time to coordinate everything from passing over domestic security duties to helping the new team find parking. Mr. Bush’s aides are preparing a series of briefings and a proposed schedule that they will offer the incoming team.

• Possible Presidential Appointments

Obama's Grassroots: What Has He Created? Yet, as unassuming as it seems, this is the engine room of a novel grass-roots machine that may soon have another purpose: to help Obama govern the country. If he wins, it also could cause him headaches: if you live by viral marketing, you can die by it, too. "His supporters have sky-high expectations and expect to be involved," says Will Marshall, who studied the Obama organization for the Democratic Leadership Council. "They are loyal but not easy to control." Like FDR and Ronald Reagan, Obama is an innovator in organizing and communicating. Roosevelt was the first to rely on labor unions, and he talked intimately to voters through the then new medium of radio. Reagan built and benefited from a new conservative movement that perfected direct mail and established think tanks to conjure ideas that the former actor could mass-market. FDR and Reagan communicated mainly in one direction—down. But Obama is claiming to be more: the first communal candidate, a man of twoway streets. Campaign volunteers make key organizing decisions; they also have access to voter lists, traditionally guarded by headquarters. "We have a very trusting organization," David Plouffe, the campaign manager, told me. The resulting bottom line is astounding: 3.1 million contributors, 5 million volunteers, 2.2 million supporters on his main Facebook page, 800,000 on his MySpace page and perhaps a million more names on Obama's own campaign Web site. Even discounting for likely duplicates, Plouffe says he could end up "knowing" almost 7 million voters by Election Day—roughly one in 10 of Obama's likely total. "These are people who are responsive," he says. "They want to be respected and to continue to be involved in what we do." And so they will be if Obama is elected. "If he wins, he's going to have a personal following he can use to press his agenda," says Marshall. "He can use these millions to reach over the heads of the Washington insiders, the Democrats on the Hill. It could be powerful."

Election ’08: The Middle Class Takes Center Stage "Which candidate does a better job understanding the middle class, offering programs and plans that would benefit those citizens, that's really what this campaign is about at this stage," said Herb Asher, an Ohio State University political scientist. That's why Obama convened a "jobs summit" in Florida and why McCain warned voters in Colorado that Obama would put the middle class "through the wringer." It's why Obama calls his economic proposals "a rescue plan for the middle class" and why McCain has virtually made "Joe the Plumber" part of his ticket, representing workers with a middle-class dream of being their own boss but worried that Obama's tax plan would make it more difficult. Obama says he'll cut taxes for the middle class and create millions of jobs through renewable energy and infrastructure projects. McCain says he wants to keep taxes down for everyone, including the rich and businesses, to stimulate overall economic growth to the benefit of what he called "the great American middle class." The middle class is hardly a monolithic voting bloc, though, divided by race, religion and a variety of issues such as abortion, Asher notes. There's not even a standard definition of middle class, which by income is considered as a wide range of annual household earnings from more than $30,000 to the low six figures, ranging higher or lower depending on the local cost of living. However, most Americans identify themselves as middle class. It's sometimes described as a state of mind, one of a comfortable life with such attributes as a nice home, late-model car, education opportunities for children, and security. For many, that comfort level is being rocked by the worst downturn since the Great Depression. "I wonder about the future for the country as far as the middle class," said Lex Higgins, a business professor emeritus for the University of Colorado at Colorado Springs. He said the middle class in his western state, one that Obama appears to have a good chance of winning after President Bush carried it twice, has been eroded by the loss of high-tech jobs that moved overseas and by the housing crisis.

Overtaxed Of the several morals lurking in this postmodern fable, the least surprising is the reminder that McCain’s campaign believes that it cannot afford to be heavily burdened by facts while constructing attacks against Obama’s candidacy. Also familiar is the example of McCain’s sloppy decision-making. The Ordinary Joe charade was transparently conceived to poke at Obama’s vulnerability with white, independent voters in culturally conservative industrial states. Unfortunately for McCain and his staff, they apparently did not think to vet an important new anecdote that they planned to spring upon a national television audience at a decisive moment of the campaign. That oversight has rebounded on McCain, of course, but, more important, his phony war on taxes has diminished the last phase of the campaign. In the maw of the worst banking and financial crisis since the Great Depression, McCain has repeatedly dumbed down the debate on economic policy. His focus on pork-barrel spending and the top marginal tax rates of the richest Americans has obscured the seriousness of the crisis, whose causes have nothing to do with either of those issues. Some economists expect the country’s unemployment rate to rise from its current level, of about six per cent, to as high as ten per cent, which would be the highest in a generation; more than a million American families have already had their homes foreclosed upon during the past two years, and in August foreclosure filings reached a record high. McCain, perhaps because he honed his policy instincts during the Reagan era, when marginal tax rates were a big deal, or perhaps because he just doesn’t know what else to talk about, has deflected debate from the difficult, complicated choices that must be made by the next President, such as what sort of economic stimulus plan to enact, and in what stages; which policies might keep the most families in their houses at the least cost; how to restructure market regulation to bring credit-default swaps and other derivatives under government oversight; and how to coördinate global reform of financial and trade imbalances.

Cover this! Inside the nastiest ’08 rumors Obama is the subject of a far greater volume of these e-mails — as many as 20-to-1 concern the Democratic nominee, said Brooks Jackson, the director of the nonpartisan Annenberg Political Fact Check. And they come in waves. "Whenever Obama builds a lead — that's when you hear a new one," said Reason Magazine writer David Weigel, the journalist who labored most in the vineyards of the fringe this cycle. "The calmest period for this stuff was the two weeks when McCain was ahead in the polls." The stories, he said, capture "a fear of the other that is given form in ways that most terrify the people who make this stuff up." And whichever candidate wins, these campaign trail rumors will haunt his presidency — just ask Bill Clinton or George W. Bush. In times gone by, the press could have chosen to ignore these stories, comfortable in the knowledge that most readers would never learn of them. Now they're widespread, despite having been ignored by the press — or, perhaps, because of it. "It's an outdated conceit to think that by not talking about things, we can keep them outside the public discourse," said Fact Check's Jackson, whose site has delved into some of these rumors. "That used to be true back when there were gates to keep and fences, too, but now, golly, these things can be so powerful." And so here, without further ado, is a roundup of some of the best-known stories we haven't written, and why:

Axelrod, Powell, Even Hillary Prove Big Winners The longest and most exciting U.S. presidential campaign in memory ends Tuesday. The biggest winners will be Barack Obama or John McCain; the other will be the biggest loser. That's the way elections work. During the course of the year there have been many other winners and losers. Barring an unprecedented shift over the next 24 hours, here are some 2008 award designees: BEST POLITICAL STRATEGIST: David Axelrod. He is the architect of the most remarkably cohesive and compelling presidential campaign in modern American history. Axelrod and campaign manager David Plouffe had a strategic sense of the times and the field. They ran circles around Hillary Clinton and McCain. A few mistakes were made. If last March they had focused only on the Texas primary instead of splitting their time in Ohio, they probably could have knocked Senator Clinton out three months earlier. More striking is how few mistakes were made. They were calm and confident, when other politicians, and more than a few of us pundits, thought they were blowing it. Axelrod, who combines the toughness of a Chicago political operative with the compassion of a devoted father of a special- needs child, takes his place alongside Stu Spencer (Ronald Reagan) and James Carville (Bill Clinton) as that rare strategist who really makes a difference. He has a fabulous candidate; even Secretariat needed a good jockey.

Bush Wins Praise With Focus on Preparations for `Extraordinary' Transition President George W. Bush is leaving office with some of the lowest job-approval ratings in history. He's being assailed by both of his would-be successors, one of whom will inherit two wars and the most severe financial crisis since the Great Depression. Meanwhile, Bush is engineering what may be the most carefully considered and potentially successful presidential transition in modern times, both Democrats and Republicans close to the process say. The president started the preparations last spring, ordering federal agencies to get ready for a new administration, with deadlines for various tasks. By August, White House Chief of Staff Joshua Bolten had persuaded representatives of Republican John McCain and Democrat Barack Obama to join in. The advance work may get the new president off to a fast start, participants say. ``I do feel pretty good about this one,'' says Harrison Wellford, a former White House and congressional aide who has worked on presidential transitions since Jimmy Carter's back in 1976 and is now advising Obama. ``The White House and the agencies are doing a good job, learning from mistakes of the past.'' That planning, Wellford says, will better prepare the president-elect for the ``onrushing freight train of decisions,'' including making some 2,000 appointments. The imperatives of a seamless transfer of power have seldom if ever been greater.

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