I certainly can claim to be one of the early birds in detecting the strength of the movement towards Barack Obama. I am not sure that those early forecasts are of any importance except to the columnist himself, but they do reassure the writer that he, or she, is in touch with some sort of political reality.

On January 28th I wrote a column for the London Times, which started with the question: “Has Barack Obama developed the “Big Mo”, vital momentum that would take him through to the Democratic nomination, very possibly to the Presidency.” I answered my opening question in the last paragraph “Youth, idealism, style are powerful political weapons. On February 5th, we shall see whether they have captivated America. If they do, we shall find that they have captivated Britain as well. Barack Obama could have a message for us all.”

After Super-Tuesday, I went a stage farther. My opening sentence surprised many of my London friends and readers. I wrote that “it is hard to see who can stop Barack Obama becoming the next President of the United States…. Barack Obama has the future of America ahead of him.”

At any rate he has been fully tested by Hillary Clinton’s campaign. That had its own faults, and Bill’s interventions were usually disastrous, but we all came away with a new respect for Hillary’s resilience and endurance, even if many of us felt a great relief that she had lost. Now it is Obama versus McCain. Do I still feel that Obama is almost unstoppable, even though Hillary undoubtedly came closer to stopping him than I had expected?

There are of course inherent risks in being the first black candidate from a major party to be nominated for the Presidency. In 1968, the Vietnam primaries, Bobbie Kennedy, also a candidate of idealism, was assassinated. Separately from the primary struggle, so was Martin Luther King. Barack Obama is both black and idealist, a double challenge to the worst kind of American bigot. Everyone is aware of the risk, and nobody wants to talk about it.

There are other events which could change the ordinary pattern of political events, what the strategic study groups call “low probability, high impact events”. The classic low probability, high impact event was of course 9/11 itself. A crisis in the Middle East, or a terrorist attack on the U.S. itself could change the whole character of the Presidential debate.

However, these are not predictable events, they are merely conceivable possibilities. Outside those possibilities Senator Obama seems to me to be a very strong favourite to win the Presidency in November.

In the first place, he is the candidate of youth, idealism and change. Americans are tired of the Republican Presidency after two terms of George W. Bush. They are tired of the dynastic Presidency which proved a serious handicap to Senator Clinton. If she had won the Presidency that would have been the sixth successive term of the Bush or Clinton dynasties.

Senator McCain has much more experience of defence, and would be an impressive Commander-in-Chief, but he is already in his seventies – he is not a symbol of domestic renewal, because of his age. If the campaign concentrates on the recent Republican record, McCain will be hurt by that; if it concentrates on domestic issues, McCain is less attractive than Obama to the young and radical.

I still see Senator Obama as the candidate of change and vision. That was the appeal of John F. Kennedy. If America is tired of Washington cynicism, Obama is the Kennedy of the present generation.

William Rees-Mogg
The Daily Reckoning Australia

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Source: Barack Obama is a Strong Favourite to Win the Presidency

Unless the cynical premise of Rush Limbaugh’s “Operation Chaos” is realized, and the Democrat presidential wingding continues to move forward at an increasingly vitriolic level through that party’s national convention in Denver in late August, whomever wins the Democratic nomination is pretty likely to be our next President. So, as investors – whether Democrat or Republican – which of the two candidates should we be rooting for?

The Case for Clinton

Our initial reaction would probably be that this question looks like a no-brainer. The Standard & Poor’s 500 Index rose from 427 to 1,342 during the eight-year administration of Hillary Clinton’s husband, giving investors an average annual total return of 17.4% – the highest of any presidency since World War II.

That huge market run-up – and the hefty yearly returns – were pretty much justified. President Bill Clinton was committed to a balanced federal budget, raised taxes only once, and that in a moderate fashion, reformed welfare and signed the North American Free Trade Agreement (NAFTA).

All of those policies were immensely beneficial to the U.S. economy – and to investors – as, in the short term, were the monetary expansion policies of the Alan Greenspan-led U.S. Federal Reserve (although we may well be paying the long-term price for that now). If we could be sure that Clinton would follow her husband’s policies, and that the economy was in a state fairly similar to that of 1993, we could as investors be confident that a Hillary Clinton presidency would contribute significantly to our collective net worth and, on balance, would serve the entire country equally as well.

When it comes to taxation, Sen. Clinton wants to reverse the George Bush tax cuts, and favors increases in the Social Security tax for those at the top of the income scale. She also favors a higher capital gains tax – all measures that tend to reduce both economic growth and investor returns. She also favors windfall taxes on oil companies, and has a healthcare plan that would be very expensive and that must be paid for somehow.

Perhaps the biggest difference between the two Clinton’s is Hillary Clinton’s economic populism. When Bill Clinton ran for president in 1992, he campaigned on the catchy platform, “It’s the economy, stupid.” But he was notably free of the economic redistributionist and corporation bashing that had weakened the credibility of such presidential campaigns as Walter Mondale’s in 1984 and Mike Dukakis’s in 1988. When Bill Clinton was president, his treasury secretaries – Lloyd Bentsen, Robert Rubin and Lawrence Summers were notably centrist and business-friendly. Economic populism only returned to the Democratic mainstream with the Al Gore campaign of 2000, and that may well be why he narrowly and unexpectedly lost to current President George W. Bush.

Sen. Clinton, on the other hand, already has proposed an economically nonsensical but populist idea – a gasoline-tax “holiday” for the peak summer driving season between Memorial Day and Labor Day, to be paid for from the profits of big oil companies. Such a tax change would tend to increase oil consumption, driving up prices, worsening any global warming and benefiting largely the mega-wealthy oil states of the Middle East and Venezuela.

The Sen. John McCain version of this proposal, without the attack on the oil companies, would be a subsidy from U.S. taxpayers to the oil sheiks; the Clinton version is a subsidy from the U.S. oil majors to the oil sheiks. Neither version makes much economic sense.

Obamanomics

Obama shares the Hillary Clinton flaw (from an investor viewpoint) of wanting to increase taxes – including capital gains taxes – at the top end of the scale. However, his healthcare plan would be somewhat cheaper (because it would mandate coverage only for children, not for everybody). And he’s more dovish on the Middle East, which may or may not be good policy, but is certainly likely to save money. On trade, Obama has echoed Clinton in protectionist Pennsylvania, but is believed to be generally more trade-friendly. He has notably failed to endorse the gasoline tax cut, describing it as a “classic Washington gimmick.”

When it comes to policy, then, Obama beats Clinton in investor-friendliness, albeit not by very much.

However, the really difficult question to consider is the current state of the U.S. economy.

In 1993, the U.S. economy was emerging from a recession, with only the federal budget deficit as a major worry. On the positive side of the ledger, there were signs that the economic reforms of the 1980s had made the United States more competitive with the rest of the world. In that situation, government mostly needed to get out of the way and allow the boom to billow, and that’s essentially what President Bill Clinton did.

The 2008 version of the U.S. economy is much less clear. Indeed, the outlook is downright cloudy. Commodity and energy prices are at record levels and are likely to produce substantial consumer price inflation in the months ahead. Interest rates already are at exceptionally low levels – more than two percentage points below the rate of inflation – in order to cope with the U.S. economy’s continued financial crisis.

Housing is in a deep recession, with prices dropping more rapidly than at any time since the early 1930s. The dollar is weaker against other currencies than it has ever been, yet the United States still has a huge balance of payments deficit, suggesting it is less competitive than it should be. Stock prices, which in 1993 were at moderate levels, are today within 10% of their record highs, yet corporate earnings are declining, led largely by the disappearance of earnings from the financial sector.