As we tread swiftly into Convention Season 2008, we should take a look at the complicated issues facing each of the candidates and see how they frame them over the next few weeks. Here are a few:
1. The Economy. The Democrats have been harsh critics of the current economic situation, but many Republicans-no less John McCain-believe that the economy is fundamentally sound. Currently, the second quarter GDP is being corrected to 2.7% annual growth, up from the estimated 1.9%, but this is largely due to more American exports transacted on a weakened dollar. While this itself is a good sign-one recalls Mercantilist David Hume's price-specie flow mechanism, in which exports could remedy an unbalanced money supply-one can wonder if the free trade that allowed for this might start to grind with trade frictions when unoiled with low energy prices. Unemployment is up, consumption is down, consumer confidence is down, inflation is extremely high, the dollar is weak, and domestic demand is weak. The effectiveness of the stimulus checks is still unclear. Given today's divided government, it will be interesting to see how these economic problems and questions are spun, and to see the solutions that the Democrats and the Republicans offer. I hope that, faced with competitive pressures abroad, somebody will talk about education and innovation as the keys to long-term economic growth. But we'll see what happens.
2. Housing and Credit. Housing prices are falling-the Case-Shiller Index, a widely regarded index of housing prices, is down 19% from the peak-and prices are expected to fall another 25-30% over the next few months. The difficulty to secure credit has left the housing sector in crisis, affecting many types of credit, including student loans. Falling prices also affect Americans whose principle investment is their house, and affects owners of mortgage-backed securities at home and abroad. Pay attention at the RNC: one of the accomplishments that Bush and Rove touted for the administration was the number of Americans they put into their own homes. We'll see how the Bush legacy is affected by the housing crisis.
3. Energy Policy. Oil is currently at around $120. Just a few years ago, when oil hung at around $20/barrel (in 2007 dollars, which is about the historical norm), oil exceeding around $30 a barrel would have been outlandish in the short term, since oil markets and politics have worked hard to ensure price stability. Recent technological breakthroughs coupled with high oil prices now make many oil alternatives possible. This threatens a lot of key relationships for the Republican party (the oil lobby, the automotive lobby) so it will be interesting to see how each party's promise of a new, renewable energy future is pitted against entrenched labor (the Democrats have promised 5,000,000 new green jobs) and entrenched capital. Since it may be impossible to reach the target of under 550 ppm under the next few decades (to avoid the worst parts of climate change) without significant cutbacks in American output, decreases in energy intensity, and serious conservation efforts, we need to understand how constituents of each party think about the serious efforts required to transition to this century's energy portfolio.
4. Health Policy. I'm no expert on this (I look forward to reading Ho Tuan's entries on this topic), but spending is getting into the trillions and prone to increase greatly with the Baby Boomers retiring and getting old. It is difficult for ordinary people to conceptualize putting a price on human life, or not wanting the latest and (not necessarily) greatest technologies to diagnose illnesses, no matter what the cost. Given high costs and spotty coverage, healthcare must be rethought.
Solutions to each of these intertwined problems are expensive and difficult. We'll see what each party highlights at the conventions.
