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Friday, November 28, 2008

Defending Sarah Palin

I've written a number of critical posts on Sarah Palin. Nevertheless, I was unprepared for the ferocity of one longtime foreign-born friend's terming Sarah Palin a "dunce" and, otherwise complimentary of McCain, questioning his judgment, diligence and motivation in selecting Sarah Palin, not believing that McCain and his staffers could possibly have failed to see the Sarah Palin of the Gibson and Couric interviews. He suggested that the selection of Sarah Palin was solely based on pandering to the social conservatives/evangelical Christians and John McCain had done this country a disservice by naming someone not well-versed on economic, foreign policy, or military matters, literally a heartbeat away from a 72-year-old President's office.

The Reason for the Selection of Palin

I believe, and still believe, that McCain saw in Palin a younger, female version of himself: someone willing to buck the party leadership (particularly in response to corruption), to provide bipartisan leadership and government reform, and to fuse conservative governing principles with a version of Teddy Roosevelt populism. 

I don't think it was a cynical attempt to exploit Hillary Clinton's voter base based solely on Sarah Palin's shared gender. Hillary Clinton's voting record is virtually identical with Obama's, and John McCain did not believe Clinton's supporters were primarily motivated by gender identity. I do think McCain noticed the way that Hillary Clinton connected with blue-collar voters and thought that Sarah Palin and her union-member husband, also a champion snowmachine driver, and their 5 kids, might connect with Reagan Democrats.

I think Sarah Palin's gender was a positive factor for McCain, but I think it was part and parcel of a bigger concept, reasserting McCain's legendary maverick reputation. McCain totally swerved the Obama campaign, which responded in an uncharacteristically inept and defensive manner.

Not a Dunce

Sarah Palin took on corruption in her home state, bucked her own party chairman and top GOP officials in her home state, including the Attorney General and the Governor, beat the incumbent governor and then defeated the former Democratic governor, despite her only statewide experience being an appointment to the state oil and gas commission and significantly outspent. She won an agreement with energy corporations doing business with the statement to agree to a long-sought natural gas pipeline without the state coffer giveaways of her predecessor, vetoed millions in project spending from the state legislature, got a large energy distribution to citizens, drastically cut back on the number of federal earmarks, had some reform measures enacted and established a bipartisan record as governor. I think McCain was more impressed with her record of performance and political "street smarts", not whether she graduated from an elitist university.

The Interviews

I think, unfortunately, Sarah Palin's own maverick behavior was her undoing. I don't think she liked being handled; she engaged in certain rogue behavior, e.g., the criticism of the campaign's withdrawal from Michigan and an unauthorized early attack on the Bill Ayers connection. I think she felt confident, as a former TV sports anchorwoman and as someone whom beat the odds in her 2006 gubernatorial campaign, that she was up for the Gibson and Couric interviews. 

I don't know if it was an attitude issue in terms of interview preparation, or incompetent preparation or both, but she has the bad habit of what Kathleen Parker calls "filibustering a question"--what I would refer to as repeating parts of the question and engaging in run-on convoluted political spin. The infamous question on the newspapers and magazines she reads in which she remarkably does little more than assure the interviewer that, indeed, Alaskans do read newspapers and magazines (but doesn't list a single concrete publication) was probably the single worst response I've ever heard by any politician on a gimme question. My friend, and probably millions of others, took her evasive response to mean that Sarah Palin doesn't read magazines or newspapers and is ill-informed on national issues.

She later told Fox News reporter Carl Cameron that she felt insulted by the question as implying Alaskans don't have access to the same type of reading materials as other people in the lower 48. But especially as someone who should understand the television medium, she should have been more sensitive about the fact few people would ever see any hidden agenda behind the question. Still, she could have said something like, "Well, of course in Alaska, we have access to the same newspapers and magazines other Americans do. Here are some of the ones I read as time permits: xxxx"

I personally find it enigmatic that Sarah Palin seemed unprepared to respond clearly and concisely to totally predictable questions on the financial bailout, the duties of the Vice President, etc. As a former journalist, she herself should have been able to anticipate many of the questions she received. Second, she desperately needs to edit herself: Be concise ("less is more"); be direct and specific; limit political spin; drop unprofessional gimmicks like winking. Third, she needed to establish her credibility as a potential Chief Executive. One thing is that she lost a lot of credibility by asserting her foreign policy credentials given the proximity of Russia and Canada to Alaska's borders and her military credentials because of an Alaskan Air Force base and being in charge of the Alaskan National Guard. Does she seriously believe those credentials to be comparable John McCain's 22 years in the military and 26 years in the Congress? By making nonsense rationalizations like that, she was undercutting McCain's experience argument.

How would I respond to these types of challenges to my credentials? First, I would point out that a number of governors who became President (FDR, Reagan, Carter, and Clinton) have had limited federal policy experience in the same areas. Second, I would point out that as a governor I have a number of Cabinet officers reporting to me and make a number of decisions about budget priorities and the like. Similarly, I will have experts at the Defense Department and State Department providing input to my policy decisions. Third, I'm a quick study, and I'm being mentored by none other than John McCain himself; here are some of our key objectives for the military and international relations over the next four years:....  The overriding concept is to point out that she is not simply relying to her own gut feeling in making decisions, but to reassure she's going to include the opinions of people with more specialized expertise. And she needed to give reassurance to voters about her prowess as a decisionmaker; for example, she won concessions from the state's energy partners by opening a bidding process.

In short, she needed to establish gravitas as a Veep; the Gibson and Couric interviews did not show her using those interviews to vindicate McCain's selection of a 2-year governor as a prospective President if McCain was to die in office. Social and media conservatives may argue that the interviews were edited "out of context". But the fact is, any credible Veep candidate should be able to compare and contrast the McCain campaign vs. the incumbent administration and vs. the competition. She was clearly not cognizant about the "Bush doctrine", for instance, and despite heroic attempts by other conservatives to find a face-saving explanation, such as the fact Bush has had multiple doctrines during his Presidency, she didn't know which one Charlie Gibson was referring to. The real target of Gibson's question was whether the new administration would handle things like Bush did leading to the liberation of Iraq, or are there lessons learned, e.g., gain more of a commitment from our allies, think twice over nation-building commitments, give the UN inspectors more time, etc.

Perhaps the McCain staffers didn't prepare Sarah Palin properly, but I think the ultimate responsibility was Sarah Palin's. Her responses were often incoherent and devoid of substantive content. She seemed irritated at some of the questions being asked. She didn't seem to know when to stop talking. 

When I was a professor, I sometimes heard the same question being repeated 2 or 3 times during a lecture. I remember in this one case I was reviewing an undergraduate student group giving a presentation whether they had considered a particular option; the response was something to the effect, "Yeah, we thought about that, but considered it to be a stupid idea." I didn't ridicule students in front of their peers. Basically, I realized that if I responded, most students would empathize with the student being attacked. It was also a question of prudence: if answering the same question took less than 10 seconds, why would I want to spend 10 minutes of lecture time reading the student in question the riot act? 

Reportedly, Sarah Palin fumed over the media analyses of her ABC- and CBS-TV interviews. I honestly believe that Sarah Palin was much better informed than the interviews would have led one to believe. But her responses didn't establish her gravitas; she needed to portray a sense of mastery of the basic issues in a confident tone. She needed to go with the flow. She once famously pinched herself and said that that wasn't just baby fat but there was some thick skin there. There were justifiable reasons for Sarah Palin to object to her treatment on the Internet, for example, the speculation about her pregnant daughter Bristol and whether Bristol was, in fact, her youngest sibling Trig's mother. 

But there were times, e.g., the post-election leaks suggesting Sarah Palin didn't know some basic facts, when she blasted the anonymous staffers. A lot of people might applaud her standing up for herself, but ironically she was confirming the speculation of ongoing differences during the campaign between McCain and Palin staffers. Sarah Palin preferred Fox News as a media source with talk show hosts Hannity and Greta Van Susteren totally in the tank for her. For example, Greta Van Susteren, a former practicing attorney, did a post-election interview with Palin in Alaska and started off an interview implying she had talked with Carl Cameron's source for the leak, whom she said admitted under her questioning that the notorious question items were contrived.  I believe that Van Susteren was referring to a conversation to McCain campaign manager Rick Davis, whom admitted that he was not a participant to Sarah Palin's interview or debate preparations but asserted Palin's competence and didn't believe in the rumors. Bill O'Reilly was steamed that Fox News reported the leaks in the first place, insisting that Fox News should have gotten multiple confirmations of the leaks. [Not knowing the context, there are a variety of ways these items could have fleshed out. For instance, on a question regarding NAFTA, she could have limited discussion to bilateral trade between the US and Canada or referenced trade with other countries not party to NAFTA.]

The point is, if Sarah Palin had presented a more substantive image than a series of one-liners and political rhetoric and not flubbed innocuous interview questions (or admit, in the VP candidate debate, that she wasn't going to address the question the moderator Gwin Ifill asked her), these kinds of things wouldn't have an issue. People are fallible and often misspeak.

I personally believe that Sarah Palin is not the "dunce" as my friend, a political independent whom admires Romney and Obama, makes her out to be. This is a woman whom took on corruption head-on and left shattered political careers in her wake, whom won the 2006 gubernatorial primary and general elections as the underdog with limited financial backing. But I think she made a strategic mistake, probably miscalculating that moderates and independents would respond to her style and message which captivated the social conservative base. She needed to show she had a command of economical and foreign policy issues and speak of them with the same confidence she had in discussing domestic energy exploration. Everyone knows that the Alaskan economy is highly dependent on its energy resources; the fact that the Alaskan governor is promoting domestic energy exploration is a given. She needed to talk about things like the twin budget deficits, healthcare, and repairing our international relationships in the aftermath of the Iraq occupation. In terms of being part of a maverick administration, she needed to point out, in concrete terms, how things would be different than under the unpopular incumbent. What kind of reform? Political? Government operations?

Why the Sarah Palin Candidacy Didn't Work

I have written a long post on why McCain lost; a lot of it dealt with a lot of factors beyond his control, principally the economic tsunami and the unprecedentedly low approval ratings of the GOP incumbent. His wounds were in part self-inflicted, e.g.,  his self-admission that he needed to know more about economics;  his use of class warfare rhetoric leading up to his vote against the 2001 tax bill; his agreement to accept federal financing, knowing that Obama had abandoned his pledge to do the same and ability to raise multiple times that and use the surplus to buy market share in battleground and other states; and  his decision to suspend his campaign during the period leading to the financial bailout legislation. He failed to capitalize off public discontent with the federal bailout and with the previous year's immigration reform moves. He also backed off any discussion regarding the disconnect between Obama's inclusive political philosophy with his 20-year connection with an Afrocentric church, with a pastor engaging in racially-divisive rhetoric and controversial guest speakers and Obama's pandering to the center during the general election campaign in contrast to his voting record. In order to distinguish himself from Bush, he needed to do more than do some window-dressing and repackaging of Bush's partially-privitized social security and general tax-advantaged basis for health care insurance, including taxpayers not enrolled in an employer plan.

However, the Palin selection itself merits closer attention. First, although issues like political corruption and bipartisanship are important, it's not clear what a maverick team would do; it needs to work through the GOP leadership in the House and Senate, not against them. What McCain needed to reaffirm was his market-based approach to the economy and the willingness to be flexible, with all options on the table, with the opposition. Second, the elephant in the room is entitlement spending, not earmarks.

One of the things McCain really needed to grasp was the concept of change. Bush was the first MBA President, a highly popular Texas governor with a bipartisan record there. He basically promised a government of competence, inclusion, and fiscal responsibility.  Instead, he expanded Medicare prescription benefits without proper funding, nominated Texas cronies to positions beyond the level of their competence, sparingly used the veto in controlling, even under a GOP-led Congress, record operational deficits, botched the federal government's handling of the Hurricane Katrina, and found himself getting bogged down in Iraq sectarian violence after the liberation of Iraq with blunders like disassembling the Iraqi army and staffing the military occupation below a stabilizing footprint.

In addition, we witnessed a housing bubble in large part funded by cheap money from the Fed Reserve; the President and Congress only paid passing lip service as home prices escalated beyond the prospective incomes for many homebuyers and lenders invented risky vehicles like option ARM's to get less financially secure buyers into the market, forcing home prices higher. Fannie Mae and Freddie Mac continued their increasing dominance of the US home mortgage market (and increasing vulnerability of the US government because of those GSE activities). More troubling, we found the market for poorly-understood and unregulated derivatives and swaps explode to hundreds of trillions of dollars, which was a nightmare waiting to happen.

Romney would have been the best of the name candidates in the sense he understands the capital markets, he was able to reorganize the Salt Lake City Winter Olympics games, he knows the lessons learned from Massachusetts health care initiative, and he's had to work with a Democratic legislature. He was well-vetted; he had no federal experience, but no one ever had any issues with his gravitas. Romney was very popular with the media conservatives. He had some principal weaknesses: his negative campaigning against Huckabee and McCain had alienated a number of Republicans; moderates and independence saw some position changes (abortion and immigration) as politically expedient; and his Mormon religion caused issues with certain Christian evangelicals.

This seems like Monday morning quarterbacking because when McCain made his selection, he didn't realize an economic tsunami was about to hit. But whereas reform was a significant issue in the 2006 campaign, Obama was running a campaign based on class warfare,  jobs, and similar economic issues. Sarah Palin had a very limited appeal in that regard; she had some exposure to domestic oil and gas exploration and production, but two years as the governor of a small (population-wise) state with an economy largely based on energy production, fisheries, etc., had limited appeal.

The Future of Governor Palin

I think Sarah Palin has turned in a credible record as an Alaska governor; I expect the global recession, which has triggered a step decrease in energy prices since July,  may affect her 80% approval rating as state revenues decline and she faces unpopular decisions. 

However, I do not think she will be a viable candidate on the national front. Some polls, including Rasmussen, seem to be encouraging, but for example, an October 24 Newsweek poll showed her unfavorable rating exceeding her favorable, even though her likeability exceeded 70%. Her unfavorability rating exceeded any VP candidate (including Quayle) over the past 50 years. The poll asked Republicans/leaning if McCain was not elected, who they would be likely to support among listed candidates: Romney 35, Huckabee 26, Palin 20.

It's difficult to know how things will be in 2012. A lot depends on whether Democrats overplay their hand controlling both the legislative and executive branches of government, not to mention the ongoing economic crisis. Recessions typically don't last that long, although the Japanese never did bounce back from their own real estate bubble crash. Will the Democrats try to pass a wishlist of spending initiatives? What about overdue fixes for chronic Medicare and social security funding issues? What steps, if any, will the Democrats take to make progress on the twin deficits? What will Obama do to encourage investment in America to create jobs, not in the public sector, but in the private sector?

My guess (hope) is that that the Republicans in 2012 will be focusing on its roots of fiscal conservativism, a pro-growth economic strategy, and smarter government problem resolution perhaps inspired by creative state-based innovative solutions. I also see the need for projecting a more positive campaign focused more on conservative ideals than on political bickering and personal attacks. My guess is that we will probably see Mitt Romney and Bobby Jindal and perhaps some surprises along the way, e.g., if Gen. Petraeus decided to retire and run for office.

How does Sarah Palin fit in the scenario? It's difficult to say. I do not think the Gibson and Couric interviews were a fair reflection of Sarah Palin's knowledge and executive competence. But she has to accept responsibility for the performance she gave; it wasn't gotcha questioning or editing. She is not a novice politician; she knew the risks of coming to an interview unprepared, she knew she might be asked questions she did not like, and as a former television sports anchor, she understood the need to be brief and to get her points across effectively to her target audience. For example, if she felt insulted by the question about how she keeps up with current events, she was hurting no one but herself and the McCain campaign with a passive-aggressive response. For many or most people, like my foreign-born friend, Sarah Palin will not get a second chance to make a good impression. And I suspect many or most voters won't be keeping up with what Sarah Palin is doing in Alaska, although there are rumors of a multi-million dollar book contract and reports that media outlets (including the Oprah show) are lining up for her to make appearances. And there's no doubt she could still pick up some political IOU's from, for example, Georgia US Senator Chambliss facing an upcoming runoff.

Monday, November 24, 2008

Don't Be Fooled by Cooling Energy Prices

Remember the heady days of September when the chant at Sarah Palin rallies was "Drill, baby, drill"? Even Obama seemed to be wavering from his "car tuneup" energy policy as he viewed strong public support for offshore oil drilling. Then there was a so-called bipartisan initiative where they might allow, upon state approval, at least 100 miles offshore, certain limited drilling. In an era where drilling is going on off Cuba's shores, this was patently insufficient. But ever since gasoline prices have been retreating from over $4/gallon to around $1.77/gallon (yesterday near my Safeway store). 

You need no further proof of upcoming Obama administrative incompetence than the leaked plan to quickly repeal Bush's recent executive order opening up offshore areas to oil exploration. Now the Obama folks will want to tell you that with Obama's $150B investment in alternate energy, we are going to be off dependence on Middle East oil (note that's only a fraction of our oil imports, which of course they don't say). And when we're facing $200/barrel oil, are we going to hear the same liberal/Obama song and dance about a 10-year lead time on getting domestic oil to market? Are you kidding me?

The burden of proof is for Obama and his cronies to explain exactly how government intervention with respect to alternative energy is necessary given the natural market incentive of high prices for fossil fuels. Time-to-market doesn't just apply to offshore oil production; we also need to consider legacy infrastructure (e.g., a quarter billion personally-owned vehicles, most of which are gasoline-fueled, fuel outlets, etc.) and certain inherent restrictions (e.g., solar and wind power generation are constrained by weather conditions and we don't have scalable, inexpensive battery storage to store it). Nevertheless, I believe that Obama is underestimating time-to-market of certain creative destruction technologies (e.g., very large scale battery storage capacity for weather-dependent energy production) and market-distorting effects of government intervention in the energy markets and picking winners and losers in the marketplace.

Some Steps Towards a Coherent Energy Policy

--Use Government Purchasing Power to Promote Energy Independence

For example, offer multi-year contracts to supply solar panels for government buildings and public housing. Require flex-fuel and hybrid/electric and/or compressed natural gas technology in government-owned passenger vehicles. Require government vehicle refueling at stations providing E85, compressed natural gas, or other fuel alternatives.

--Displace Use of Foreign Fossil Fuels with Domestic Fossil Fuels

We are increasingly importing most of our oil, while existing domestic fields continue to mature and dwindle. Our economic dependence on foreign oil is a national security issue. Whereas we need to engage in better conservation and develop fossil fuel independence, in the short term, we have an enormous infrastructure of vehicles and home heating dependent on fossil fuels. We need to aggressively explore and develop new fossil fuel sources and set aside various regulatory and/or legal hoops (e.g., environmental impact studies), including offshore, oil shale, etc. Despite the current respite from this past summer's peak prices, a global recovery is just a matter of time. We cannot delay investment until after we're back to $150/barrel.

The US government should seed the building of a couple of coal-to-liquid refineries (convenient to our abundant mining sources), welcoming industry investments, just as Sasol (South Africa) has agreed to help construct in China. Pickens has already outlined a conceptually similar approach where he talks about substituting wind or solar power to natural gas electricity generation and using compressed natural gas for vehicles.

--Aggressive Buildout of Nuclear Power Plants

--Subsidize (Means-Tested) Loans for Lower-Income Households

Provide means-based vouchers/discounts for replacing or converting primary household vehicles with alternative source, older energy-inefficient appliances, solar paneling or other energy-saving technologies

--Provide a Floor Price for Oil

Some economists have suggested establishing a floor price for oil (e.g., $100/barrel) to allow for substitute energy alternatives to emerge as a viable business.  For instance, if the market price of oil was $67, the government would essentially charge a surcharge tax of about $33/barrel. 

--Capacity First, Regulation/Control Second

Richard Nolan in the MIS literature promoted an S-shaped curve in terms of describing a stage hypothesis for managing the computer resource. The basic idea is to first establish the effective deployment of computer technology, minimizing the management footprint or rules and regulations which would get in the way of resource utilization. Once you reach a critical mass adoption, you start imposing various controls to encourage efficiencies.

I worked for a market research firm specializing in statistical modeling of customer data. They discovered that they could get a payback from converting their mainframe applications to Sun Microsystems boxes within 6 months. Prior DBA's and developers had been given full privileges to do whatever it took to get the applications migrated. The company discovered that the technical staff was devouring hundreds of gigabytes of storage, contracted data loads were not scheduled as required, and they were running into disk procurement and cost issues; I was tasked with management and control of the key production databases. 

In a similar manner, I would argue that the key issue is energy independence. Now green power advocates also discuss energy independence, but after 40 years, we are seeing single-digit percentage production of current energy consumption. I'm not underestimating the potential impact of flex-fuel/hybrid/electric cars, new nuclear power plant impact, etc., but, for example there are vehicle production constraints and a huge number of legacy cars to turnover. We cannot grow enough corn to put all vehicles on E85, and the energy yield on corn-based ethanol is low. The point is, current domestic oil production is on the decline, and we need new oil finds and production, if for no other reason than to defer the need for even higher foreign oil imports. The Democrats and their environmentalist allies have created barriers to finding additional domestic supplies--barriers we don't see for China, Brazil and other large oil consumers.

Conclusion

Obama's campaign responses to energy resource shortfalls--e.g., keep your car tires inflated and your car tuned up; lower the thermostat and wear sweaters--are short-term tactics, not long-term strategy. It's time for the Democrats to come up with realistic market-based solutions, not snake-oil hype of alternative energy/fuels. It is simply not viable to say "stop the use of fossil fuels". I understand the motivation and the goal; I'm not arguing that we can maintain an indefinite dependence on a resource for which we have no hope of ever being self-sufficient under current utilization patterns. For years, the American automakers have been in a state of denial, dragging their feet on Corporate Average Fuel Economy standards, while focusing on production of heavier, fuel-thirsty models like SUV's and trucks. They skipped a first-generation hybrid competitive response to the Prius, GM gambling on the Volt. 

Obviously conservation is important: bikeriding short distances, park and ride, public transit, carpooling, telecommuting, etc. Fuel extenders (e.g., ethanol), multi-fuel capability, synthetic or alternative fuels using more abundant domestic fossil fuels (e.g., coal-to-liquid, compressed natural gas). We need to find more scalable, more energy-yielding approaches to biofuels (e.g., bypassing starch-to-sugar conversion). We need to adopt carbon-filtering technologies for coal power plants, but provide a more market-based, flexible, realistic approach.

Draconian changes in energy utilization are not feasible. In the meanwhile, we cannot basically shoot ourselves in the foot by refusing to further develop domestic supplies and the relevant jobs those would bring to our economy and increasing our dependence on foreign energy suppliers. More importantly, we cannot allow falling oil and energy prices, an artifact of a global recession, reignite public demand in  fuel-inefficient vehicles and lapses in hard-achieved gains in energy conservation.

Friday, November 21, 2008

Miscellany: 11/21/08

O'Reilly's Criticism of McCain: Post-Election Palin Defense

To the reader of my posts, my position on Sarah Palin is clear: she is not qualified to be President of the United States. After the election, there were allegations leaked by unnamed sources in the McCain campaign, suggesting she did not know some basic facts in geography, membership of NAFTA, etc., as well as diva behavior and some clothing purchase binges. These have been widely criticized as "smears" and "sexist", and others have impugned the integrity of the leaks, noting their anonymous nature. In particular, Bill O'Reilly had the audacity for attacking McCain for not coming publicly out to support Palin until a week after the election.

It never ceases to amaze me how O'Reilly makes much ado about nothing. Typically losing Presidential candidates take a low profile after conceding an election. McCain had had an unreal travel schedule over the last several days of the campaign, including the unusual step of campaigning on election day itself. After his gracious election concession speech, he probably took a few days off to rest, not wanting to distract attention from the new President-elect. I think the Tonight Show a week later was his first public appearance. McCain was gracious to Sarah Palin in his concession speech, noting she was part of the future of the Republican Party, and took full responsibility for the loss. He said more or less the same thing at the Tonight Show. He basically dismissed the post-election kerfuffle as the sort of thing that happens in a losing campaign. I seriously doubt he could address the specific allegations, because he himself was probably not present at the events in question.

I don't know why O'Reilly thought McCain should have made an earlier public statement. It's reasonable that the allegations were true. The diva characterization was ironically confirmed by Sarah Palin's own response, which was to personally attack the unnamed sources. [A more typical political response would have been "You know, I'm not going to dignity that with a response." ] She had also told Carl Cameron that the reason she didn't answer Katie Couric's question more directly about the newspapers and magazines she read was because she saw the question as an implicit anti-Alaskan putdown. I don't know what's worse--filibustering a question on newspapers and magazines or getting paranoid over the motives behind an innocent question designed to get at what the governor does to keep up with current events. And then, of course, during the VP debate, she openly acknowledged she was going to address the point she wanted to talk about, not necessarily the moderator's question. It's difficult not to read a certain arrogance into that observation (without precedence in my memory).

 We know that the McCain campaign postponed access of Palin to the press for some time after the GOP convention. There's only one rationale for that: Palin was not ready. That's not an unfair assessment; she had just given birth and had 4 kids already in school; she was a busy governor. She seemed to be a long shot, particularly after Troopergate surfaced. Of course, she had to learn John McCain's positions on the issues. But all VP candidates go through the same, and even given the fact that the choice and convention were unusually late, it was clear that there were more serious preparation issues. We didn't know what the nature and extent of those issues were. What we know is that the McCain campaign was in a catch-22: an unprepared Palin would devastate the campaign and McCain's judgment in selecting her; the longer the gap in a conventional news interview, the bigger the red flag and the effort by the national media to probe the largely unknown governor in their zeal for an exclusive. 

I don't think the press was being unfair, in the sense Obama had largely bypassed the same type of probing by choosing an ultimate insider, a 36-year senator and twice national candidate. I do consider it odd in the sense the press treated her like a right-wing nutjob, with a lot of questions related to God, abortion, and guns; this is a woman with then an 80% approval rating, liberal positions on make-work public infrastructure projects, windfall profits taxes and alternative fuels, and a bipartisan record with the Alaskan legislature.  That's why I find it ironic that Governor Sarah Palin became the poster girl for the media conservatives like Limbaugh, Hannity, Ingraham and Malkin. You have to wonder if they themselves really understand the person they're defending, if they've done due diligence. I think that the facts that the liberals' initial response to the surprise selection of Palin was so over the top, Palin's decision to forego eugenic abortion in carrying a Down syndrome child to birth, and Palin's role in delivering red-meat rhetoric, e.g., Obama's "palling around with terrorists" (i.e., Ayers) have led them to close ranks around Palin.

It was Sarah Palin whom created the so-called "female Dan Quayle" image for herself, not even able to handle the simplest questions, inspiring Tina Fey on her devastating Palin mimicry on SNL. In fact, Jack Colwell bristles at the "pretty-boy, can't-spell-potato" Dan Quayle comparison: "I know Dan Quayle. Dan Quayle is a friend of mine. And Sarah Palin is no Dan Quayle." Colwell points out that Quayle beat two well-established Democratic incumbents, Rep. Ed Roush and Sen. Birch Bayh, in a 12-year federal legislative career prior to his VP selection. Sarah Palin made much of her administrative experience advantage over Obama and Biden; it's a lot easier being a governor with state coffers brimming with $140/barrel oil-based revenues. It's about to become a lot tougher with global recessionary drops in oil prices and Alaskan Democrats bitter over the governor's partisan role in the national campaign. And let's not forget after Dan Quayle announced for the 2000 Presidential race, despite his appeal to the media conservatives, he finished only eighth in the 1999 Ames straw poll and withdrew.

Were the allegations of whether Palin knew the countries in NAFTA, whether Africa was a continent, etc. "smears" or "sexist"? I don't think so (the very allegation of a "female Dan Quayle" seems to disprove "sexist" allegations). First of all, you have to deal with the fact that Palin's performances during the Gibson and Couric interviews were abysmal: not the result of unfair questions or poor preparation by the McCain campaign staff. And I'm not even talking about her gulliblity in the phony Sarkozy interview. It's difficult to know (unless the leaks recorded events) what questions and answers were given during preparation and impossible to prove a negative. But given Palin's public unforced errors, including her invalid job description of the VP position to a third-grade class recorded in late October, it's hard to argue that the alleged leaked items are inconceivable given her other performances.

Second, O'Reilly failed to do due diligence on the story. There were rumors reported in the press at least 10 days before the election of in-fighting and leaks between the candidates' staffs, including the termination and subsequent reinstatement (by McCain) of a Palin staff operative. There had been issues of Palin going rogue, e.g., her criticism of the McCain campaign withdrawing from Michigan and her preemptive attack on the Obama-Ayers connection before campaign signoff. And there's absolutely no doubt that the choice of Palin became a problem with moderates and independents (specifically Colin Powell) after initial favorability based on her performance with prepared speeches. McCain's drop in the polls seemed to correspond to Palin's dropping favorability ratings. Sarah Palin became John McCain's Harriet Miers. Initially, though, McCain's selection completely swerved the Obama campaign, and they overreacted, to the benefit of the McCain campaign.  

What it all boiled down to was Sarah Palin's selfishness. Her credibility was done after the Couric interview. There was no going back. Some conservatives argue she "won" the VP debate and pointed out Biden had made about a dozen factual errors during the debate. Perhaps, but John McCain's running mate misidentified the commander in Afghanistan, calling McKiernan McClelland, Biden constantly had Palin on the defensive, unable or unwilling to return serve, and Palin openly disregarded the moderator's questions at times and used her debate time to use as a soapbox. The only good thing about her performance is that I was fearing a reprise of the Couric interview performance in front of a nationwide audience (I suspect a large number of the TV audience was tuning in to see whether Palin would crash-and-burn). But McCain was in a tough spot: If he took Palin off the ticket, he risked outrage from the media conservative base and criticism of his own decisionmaking process. If he didn't take her off, it would hurt him in the battleground states. It was up to Palin to let him off the hook; she could have resigned, rationalizing the demands of her family life, Troopergate, some Alaska state business, etc. But clearly she has national ambitions, and she noticed the large crowds and large television audiences.

But for O'Reilly to take a cheap shot at McCain because some campaign squabbling went into overtime? McCain is no idiot; he knows that Palin caused the campaign irreparable damage with her unscripted performances. He knows that his own age was an issue with a significant percentage of voters, which amplified the Palin problem. But he has never, to the best of my knowledge, said a negative or critical thing about Sarah Palin. What is he going to do: say that the specific events never happened? Did he attend Palin's briefing and practice sessions? What we know--from O'Reilly himself--is the campaign insisted on McCain making a joint appearance with Palin if she was going to be interviewed on the O'Reilly Factor; O'Reilly himself said he wouldn't accommodate that condition. We know that interview with Brian Williams was a joint one. We know she didn't appear on the Sunday morning national talk shows. There's a reason the campaign turned down all those appearances, which would reach a good number of voters: the McCain campaign assessed there was an unacceptable downside risk. She was good at scripted performances like campaign rallies.

The one insight O'Reilly was spot on was that a number of Republicans want nothing to do with Palin in a national leadership position because she proved herself not smart enough to deal with the responsibilities of the Presidency. It was embarrassing to hear this woman try to argue foreign policy experience, based on (nonexistent) trade missions with Russia, and defense policy because of military bases in Alaska and her oversight of the Alaska National Guard. (I know how I would have approached those questions which is beyond the scope of this post, but the worst thing you can do in this situation is to unrealistically hype some incidental fact, which Tina Fey famously parodied on SNL: "I can see Russia from my house!") Republicans have often extolled the virtues of competence in the private sector; it has been painful to see the first MBA President of the United States nominate Texas cronies like Harriet Miers to the Supreme Court and Alberto Gonzales as Attorney General, not to mention the absolute incompetence of the early occupation of post-liberation Iraq and the post-Katrina disaster in New Orleans. I know McCain was drawn to Palin primarily because he saw her as a kindred spirit against government corruption and as a bipartisan leader. I do not know what, if anything was done to assess her ability to deal with a crisis on the fly. The reason this is an issue is not so much she would accidentally hit the red button while in the Oval Office but that certain strong personalities not on the ballot would manipulate a weak President.

In terms of the point of handling a crisis, Palin's handling of Troopergate (which she calls "Tasergate", referencing the allegation her former state trooper brother-in-law tasered his 10-year-old stepson) was not promising. She did not seem to understand a potential conflict of interest regarding the fact the Commissioner of Public Safety reports to her. When her spouse Todd Palin obsessively started lobbying, even from state offices as an unelected official, high-level CPS officials trying to get action on Trooper Wooten, he had crossed the line. Sarah Palin simply responded by pointing out he's a citizen of Alaska, allowed to raise issues with CPS. There were non-Troopergate substantive reasons to fire Monegan, whom served at the pleasure of Palin. However, it's ironic that a reformer like Sarah Palin would not have been more sensitive to the impropriety of her husband's actions; it doesn't reflect well on her judgment. The email she sent on to Monegan on a legislator's gun bill was also an ill-advised, thinly-veiled attempt to raise the Wooten issue.  These things gave Monegan the opening he needed to attack Palin and deflect attention from his own rogue behavior.

TV Series "Boston Legal" Still McCain-Bashing

The one of the side plots to last Monday's episode had lead protagonist Alan Shore and senior partner Shirley Schmidt, both hardcore liberal Obama voters, defending an unlikely character, a woman whom claims that she was fired for voting for McCain. (I initially thought that the character, with a large bust and a plunging neckline, was going to argue sexual harassment.) The assistant's former boss agrees to see Shore, notes that she was hired "at will" (meaning he doesn't have to give a reason for termination), but dismisses the allegation, noting that he himself voted for McCain for more substantive reasons (his aggressive standpoint on nuclear plant buildout); he claims that he fired the woman for being stupid. It turns out that she was a former Clinton supporter whom voiced to the boss that she wanted to vote for McCain because he chose Palin as a running mate. The boss does not respect her rationale. Denny Crane is out of town, so Shore invites Schmidt up for his usual end-of-day balcony small talk. 

The topic of the evening is how in the world was it possible for McCain to have gotten as high as 46% of the national vote. They can't imagine how gullible McCain supporters were and all the alleged irrational reasons voters had for voting for him. Isn't it obvious that the economic and foreign policies over the past 8 have not worked and a vote for McCain was a continuation of the same?

I'm not going to endlessly reargue the 2008 election, but that's a rather frivolous characterization. The issue was not a change in leadership, but the type of change. In one case, you have a first-term US Senator with a minimal record of legislative accomplishments, no substantive defense or foreign policy credentials and no business or administrative experience or credentials on economics issues. In the other case, you have a proven reformer and bipartisan leader, someone whom has openly challenges the President of his own party and whose judgment has proven prescient on key military/foreign policy issues like Iraq and the Russian invasion of Georgia.

Obama made a number of position shifts or nuances during the general campaign vs. the Democratic primary season that it's all but impossible to pin him down. Let's take energy. He has given heavily nuanced positions in terms of nuclear power plants, clean coal and oil drilling. He seems to be willing to accept high energy prices to economically compel consumers to conserve more, something that would seriously affect discretionary spending by lower- and middle-income taxpayers. Despite plentiful coal reserves (and giving lip service to clean coal), Obama made the following troubling comment in the campaign in reference to his cap-and-trade initiative: "So if somebody wants to build a coal-powered plant, they can; it's just that it will bankrupt them because they're going to be charged a huge sum for all that greenhouse gas that's being emitted." According to the National Center for Policy Analysis, Europe has had mixed results with its own cap-and-trade proposal, including difficulties in setting baselines and relevant lobbyist influence, domestic customers looking for foreign suppliers unencumbered by expensive emissions control costs to pass along, significantly higher utility costs, and inefficient energy generation. But, more to the point of lowering aggregate contaminants, one could focus on an aggressive expansion of nuclear power plants with zero carbon emissions. The basic problem is when you have to jump through Obama's regulatory hoops (with nuclear power, it's his hesitation on nuclear waste storage); you end up running to problems on meeting capacity like California did, when they suffered from a number of related brownouts a few years back given the dearth of new power plants to accommodate Californian growth during the 1990's.

My concern is that Obama wants to adopt a social welfare net consistent with European-style socialism where employment is sticky high because of high barriers to reducing labor in accommodating market conditions; FDR's New Deal and LBJ's Great Society have had mixed results (in jumpstarting the economy from the Great Depression and in resolving underlying social problems like poor urban neighborhoods), and Obama's "fixes" may introduce moral hazards and trigger the law of unintended consequences. Macroeconomic consequences often take months to surface. So we might find that Obama's decision to do something may actually result in the risk of an even worse problem; I'm particularly concerned with the impact of raising investment and income taxes on the higher income, which may restrict capital needed to fund economic expansion--and meaningful job growth.

I have a liberal accounting professor friend whom said he wasn't adverse to paying a little extra at a fast food place so workers could have a so-called "living wage". The problem is that fast food sales are impacted by price, which is why many fast food places promote bargain-item and combo-deal menus. Wages at the low-skill level naturally rise primarily as a result of greater labor demand, e.g., as a result of business growth.

Hillary Clinton as Secretary of State and other Obama Picks

After Obama made much ado about turning the page on a generation of either (or both) a Bush or a Clinton on a national ticket, Obama is making a number of choices that seem to be a reprise of the Clinton administration and/or its policies: Eric Holder as Attorney General, Bill Richardson as Commerce Secretary, former Clinton era Senate Minority Leader Tom Daschle as Health Human Services Secretary, Rahm Emanuel as Chief of Staff, John Podesta as Transition Chief, Ron Klain as Biden's Chief of Staff--and looming in the wings, the imminent appointment of Hillary Clinton as Secretary of State, whom undoubtedly will be looking forward to her next visit to Bosnia. With about two-thirds of his new appointments from the Clinton era, one must be wondering how this constitutes "change". In addition, it looks like Obama intends to cherrypick Democratic governors, e.g., in addition to New Mexico's Richardson, he has also picked Arizona's Napolitano.

I tend to read the appointment of Clinton in cynical terms: I believe it is a political attempt to coopt his potential chief rival for reelection. Personally, I don't understand why Hillary Clinton would want to give up a safe Senate seat to report to a person she clearly considered to be an inferior candidate. She could easily oust Harry Reid as Senate Majority Leader and exercise real power in the Senate--and if Barack Obama turned out to be another Jimmy Carter, challenge him in 2012. It's very difficult to see how she could do that working for Obama. It's even more puzzling when you consider he made Hillary Clinton's position on the decision to authorize the liberation of Iraq a major primary campaign issue. Still, it will be amusing to speculate on how she would be received on her next state visit to Bosnia.

Monday, November 17, 2008

Time for an Intervention: Bankruptcy for Automakers

When I try to diet while on business travel, I get very frustrated by the fact, say, I can't go to a McDonald's and order, say,  grass-fed hamburger on a whole wheat bun with lowfat cheese, a side salad with olive oil dressing, and bottled/filtered water. Basically the fast food restaurants will inevitably tell you that their customers don't come to them for healthy food; they are simply serving the consistent quality carb-heavy, high-fat, high-sodium food their customers demand. (And, as you may recall, they rejigger their salad entrees, and their same-store sales explode higher. In other words, they just weren't providing the product in an attractive package to the right audience.) 

The American automaker and its unions have been running into a collision course with themselves. I am saying this as someone whom has bought exclusively American models all his life. A female Navy officer and friend with whom I worked at a training program in Orlando had a gorgeous black Mustang. A brother-in-law swears by Corvettes. Frank, an analyst who worked with me in an auto property actuary division while I worked on an end user support team writing programs in an obscure computer language called APL, swore by Cadillacs, insisting if I read bodily injury statistics with smaller cars, I would never drive in anything else.  My uncle who is a retired priest loves to drive Lincoln models. Others had tastes for foreign brands; my best friend in the Navy (who married the Mustang owner) couldn't stop talking up Saabs. My middle brother insists on Volvos, primarily for safety engineering. I'm not quite as impressed by fancy cars like many (if not most) guys, but I had a boss in 1998-1999 whom had committed to leasing a Mercedes as a perk to a manager whom he later fired. He decided to let me drive the Mercedes rather than rent a car on my trips to Baltimore. I never truly had a driving experience quite like the Mercedes; it felt as if I was driving on clouds.

What I remember from game shows in the late 60's and early 70's is that already Asian automakers were excelling at small, cheap, reliable fuel-efficient models (I remember some game shows awarding not just 1 but 2 relevant cars.) And it seemed like Detroit's reaction was to shrug its shoulders, note that the profit margins on these car models were so small, they preferred to focus on higher-margin mid-size and full-size cars, SUV's, and trucks. After all, if the Japanese and the Koreans could learn to build a quality small car, they couldn't figure out how to build a quality upscale model to compete for that higher margin, could they?

Then came the 80's, as Japanese companies, which had taken to heart Deming's concepts of total quality management, challenged American automakers as never before, as Detroit scrambled to match reliability standards. A number of American schools started offering Japanese as a foreign language. The Japanese had an interesting variation on quality that went beyond reliability and performance: unexpected quality. It's something that adds to the perceived value of a transaction over and beyond the buyer's intrinsic purchase factors and expectations. For example, you have decided to purchase a compact primarily for fuel-efficiency and price, and you discover after the purchase decision that the car comes with an all-leather interior.  

When I purchased my current vehicle (an Oldsmobile model), I agreed to a standard maintenance package which included oil changes at GM dealers. (What I should have considered before agreeing to that is that every dealership service department I've dealt with does not offer extended hour or weekend service.) At the California dealership which sold me the car, I received fairly typical oil change services, but when I moved to Buffalo Grove, IL, I got my services at a dealership (I think in Libertyville)  which pleasantly surprised me by doing a car wash after the oil change before returning the car to me. The unexpected nice touch (I hadn't even purchased my car there) was something that left me positively predisposed to shopping for my next vehicle there (had I remained in Illinois). However, there was no special treatment after I moved to Maryland; in fact, I got turned down for an oil change after 3000 miles near the end of my contract when my service plan was audited and they discovered I had come in a little earlier than usual for a prior change. I've taken my oil change business elsewhere.

Anyway, the domestic auto industry played games with mileage standards, insisting they were simply building what the American consumer wanted: gas-guzzling SUV's, trucks, and sports vehicles. Meanwhile, cheaper, more reliable domestic oilfields have matured and are now falling off, while an alliance of Democrats and environmentalists have hamstrung, for purely ideological reasons, domestic energy exploration and production. The US in the meanwhile finds itself buying 60% (and climbing) of its oil from foreign suppliers, some of which themselves are facing declining production; China and Indonesia, like the US former oil exporters, are now net purchasers of oil. One of the bad things about the global recession, which has resulted in a sharp correction of oil prices, is that American consumers may think $4/gallon gasoline was just a bad dream. We are still with a rapidly expanding global middle class, only a fraction of which own a car. The recently announced public works investment/ domestic stimulus program in China includes expansion of highways; you build highways on the prospects of vehicle traffic, largely based on fossil fuels.

Ironically, whereas on one hand you had a Democratic Party constituency very devoted to conservation, including acceptance of high, regressive energy prices/carbon-based taxes as a necessary means to that end, you have auto union members, desperate to retain a globally uncompetitive pay/benefit package, including cash flow-zapping early retirement gold-plated medical insurance, willing to support management's strategic dependence on higher-margin gas-guzzling SUV's, trucks, and utility vehicles.  From a globally competitive standpoint, you see that's an industry bankruptcy waiting to happen, even under more optimal conditions: all global consumers face a growing competition for increasingly limited exported energy supplies. If middle-class Americans have problems affording $4/gallon gasoline, how can other global consumers deal with high fuel costs to operate these cars? Second, with a growing number of global suppliers, higher gas-guzzling imports will drive down any margins, in part given the fact they have lower costs (in particular, labor/retiree) to compete in a price war. 

I started noticing a glut of SUV's on business travel over the past year, well before we were seeing $4/gallon last July. For example, I would reserve a compact car, and I found a more aggressive than usual offer to upgrade at a modestly higher rate. I would hold them to my reservation and then find out that they had rented the last compact out from under me and handed me the keys to an SUV. In the case of National Car, which had a preferred vendor status under my former employer, there is a unique Emerald Club Emerald Aisle concept whereby you are free to pick among any of the available vehicles for a fixed rental cost (instead of being assigned to a specific vehicle). I would notice anecdotally that fellow renters (as well as myself) would gravitate to whatever compacts or mid-sizes were available, ignoring SUV's (but I often had no alternative but to choose an SUV).

This is not to say that the carmakers don't seem to have some glimmer of understanding; GM has been promoting a number of  higher-mileage models and has been aggressively pushing for a 2010 introduction of the Chevy Volt, an electric car model (with gasoline-powered extended range, beyond a target 40-mile roundtrip commute via lithium ion battery). [For most homeowners, this technology would be a no-brainer. I'm more intrigued by the logistics of electrical outlets for open-air parking facilities, apartment dwellers, etc.] But the big story is something like a quarter billion vehicles, and even if Obama reaches his target goal of 1 million electric cars, that's less than 1% of the total number of vehicles in the US--a drop in the bucket. When we're talking about a 60% shortfall in crude oil utilization with the status quo, even a million vehicles is not material. If you go out to their website and look at alternatives like flex-fuel and hybrids, you'll see there's a scalability issue (e.g., limited vehicle production availability) and whereas they do promote a couple of mid-size options (e.g., the Malibu), a lot of what they're promoting are hybrids/flex-fuels for heavy models like SUV's and trucks, where they boast EPA mileage of up to 21 mpg. And for better-mileage mid-sizes, you are looking at list prices near $30K. When you have higher-mileage cars outside the US market targeting a price point near $10K, the only way the American automakers can survive in the global market is to outsource production.

Detroit claims it has won some labor concessions which will help out in a couple of years without dumping its pension obligations, retiree benefits, etc., on the American taxpayer. They say bankruptcy is not an option: they claim that buyers will abandon purchasing durable goods, like cars, without viable, long-term service and parts behind them. They note that we are dealing with upscale financing beyond a cookie-cutter bankruptcy. They also "worry" about the dealership, parts manufacturers, and all the vendors that plug into the Big Three and suggest that the US economy is flirting with a death wish in abandoning the auto industry.

Paleoconservatives, like Pat Buchanan, long known for advocating trade protectionism, naturally side with Detroit in this manner. But this flies in the face of classical economic liberalism. Protectionism simply enables companies to maintain artificially high prices at the expense of consumers as a whole and constitutes the government picking winners and losers in the marketplace. As a lower-carb dieter, I reluctantly use this example, but given the highly-protected sugar industry, businesses like bakeries and candy producers have to pass along their costs to their customers and may find their export markets limited, if not by cost than perhaps by retaliatory trade restrictions.

There is no doubt that the ongoing economic tsunami has created a serious structural problem where all retailers, even financially stronger ones like WalMart, are facing the biggest challenge in decades. Consumer spending accounts for two-thirds of our economy; we are among the lowest net saver economies, and the credit card industry itself is beginning to wobble as unemployment climbs and many consumers struggling to keep up with mounting bills. We could see a vicious circle of layoffs as unemployed people have less money to drive the economy forward.

In terms of the pro-bailout perspective, I seriously doubt, with millions of American-made autos on the road, you are going to see the American service and parts sector implode. Second, it may well be that bankruptcy is the only way you are going to see the kind of compensation givebacks necessary to facilitate longer-term global competitiveness. Union leaders simply would be committing politically suicide by agreeing to the necessary givebacks; in a court scenario, they effectively have a political cover where the judge, not the union leadership, accepts responsibility for the decision. As to the refinancing necessary in a bankruptcy, I think the federal government could play a constructive role in terms of loan guarantees.

Sorry, but I concur with Mitt Romney, Thomas Friedman, and others: The industry needs to be reorganized, an intervention as it were, vs. Obama, Levin, Pelosi, etc., whom are simply putting off the inevitable. There is no doubt that the current environment is challenging, even for financially stable companies. But Detroit has persisted even through the Depression years and several recessions. This is not a mere tactical issue over the short term. Rather, it's a strategic issue. Detroit was aware of the potentially lucrative rapid growth opportunities in BRIC (Brazil, Russia, India, China) as the middle-income consumer populations grow; in fact, they have pursued vehicle manufacturing in those countries. GM has built a large number of flex-fuel vehicles in Brazil, but it's resisted making the technology (estimated at about $100-150 per vehicle) standard. The point is, given a limited supply of exported oil, how did they expect all their potential new customers to run their cars? The fact is, no American auto company sells a viable hybrid model to compete against Toyota and Honda's. (I believe Ford licenses Prius hybrid technology for certain Escape models.) When the Toyota Prius is one of the top-selling vehicles in the country, how could the Top Three argue there is no market for fuel-efficient models? Why did Toyota have a better understanding of the Big Three's own domestic market? Is it a matter of Toyota having superior engineering--or management?

I think it's time for an intervention, a time for tough love, a time for a reality check. Enough is enough. We saw gas lines in the 1970's, when we were producing much more of our crude oil supply; yet within the last couple of years, we had car companies, facing waning consumer interest in their gas-guzzlers, offer incentives capping gasoline costs at about $2/gallon. We need more out-of-the-box thinking by the auto industry. 

For instance, major software vendors like Microsoft and Oracle have tried to look at stabilizing cash flow of perpetual license purchases towards more of a subscription service. IBM, AT&T and other vendors will essentially provide technical services for corporate databases applications for a negotiated monthly fee. Verizon Wireless offers new conventional  feature model cellphones free every 2 years of ongoing service.  Now, of course, you do have financing alternatives like leasing. I'm trying to suggest a broader concept here, including standard maintenance and part failure (assuming good driver operation of the vehicle); for example, if you have a one-stop service concept, you have an implicit incentive to build more reliable cars. A second business model, often used in the high tech hardware industry (e.g., Apple), is the subcontracting out of commodity labor to contract manufacturers (e.g., Flextronics) and focus on your distinctive competencies, such as global auto design. We also need for the automakers to consider licensing hybrid or other innovative technology (e.g., like Ford did from Toyota) from foreign automakers instead of maintaining what appears to be a not-invented-here type technology.

I oppose the use of the financial bailout funds, or a separate bailout for the domestic auto industry. The function of  the bailouts was NOT to reward the financial sector; in fact, a share of Citibank at the end of business today (11/20) was under $5--well below its year high of just over $35--over an 80% drop; Goldman Sachs, a premium investment banker, is trading below its IPO price. The bailout had more to do with freeing up credit, which is the lifeblood of the economy. This affects not just the automakers and dependent companies (including employees), but businesses across the spectrum. In part, there is analysis paralysis by lenders, concerned about applicant creditworthiness. However, the financial bailout was not about helping individual companies and the public sector (local and state governments, their operational budgets, and undercapitalized pension funds) from having to make the painful, unpopular decisions one normally has to do in a recessionary environment.

This has nothing to do with the worthiness of hardworking auto workers.  At the same time, it is not fair for taxpayer families, many of them struggling to pay their own bills, perhaps without health insurance, to subsidize lucrative wage/benefit/retiree benefits of employees of domestic automakers whom have losing domestic market share for years to better-engineered, more fuel-efficient, reliable foreign-made cars (that in many cases retained more of their original purchase costs). There is some evidence, furthermore, that expensive benefits add almost $2K to a domestic car cost difference from the get-go. Union members need to understand pay and benefits have to be rolled back significantly if they are going to retain any domestic jobs, in any event comparable to compensation consistent with the domestic plants of foreign automakers.

Domestic automakers need fundamental change--in time-to-market, in reacting to competitor moves, etc.; GM has a lot at stake on its Chevy Volt vehicle introduction planned in 2010 (apparently they still have not achieved their battery capacity goal in the development, never mind production stage). In the meanwhile, the next-generation Prius model, not requiring a plug-in, may average over 100 mpg. We need to see more of a long-term competitive plan. If not, maybe venture capitalists should seed an American auto startup, rent out a closed plant, license Toyota or Honda hybrid technology, license other technology (including from the Big Three)  and hire new workers at a compensation package similar to local plants for foreign automakers.

Finally, much has been made recently of the domestic carmaker CEO's showing up for a Congressional hearing, each arriving via his company's own private plane. Personally, I think it certainly takes chutzpah to come plead for a federal handout when taking a business-class seat on a commercial flight would have much cheaper. But I'm much more dismayed at the inability of the executives to articulate how much they needed for their business plan to work and how exactly they planned to regain market share. I do not want to risk having to throw good taxpayer money after bad, simply postponing the inevitable for a failing business model. Let's put it this way: the automakers wouldn't be coming to DC if they could find the financing in the private sector. If the private sector doesn't like auto industry chances, why are we asking the American taxpayer to take on the same risk?

Monday, November 10, 2008

Why Did McCain Lose in 2008?

The leading media conservative, Rush Limbaugh, argues that some recent election results data showing 20% of self-professed conservatives voted for Obama and the fact that he won independents and moderates by 20% ultimately reflect another failure of (what I'll call) the center-right or pragmatic wing of the Republican Party, including the defeated campaigns of Gerald Ford and Bob Dole. The prescription? A return to the basics of a Reaganesque media conservatism: Reagan economics, an assertive national defense, law-and-order (including zero tolerance for illegal immigration, particularly from Latin America), and social conservatism.

I disagree with Rush Limbaugh, Ann Coulter and other media conservatives. First of all, it is very difficult for a party to win 3 consecutive Presidential elections under normal circumstances; George H.W. Bush was the last to do so since Truman completed a 5-election streak for the Democrats in 1948. Second, the immigration issue backfired on McCain, even though he supported it, because of lingering Hispanic anger over media conservative opposition. McCain won only about 30% of the Hispanic vote, about a third less than Bush in 2004, and the Hispanic vote was a key element in the losses of three 2004 Bush states: Nevada, New Mexico, and Colorado.  The Hispanic vote is also a key reason why the Republicans have had a hard time winning a statewide race in California since Pete Wilson was last governor (and Governor Schwarzenegger is not Rush Limbaugh's prototype of a Republican governor).  Third, the "red meat" approach, the negative attack by association, in the past campaign by Rev. Wright, Bill Ayers, and/or Tony Rezko, in particular, negative robocalls, is very toxic with swing voters. Palin's characterization of Obama "palling around with terrorists" was over the top. All it did was give voters already sold on McCain-Palin another reason to vote against Obama. I have an Indian immigrant friend whom had no problems with my praising McCain's qualifications or questioning Obama's,  but he had zero toleration for what he considered the GOP's "gutter politics".  Personally, whereas I think that Obama showed some lack of judgment and am still unconvinced by his lip service against offending words or actions, I thought the McCain's campaign was unfocused at the end of the campaign and relied too much on negative attacks. 

Fourth, and perhaps most importantly, the economy tanked shortly after the Republican convention, and then the economic tsunami. I think over the past 50 years or so, if voters have leaned towards the Republicans for national security leadership, they also lean towards the Democrats for economic security, given social welfare net programs, e.g., unemployment insurance.

Finally, the Obama organization was across the board superior (more offices, "get-out-the-vote" workers and active voter registrations in battleground states) and had over a 50% funding advantage. It used its funding superiority to buy market share in several battleground states, forcing the McCain to concede every blue state except Pennsylvania down the home stretch and running itself ragged trying to defend 2004 Bush states.

The basic problem is that the vast majority of the country felt, under George Bush's leadership, it was going down the wrong path. John McCain, although he could claim some differences with Bush on specific policy matters and military strategy in Iraq, didn't distinguish from Bush in more than a nuanced manner on key economic and foreign policy matters. 

My Analysis on Why John McCain Lost: Other Considerations

Over the tenure of the general election campaign, I've noted a number of things I did not post to my blog or briefly mentioned. I have written a few other posts on Sarah Palin, and I know, from virulent feedback to a milder critique from Kathleen Parker, that media conservatives are not tolerant of  any perceived slight of Sarah Palin. But then I found myself virtually alone posting to a different conservative blog before the Florida primary in support of McCain. I have no problem with Palin's social conservatism and her reformist credentials, and I don't regret her obvious national ambitions. I think if she had demonstrated herself (beyond prepared speeches) to be highly intelligent and articulate, I would have been willing to give her the benefit of a doubt in terms of being a quick study, even as a 2-year governor. McCain made a mistake; there was some failure in the vetting process, just to get a feel for the scope of her knowledge on national and international matters suitable for any candidate without federal experience. Perhaps they thought there was a correctable problem. 

But I don't buy press speculation that McCain's move was a "desperation" /"Hail Mary" pass or a mere pandering for Hillary Clinton's supporters: I think he saw some of his own spunkiness as a reformer and bipartisan leader in Palin's taking on corruption and resistance from her own party. However, I seriously doubt if McCain had heard the Couric interview beforehand, he would have picked Palin. There were leaks that she tried to scapegoat the McCain staff for poor preparation, felt that the interviews were edited out of context, and was furious with media analyses of the interviews. I heard her go rogue in a televised interview with Fox News' Carl Cameron after the McCain campaign abandoned Michigan, publicly second-guessing the campaign. When she responded to the post-election leaks in a very hostile, judgmental way, it confirmed for me previous rumors of temper tantrums after bad reviews and of being very difficult to work with. As I recently cringed at hearing her speak about "no ceilings on achievement, glass or otherwise", I think she would have been better served by turning down the opportunity, having recognized her own limitations or the demands on her family, particularly a special-needs infant. As a  GOP VP selection, she now joins a list populated by such notables as Agnew, Quayle, and Cheney.

The opinions of others may vary, but I think many of the observations I've written here are not echoed elsewhere to the best of my knowledge.

--McCain's Comments on the Economy

First of all, it was not helpful for McCain to say certain things off the top of his head which have been so politically damaging, including the fact that the economy "is not something I've understood as well as I should." It's clear he wasn't as comfortable talking about economics issues as well as, say, political reform or military and foreign policy. Some people might wonder, if you don't understand economics, what does it says about the hundreds of votes you've cast on relevant issues during your 26 years in Washington? What McCain should have said is something like, "Look, even professional economists disagree on specifics, there's great variability of opinions among them, and I'm not a professional economist. As a matter of fact, none of my political opponents is an economist either. But I do some reading of economics on my own to improve my knowledge of the subject matter, including the latest book by former Fed Reserve chairman Alan Greenspan. I also work with a number of well-regarded economists on my campaign."

Second, McCain made an unfortunate public comment in mid-September, quickly retracted but Obama made him eat every word, that the "fundamentals of the economy are strong".  He subsequently made an even more puzzling and unexplained point that he means that the strength is the American worker. I think what he meant to point out is that we showed growth during the last reported quarter (spring 2008) and our economy was (at the time) in a stronger position than many of our competitors, especially Western Europe. He could have also expressed a voice of confidence in the fact that he has seen difficult economic times before during his Congressional career and has faith in the resiliency of the American economy.

I personally thought when he made the statement, he was not oblivious as to economic turmoil but was attempting to set an optimistic tone, just as FDR insisted after the Japanese attack on Pearl Harbor had devastated our Pacific fleet, that we would prevail. One wonders if today's Democrats would have similarly considered FDR "out of touch" given the reality of what the Japanese had just accomplished.

However, the last thing in a time of economic uncertainty a voter wants to hear is what appears to be a confession of ignorance on economics matters and someone whom is out of touch with the facts on the ground during the economic tsunami just as Bush was clueless in praising FEMA chief Michael Brown a few days into the Hurricane Katrina disaster.

--McCain's Debate Performance

Certain Debate Questions

There were times John McCain's responses just made me cringe, although I didn't see a lot of discussion about them in the press. First, there was McCain's suggestion of Obama supporter Warren Buffett as a possible Treasury Department Secretary. (If we were discussing moves of how to bring bipartisanship to Washington, McCain could have used an obvious example of former UN Ambassador New Mexico Governor Bill Richardson whom at times has served as a special envoy.) Warren Buffett, one of the top 2 or 3 richest men in the world, was a terrible idea for several reasons: First, his own wealth is so tied up in so many companies it would require significant personal sacrifices to accommodate existing government restrictions--and that's assuming Buffett would want a public policy position at this point in his life. Second, the last thing 72-year-old John McCain needed was accentuating the issue of his age by suggesting an older member to his team. Third, Warren Buffett is known for advocating higher tax rates for wealthier people, which contradicted his own tax policy. Fourth, it gave Obama a chance to argue that McCain had so few new ideas on what to do on the economy that McCain was resorting to Obama's own economic advisors, and, by the way, thanks for reminding people he's endorsed me and the vision I bring to the economy. Fifth, and most importantly, Buffett isn't qualified to be Treasury Department Secretary. His expertise is in the air of equity investments. If you were going in the direction of celebrities in financial investments, you could maybe discuss names like bond guru Bill Gross or James Grant. Personally, I think McCain could have used the opportunity to distance himself from President Bush's weak dollar policy by suggesting a hawkish Fed Reserve governor and/or signaled his desire to work with, say, one of the University of Chicago Nobel Prize-winning economists. What bothered me here is that John McCain's response seemed to be spontaneous, seat-of-the-pants  impulsiveness, more like his disastrous decision to suspend his campaign during the financial bailout crisis and less like his prescient, sure-footed response to Russian aggression in Georgia.

Then there was this question-answer segment from debate 2 that made me cringe:
BROKAW: There are new economic realities out there that everyone in this hall and across this country understands that there are going to have to be some choices made. Health policies, energy policies, and entitlement reform, what are going to be your priorities in what order? Which of those will be your highest priority your first year in office and which will follow in sequence? Senator McCain?

MCCAIN: I think you can work on all three at once...
Wrong answer, Senator. Nobody is suggesting that the three aren't important and must be dealt with in a 4-year term. But the question is how do you prioritize them and why. Saying you can do all of them begs the question. I will suggest a response here which is my take, not necessarily what McCain should have answered. First, energy needs to be addressed, because it is a prerequisite for our functioning economy, a national defense concern, and given global economic growth, we cannot continue to import most of the energy we need; we have an exploding trade imbalance, and in the long term, we'll need to raise interest rates to contain inevitable inflation. We need to minimize domestic energy exploration restrictions, as soon as possible for offshore and others in order to lessen the time to market, even if it's years from now, because it will be needed then. We also need to ramp up nuclear power plants, which lessens our dependence on fossil fuel energy, using today's commercially viable technology. Finally, we need to look at ways to use our existing fossil fuels more efficiently and looking at what ways we can accelerate alternative energy sources and fuels to market. Second, we need to tackle entitlement funding; to some extent there is a blurring between Medicare/Medicaid and health care reform. However, given the fact of longer lifespans and the fact that the Baby Boom generation is beginning to retire and no interim changes in 25 years, we need to tacke this problem now, look at the reserves and funding issues with everything on the table. Finally, we need to tackle health care. This is difficult because it involves private and public sector financing and certain restrictions at different levels of government, and the current federal operational budget is seriously constrained in a recessionary environment, especially given recent and ongoing federal bailouts.

Debate Tactics/Performance

One of Barack Obama's glaring debate problems during the Democratic Primary campaign was his tendency to overexplain and/or gaffe on unexpected questions. Now, in a certain sense, McCain had no choice in the sense that all 3 liberal debate moderators fed softball questions which did not challenge Obama's liberal political views, e.g., as Mike Dukakis in 1988 was forced to address how he would respond to an act of violence on his wife Kitty or as Obama made a notable gaffe in agreeing to meet rogue leaders without preconditions in the Youtube debate. But there were ways to pose questions and dilemmas to Obama on followup responses.

Too Predictable. McCain's performance was often too predictable and failed to anticipate Obama's obvious rebuttals. For example, McCain elaborated on one of his pet peeves, earmarks. After he finished, Obama quickly slammed the discussion down, pointing out the sum total earmarks is hardly significant in the context of total federal expenditures. He also impeached McCain's credibility on spending constraint, arguing McCain had voted for multiple budgets with excessive spending, and frequently (without comment by McCain) made reference to a $10B/month cost of the war on Iraq and an existing Iraq budgetary surplus. [John McCain is one senator; ultimately, the President must be willing to use the veto to hold the line on spending. Earmark reform is critical to political reform as well as transparent budget processes; Obama's objection seems self-serving, given his own use of earmarks. Even Obama's 16-month plan on Iraq withdrawal requires funding, you need to valuate the investment in Iraq as preventive expenditures against a wider, more expensive regional/sectarian war, not a quid pro quo against domestic spending. Iraq has deferred capital improvement spending but had planned for significant budgetary increases over the coming year.]

Another example was McCain's puzzling reference to Obama's ill-advised relationships, e.g., with Ayers. Obama did his usual lip service to denouncing something what this guy had done over 30 years ago, noted that Ayers was well-known in Chicago circles and had met with other prominent politicians, and had met him a few times at public events. John McCain seemed to back off, claiming that he didn't care about some washed-up old terrorist but joined Hillary Clinton in saying Obama needed to fully disclose their relationship.

Belated or Unaswered Responses to Criticisms. Obama made several unanswered claims and false statements. For example, Obama repeatedly made reference to give 95% of working Americans a tax cut, although 40% of them pay no income tax at all. But John McCain never really addressed the Robin Hill scheme until after Obama made a fateful attempt to talk to Joe the Plumber while walking through his neighborhood and was recorded on video tape mentioning how it was "to spread the wealth around".

The Straw Man "Deregulation" Argument Unanswered. Another blatant example were Obama's misleading attempts to blame regulation, or lack thereof for the financial crisis. In fact, the Democrats themselves failed to show leadership--under the Clinton Administration. Back in 1998, the Commodity Futures Trading Commission raised the issue of regulating complex financial instruments (i.e., swaps and derivatives) when the market was $28.7T. (As of October 2008, the aggregate amount was over $530T.) Clinton SEC Chair Levitt, Treasury Secretary Rubin  and his deputy Summers, along with Fed Reserve Chair Greenspan, passed on the opportunity, claiming the industry could regulate itself. [It is true that McCain in 2000 sponsored an amendment that basically carried this deregulation, re: the Commodity Futures Modernization Act, but it was included in an omnibus budget bill with only 7 Democratic Congressman voting in opposition, "unanimous consent" in the Senate, and signed by Clinton.]  Technically speaking, Democrats have been disingenuous in raising the "deregulation" argument regarding these complex instruments, because they were never really regulated from the get-go, and the concern at the time was government getting in the way of an emerging industry success story. It's not clear to me that Democrats made regulation of derivatives and swaps an issue until the crisis late summer. 

As mentioned in an earlier post, there is probably existing authority for the Fed to declare many of the gimmick loans "unfair",  e.g., option-ARM/"pick-a-pay" (e.g.,  Golden West Financial), and there were multiple concerns about Fannie Mae and Freddie Mac, for which McCain was also on the record arguing for regulatory reform years ago.

McCain really needed to provide a better response to Obama's implied argument that deregulation and McCain's unqualified support to the concept was responsible for all our economic problems. McCain needed to make more of a case that he wanted to open up competition, e.g., across state lines, or have businesses deal with operational inefficiencies caused by arbitrary restrictions and the costs of expensive government reporting requirements. However, the real problem was the government regulatory system being too fragmentary (e.g., the GSE's Fannie Mae and Freddie Mac did not fall under SEC oversight) and not able to keep up with changes in the marketplace (e.g., the explosion in unregulated swaps and derivatives or an increasing exposure of the government via GSE expansion in the US mortgage market).

Ambiguous Responses to Voters. Obama also made arguments against McCain's taxation of health insurance benefits and wanting to deregulate healthcare insurance (in the sense of companies being able to market across states without being tied to individual state idiosyncratic mandates on certain features). McCain did respond in one debate, in essence discussing expensive features like hair plugs and gold-plated benefits in terms of people whom would pay taxes. What he should have said is something like: "All people not in employer plans will get tax benefits they don't currently receive. For people in employer plans, almost all will be at least as well off, if not better, on standard health plans under my proposal; if your company health insurance tax benefits under the current system exceed $5000, you pay the difference."

Credibility. Some of McCain's responses were not regarded as particularly credible by voters, e.g., his insistence of holding the lines on taxes (given the federal bailout, etc.) and his improbable promise to close the federal deficit by the end of his term. In fact, McCain I thought put himself in a potentially difficult position by discussing cost overruns and/or the use of flat-bid (vs. cost-plus) defense contracts. Obama could have used the opening to say something like, "I'm glad to see that John McCain has come around to my point of view that there's a lot to cut in the defense budget..." Also, John McCain specifically left only 3 areas he wouldn't consider for spending cuts: the defense budget, social security, and veteran benefits. Those seem to be politically convenient... Is he saying the same bureaucratic inefficiencies only exist in terms of domestic expenditures? It wasn't enough to talk about an isolated defense project here and there; he needed to be more specific in terms of spending and cost containment reforms and their aggregate projected savings. At the same he needed to point out that Obama's attempt to play Robin Hood with minor percent increases to the top 2 tax brackets to give workers not paying federal income tax large tax credits and another $800B in new program spending, even after a $700B federal bailout.

Ill Preparation. McCain didn't know enough about Obama's policy specifics to attack them effectively. In particular, McCain made a predictable criticism in terms of Joe the Plumber, including higher income tax rate, higher investment taxes, and/or a potential tax penalty for not sponsoring health insurance. Obama, at that point, basically retorted that Joe the Plumber would actually qualify for his small business capital gains tax break and indicated Joe would actually end up better off under his tax cut program. McCain clearly did not expect Obama's answer.

--Maverick or Leader?

Comedienne Tina Fey, who notably starred in some widely watched SNL Sarah Palin skits, famously spoke of the "mavericky maverick" ticket of bipartisan reformers/corruption fighters John McCain and Sarah Palin. Perhaps one can speak of reforming agencies and departments under the Executive Branch leadership.

One of the problems John McCain has had is his mix of conservativism and populism (including conservationist concepts). So, for instance, McCain sided with environmentalists on offshore drilling--long after other countries (including China and Brazil, to name a couple with massive new discoveries offshore) were aggressively exploring offshore. On the other hand, the world's largest consumer of exported oil, the United States, refused, for ideological reasons, to drill off its own shores, despite increasingly environmental-friendly offshore technologies. Finally, facing the reality of $140/barrel oil, McCain suddenly came out in favor of offshore exploration and drilling. However, he remained hands-off on ANWR development, where environmentalists have virulently opposed drilling, famously not to disturb the mating habits of caribou; in fact, he retained his ANWR development prohibition even after choosing as a running mate Alaska Governor Sarah Palin, a strong advocate for oil drilling in ANWR.

McCain's mixed messages to the voters appear elsewhere, such as his failed advocacy for a summer gas tax holiday, without explaining what revenues would balance the loss in income for the federal highway trust. Another argument could be made over the McCain/Leiberman "cap-and-trade" (climate change) legislation which some suggest could add 35% or more to energy costs over the next 8 years.

The problem is that McCain's maverick politics can appear as eclectic and philosophically incoherent. In his 2001 vote against the Bush tax cut legislation, he used class warfare arguments in proposing an alternative proposal of cuts. That was a bad decision in rhetoric, because the conservatives never forgave him, despite his 2006 support to make the Bush tax permanent, and the liberals accused him of trying to flip-flop his way back to the 2008 GOP nomination. (If the voters are going to vote on class warfare grounds, this is the Democrats' home turf; they're not going to settle for a watered-down GOP version.) McCain could make a point that the 2001/2003 tax cuts were gimmicks in the sense they had expiration dates which can distort investment decisions and he was concerned about balancing tax cuts with spending (although the spending argument was more explicitly discussed with respect to the 2003 cut). 

Being a maverick or independent can be virtuous in a legislative role, because one can bridge the partisan divide. But it becomes more difficult in a leadership role, because a Republican President is the de facto party leader. There's a difference between being willing to compromise and starting a negotiating position having already dealt away the strongest cards you're holding.  You are making policy and setting the initiative. One can certainly get involved in bipartisan negotiations, e.g., like Bush has on education, Medicare drug plan, and immigration reform. But when Bush pushed certain initiatives  (e.g., the financial bailout and immigration) without effectively dealing with House Republican conservatives, he failed to garner necessary support.

I think that Republicans are fond of looking at the Reagan years, just as the Democrats are of the Clinton years. To some extent, you wonder if many of the media conservatives today who wax enthusiasm over the Reagan revolution today would vote for Reagan today; after all, Reagan initially negotiated to put pro-choice former President Gerald Ford on his 1980 ticket, agreed to a payroll tax increase and other income tax adjustments, ran up the national debt, and signed the last immigration bill over 20 years ago.

McCain needed to communicate a new vision of conservatism; I think the first step was to acknowledge the failures of the last 30 years and (as Obama suggested) to turn the page. I heard glimpses of it in terms of revising regulations for the 21st century. For instance, I would have argued more of a focus on Western Hemispheric regional trade and defense and less in foreign entanglements elsewhere. I would have talked about the growing infeasibility of the American auto industry, with uncompetitive fuel-inefficient products and an unsustainable cost structure, with wages and benefits (especially health care and retiree) far in excess of foreign manufacturers with local plants. I would have likened our failing urban schools to the equivalent of Hurricane Katrina in terms of local and state government mismanagement, how we focus less on intellectual rigor, written communication, math and science literacy, and high attendance and graduation rates, maintain an obsolete agrarian calendar, and are unduly constrained by a teacher union system that tries to scapegoat social problems for teaching failures, and has miserably failed at self-policing and weeding out unproductive teachers. I would have talked to how Democratic policies and interest groups have resulted in no new nuclear power plants and almost no new domestic oil finds over the past 30 years and how Democratic answers to alternative fuels resulted in handouts to Big Agriculture and regressive food inflation.

--Inability for McCain to Separate Himself  from Bush

This may sound like a trite observation: Haven't I myself asked and answered Obama's frequent campaign references to McCain being a third Bush term, "more of the same"? I've talked about McCain's votes on the 2001/2003 tax cuts, his opposition to the Medicare drug benefit without proper financing, the 2005 Energy bill, his 2003 and later opposition to Iraq staffing and strategy and his call for Rumsfeld's resignation, his criticisms on Bush's failure to control Congressional spending, and Bush's torture policy.

But I'm really going beyond that and talking of some general points: the general failure of the Republican-dominated tenure of 2003 through 2006, which perhaps nullified McCain's occasional warnings about a Democratic Congress and President in terms of checks and balances, in particular, general military leadership failures and civilian administrative incompetence during the unpopular Iraq stalemate, exploding deficits, the incompetence and inexplicably slow response to Hurricane Katrina, the embarrassingly underqualified crony appointments of Harriet Miers to the Supreme Court and Alberto Gonzales as Attorney General, the disreputable Abu Ghraib and Guantanamo Bay prison scandals, Congressional earmarks, the Abramoff Indian, Cunningham, Mark Foley, and other political scandals, and a bunker mentality of the Bush Administration at home and abroad (including reaching out to the Democratic minority, perceived unilateral assertions of American power abroad, and perceived threats to individual rights under various iterations of the USA Patriot Act). 

Bush, the first MBA President, badly compromised the Republican claim of superior management as demanded in the private sector. I think in part McCain could claim that it was due to lack of Bush's government experience at the federal level and suggest that Obama might be vulnerable to the same type problems; McCain has served under 4 different administrations and has learned from their failures. He could send a powerful message in terms of a diplomatic rapproachement by nominating Democrats to powerful positions in the State Department. He could argue that when he led the largest air squadron in the Navy, he promoted on the best of merit and performance and had little patience for underperforming or counterproductive officers to stated objectives. He could have argued for 9/11-style commissions, say, for instance, populated by retired judges, CEO's and Nobel laureates, to investigate intractable problems, like entitlement programs, to provide a baseline for followup bipartisan action like his likely support. At the same time, except at service levels (e.g., teachers in the classroom, intelligent agents, cops on the street, boots on the battlefield, VA hospital medical personnel, Border Patrol service agents, meat inspectors, and IRS taxpayer service representatives), we need to reduce head counts (e.g., early retirements, flattened management levels, and redundant function consolidations).

--Overreliance on the McCain Resume: Straight Talk?

I think to a certain extent John McCain counted too much on his obvious superior qualifications to be President vs. a four-year senator with a liberal voting record and limited track record of legislative accomplishments. Perhaps McCain underestimated Obama's ability to establish his general intelligence, to improve his debate performance over his over-explanatory, gaffe-susceptible, stuttering performance in the Democratic campaign, and to put over  his mild, reasonable, inclusive public demeanor. You can almost sense his frustration as he just didn't seem to understand (just as Hillary Clinton didn't) why American voters don't perceive the obvious: Obama doesn't have that experience, that depth of knowledge, and that record of bipartisan behavior. After all, this wasn't like in 1992, when the Cold War had ended with the collapse of the Soviet Union and the economy was already coming out of recession: the nation could afford to give a chance to a Southern Democratic governor without federal experience to grow into the position. We are dealing with two hotspots with violence (Afghanistan and Iraq) and the worst economic crisis since the Great Depression.

To a certain extent, I believe that John McCain didn't feel sufficiently challenged to establish his worthiness, even though he lacked executive experience (beyond being a squadron leader) and perhaps the dismissive response to experienced individuals: "what have you done for me lately?" I would have preferred that he had focused more on his legendary "Straight Talk" reputation: to Obama's infeasible promises, John McCain would acknowledge that he would be pragmatic, not ideological, to face and resolve tough problems and not simply pass them on to his successors. 

I think McCain, although justifiably proud of his prescient support of a change in Iraq post-liberation strategy and his accurate early take of the Russian invasion of Georgia, relied too much on his resume, his endorsement by 5 past Secretaries of State and over 200 retired generals and admirals. I would have made less mention of his POW experience and his record in Washington; first of all, McCain is well-known, and second, in a change election, the challenger is generally running against Washington, and McCain has served in the House and Senate 26 years; his own direct comparisons with Obama could come across as snide. There's a familiar disclaimer that investors constantly encounter: past performance is no guarantee of future results. In part, America has witnessed a deadly, expensive, long trial of nation building in Iraq; there is a feeling, with low savings, a ballooning federal deficit, and huge trade deficits, America is overextended and needs to be more selective and pursue a more decentralized strategy of world democracy leadership. 

I think it was important for John McCain to say something like, "Look, we've got serious problems: entitlement programs are facing long-term solvency problems that cannot continue to be passed along to our successors. We have infrastructure problems, we have urban public school systems running on archaic school calendars and high attrition rates that are failing to provide opportunities for better-paying technical, health care, and other careers. We have huge federal and trade deficits and have made few changes over the past 30 years to lessen our strategic dependence on foreign energy supplies. We cannot continue to engage in analysis paralysis, by pointing out it takes 10 years to bring oil to market, and 10 years later we find ourselves with high-growing global competitors competing against us for the same external supplies of oil while we sit on existing undeveloped resources of our own." McCain should have been willing to put taxes on the table if the Democrats were willing to put spending on the table; Americans don't really believe there is a free lunch if you are serious about solving America's problems. 

--McCain's Minimalism in Terms of Policy Reform

Why did Bush and McCain offer small, incremental change vs. bold action in terms of certain policy reforms, e.g., vouchers for education and allocating a small portion of social security investment for individual reform? Whereas incremental change is a conservative tactic, when Ronald Reagan slashed tax rates, he did so in a bold manner. 

--McCain's Mishandling of the Financial Bailout Process

I think part of the problem here was that McCain's populism that led him to lash out Wall Street greed was essentially a pale imitation of Obama's Big Business bashing. I think he needed to question why credit rating services, accounting firms, the SEC, the Fed, the Treasury Secretary, and others failed to anticipate the catastrophic risk; the reactionary vs. proactive leadership of the White House and the Congress in dealing with the unregulated explosion of complex financial instruments (swaps and derivatives) and option-ARM's escalating an unsustainable trend in home prices beyond the prudent reach of most households.

This was a tragically lost opportunity for McCain to distinguish himself from Obama with the extraordinarily unpopular financial bailout package. Obama was essentially held hostage with the fact that the Democrats had control of the Congress; the public would hold the Democrats responsible if they failed to act in a liquidity crisis. Paulson had short-shrifted House Republican concerns. The House Republicans were worried about the scale of the intervention into the private market, whether a federal insurance program might be a more efficient approach minimizing taxpayer exposure, if modifications or clarifications to mark-to-market accounting (in particular, valuating mortgage-backed securities under illiquid market conditions), etc. And of course, there's now the contagion effect as automobile companies, airline companies, textile companies, state governments, and local governments grab for an available teat of the federal sow. McCain reportedly implied in the White House meeting where Paulson and Obama seemed to be pushing to isolate the House Republicans that his sympathies were with the House Republicans, but he didn't seem to say much during the meeting or in its aftermath. Perhaps he felt constrained by his earlier statements, but he missed a prime opportunity to distance himself from Obama at a time when the bailout plan was highly unpopular.

But the truly baffling decision was McCain's decision to suspend his campaign to fly to DC without getting a buy-in from Obama less than a week before the first presidential debate. McCain had to know that passing a major bill in Congress--especially one involving $700B with fuzzy Congressional oversight over disbursements of the people's tax money--was uphill; he knew at the same time the House Republicans weren't happy over the Senate package being discussed. He also had to know that the last thing Democratic Majority Leader Harry Reid was going to do was let McCain log another notch on his bipartisan bill belt at Obama's expense. In the meanwhile, Obama refused to go along with McCain's request to defer the first debate (on foreign policy, a McCain strength) and baited him, suggesting McCain was looking to duck a debate with him. The debate commission gave Obama cover, boxing McCain in. Behind in the polls, he couldn't afford to forfeit a debate, but if he showed up Monday night without a Congressional bill passed, it makes him look impulsive and ineffective.

Indeed, the Democrats sought to politically exploit McCain's dilemma, calling McCain's actions "erratic", a thinly-disguised ageist smear, while providing Obama political cover for his decision for putting the campaign first (by arguing Obama's periodic cellphone calls provided helpful guidance).

--McCain's Selection of Sarah Palin

Sarah Palin, a 2-year Republican governor without federal, military or foreign policy experience, seemed an unusual choice for McCain, whose principal argument against Barack Obama was experience. This was particularly relevant given McCain's age. Some people called McCain's choice a "Hail Mary", an impulsive, desperate attempt to shake up the race; others say it was a blatant attempt to grab the Hillary Clinton vote.  Still others saw it as a vehicle to motivate in particular the social conservative base (given her recent delivery of a Down syndrome child, Trig). I don't think any of these were true. He didn't pick Palin because of the bare minimal number of electoral votes from Alaska. I think like Bobby Jindal in Louisiana, Sarah Palin is a voice of reform, battled corruption in the state, including going up against the GOP establishment, including the incumbent governor. She's had a bipartisan approach and vetoed or killed a number of spending initiatives, including the infamous Bridge to Nowhere. I think that Palin's being female was a positive factor, but no one expected a conservative female governor would appeal to the followers of liberal Hillary Clinton, whose voting record is almost identical to Barack Obama (although Sarah Palin seems to be somewhat obsessed with Hillary Clinton, constantly raising her name in rallies (one of the few disconnects with the otherwise adoring Republican base)). 

I think that in addition to the common maverick image, John McCain, with the selection of Sarah Palin, was attempting to counterbalance his "Washington insider" image that Obama was trying to pin on him as being part of the Bush-Clinton dynamic over the past 20 years, not to mention transitioning to a new generation of Republican leadership. In his own way, McCain was bringing change to the Republican Party.

I think Sarah Palin did draw great crowds and did motivate the base, but I think the popularity is somewhat misleading, because this election had one of the highest turnouts in history. She understands television (as a former sports anchor on Alaskan television) and uses the media very well. The initial selection speech in Ohio and the VP nomination acceptance speech went very well, but anyone can read a scripted speech.  I think, in particular because of the nasty personal attacks launched at the beginning of her candidacy, not to mention her compelling life story, she gained some hardcore political support in the base--many of them people whom never cared for McCain in the first place.

It was very clear that the McCain campaign was containing Sarah Palin. There was a considerable delay before her first national interview, with Charlie Gibson. You knew there was a problem when he asked her about the "Bush doctrine". She couldn't answer.  (Most conservatives gave her the benefit of a doubt, implying she was confused by which version of Bush's foreign policy Gibson was referring to. I don't believe so. I don't think she know any of them. This would not be what I consider a gotcha question, because she should know Bush's policies, McCain's policies, and differences between them.) After Gibson disdainly described his interpretation (after asking her 'what do you think it is?'), Palin put together a safe response, supporting action against terrorists. She made an implausible defense of her foreign policy credentials (also in an interview with Katie Couric), citing trade missions in Alaska with its neighbors (Russia and Canada), which was similar to George Bush's claim of foreign policy experience with Mexico as governor of a border state. 

I've described other convoluted responses elsewhere, particularly one involving the financial bailout. For me, I think that one was the final straw, because the bailout was on her watch. And then her sheer chutzpah in pursuing a trivial point on energy while Joe Biden had gone on to mischaracterize McCain's position on health care, a key policy issue on which McCain badly trailed Obama--saying she knew what the moderator wanted her to talk about, but it was her time to talk about what she wanted--she went rogue in the middle of a national debate, and she lost my respect. Sarah Palin, on a Fox News interview with Carl Cameron, publicly voiced unhappiness with the campaign's then recent decision to pull out/concede Michigan. I voted for McCain despite Palin. There is no question in my mind that Palin cost McCain votes with moderates and independents, with ratings showing higher unfavorables than favorables; Colin Powell specifically mentioned her selection in endorsing Obama. Now it's difficult to rate specific reasons because as the VP candidate, she had the role of attack dog on Obama, and the attacks on Obama's ties to Ayers, Wright, Rezko, etc. were regarded by many as "gutter politics". Plus, Palin may have motivated some discouraged conservatives to vote whom may otherwise have skipped the election.

It was very clear there was a concern. Sarah Palin had a freer hand on Fox News, including interviews with a largely sympathetic Sean Hannity and Greta Van Susterend but wanted a joint interview (with John McCain) for Bill O'Reilly's highly-rated O'Reilly Factor. The NBC-TV Brian Williams interviews also were joint. 

I watched a number of  hours of Fox News during the campaign runup to the election; I found myself automatically reaching for the mute button on my remote whenever Obama or Palin were addressing rallies. Here are relevant comments from conservative columnist Kathleen Parker, which are from a Sept. 26 column and I strongly second:
Palin's recent interviews with Charles Gibson, Sean Hannity and now Katie Couric have all revealed an attractive, earnest, confident candidate. Who Is Clearly Out Of Her League.

No one hates saying that more than I do...I've been pulling for Palin, wishing her the best, hoping she will perform brilliantly. I've also noticed that I watch her interviews with the held breath of an anxious parent, my finger poised over the mute button in case it gets too painful. Unfortunately, it often does. My cringe reflex is exhausted.

Palin filibusters. She repeats words, filling space with deadwood. Cut the verbiage and there's not much content there....If BS were currency, Palin could bail out Wall Street herself... What to do?

McCain can't repudiate his choice for running mate. He not only risks the wrath of the GOP's unforgiving base, but he invites others to second-guess his executive decision-making ability... Only Palin can save McCain, her party and the country she loves. She can bow out for personal reasons, perhaps because she wants to spend more time with her newborn. No one would criticize a mother who puts her family first.

Do it for your country.
McCain repeated his praise of Palin in the post-election Jay Leno interview. He ruled out a rematch with Obama and implied Palin will be one of a number competing for the future of the Republican Party. As to the alleged smears regarding diva behavior and basic knowledge gaps, he raised doubts that the leaks came from a legitimate top-ranking campaign advisor and noted that fingerpointing is often a consequence in a losing campaign. I don't think his response will satisfy the pro-Palin forces holding McCain responsible for the leaks. 

It strikes me that the outrage is a state of denial. People can argue all they want about the nature of the allegations and that Palin's tortuous responses to Katie Couric's questions were "edited out of context".  John McCain perhaps should have more closely considered the fact that the woman attended at least 4 different colleges, finally graduating from the University of Idaho. We know for a fact that the campaign dragged its feet on making Palin available to the media. Why? Especially given her high favorability at the time? We've heard the incoherent, rambling, repetitive, political spin responses to softball questions. We saw her go rogue in a debate and in interviews (e.g., Michigan campaign, the use of robocalls, etc.)  She jumped the gun on Bill Ayers before the campaign rolled out the issue. We saw the third-grade class where she gave a materially false definition of what a VP does--in late October. We know John McCain's presence was a requirement for later interviews.

I don't think we have to invent some conspiracy theory about staffers anonymously trying to sabotage her future in national politics; I think, as Kathleen Parker (who was more impressed with Palin's debate performance than I was) indicates above, McCain was caught between a rock and a hard place; I think the honorable thing would have been for Palin to resign when she realized she was in over her head. It's fairly clear there was some internal tension among campaign staff (e.g., Schmidt, Wallace, and Schuenemann) stemming from how Palin felt she was being mishandled before the ABC News and CBS News interviews, which were politically damaging. At least 10 days before the election there was discussion in the press about Palin's diva status. So I think these post-election leaks were simply an extension of some existing differences between the candidates' staffs. Whether the NAFTA and Africa questions and responses were accurate (they were unusually specific), it's interesting to note Palin's early response focused on things being taken "out of context" than a straight denial.

I myself will never vote for another national ticket with Sarah Palin on it. I think that any of her future opponents will revisit some of the Obama campaign arguments regarding her use of earmarks as Wasilla mayor and governor and the fact that she actually supported the infamous "Bridge to Nowhere" during her gubernatorial campaign and waited about 9 months to kill the project after discovering the bridge estimate had almost doubled. I think her opponents will scrutinize her bipartisan deals with the Alaskan legislature (just as the media conservatives scorned McCain's bipartisan initiatives) and her departures from GOP economic orthodoxy, e.g., throwing subsidies at alternative fuels and energy and a windfall profits tax on oil companies. I also expect that future debate moderators will not let her turn a debate into a soapbox on topics of her own choosing. She needs to aspire to John McCain's hard-won reputation for straight talk with the American people, to show gravitas, providing substantive proposals and not simply winking at the TV camera, giving speeches consisting of an incoherent series of sound bites and political spin, and engaging in outrageous public smears of her opponents (e.g., accuse Obama of "palling around with terrorists").

--The Negative Attacks vs Positive Reasons to Vote McCain

I'm not generally surprised by the fact that campaigns go negative: the tactic often works. But I would handled things differently. Think of a "Daisy" type ad, where someone says ominously, "Under the next President's watch, other rogue nations may join the nuclear club. Barack Obama has said he will cut funds intended for modernization of our national defense. Which candidate puts a strong America first: John McCain." or "Barack Obama says he didn't do much as a community organizer to help the poor neighborhoods in Chicago. When he had decision-making authority with the Chicago Annenberg Challenge for disbursement of education grants, the grants did not result in positive changes in achievement scores relative to other schools. He has not achieved in any significant signature legislation in his past 12 years as an Illinois senator and US Senator from Illinois. But we are about to trust him with leading the US with two wars in process and the worst economic challenges since the Great Depression. Do you really think that Barack Obama is ready for the Presidency? We know John McCain. He's been in the Congress before during multiple recessions, during the stock market crash in 1987, during the Nasdaq meltdown in 2000, on 9/11, and during the corporate scandals. He will see us through this crisis."

I think, though, that the McCain campaign needed to do more to project the vision of McCain as President: his Cabinet selections, his domestic economic agenda, his first 100 days in office, his priorities on prosecuting any criminal actions contributing to the financial bailout crisis, regulation of complex financial instruments (e.g., swaps and derivatives) and ensuring adequate loss reserves for risky tranactions, etc.