The 2008 presidential race has gone weirdly nonlinear. The latest Rasmussen poll has Barack Obama with a 2 percentage-point lead over John McCain (Obama had been consistently leading by 5 points for the past six weeks). And Newsweek has Obama ahead by just 3 points—within the margin of error—after putting him up by a whopping 15 points last month. (After seeing that first Newsweek poll, a McCain adviser told me, "If that poll is somehow right, I may as well call it a day and go home right now.")
Up until now, the electoral equation seemed pretty straightforward. The more the economy weakened, the better it was for Democrat Barack Obama and the worse for Republican John McCain. Certainly the expectation of Washington know-it-alls has been that a weak economy, when combined with frustration with the ongoing war in Iraq, would doom the GOP nominee. That's definitely the prediction of all those sophisticated presidential election forecasting models. And out-and-out recession, according to the model of economist Ray Fair of Yale University, would give Obama at least a 10-point landslide.
Yet here's McCain in a tight clinch with Obama, a man whom French political observer Bernard-Henri Levy just declared in the New Republic magazine to be "not only the most charismatic but also the most gifted politician produced by the Democratic machine in a long time." Look, Bill Clinton won by 5.6 percentage points and 202 electoral votes in 1992. Shouldn't Obama, arguably a far more inspirational—not to mention historic—figure, win by a much bigger margin given voters' terrible perception of an economy battered by rising unemployment, $4-a-gallon gas, and bear markets in housing and stocks?
But I think we may now be at the point where this economic mess has started working in McCain's favor. The dynamic no longer seems to be a linear phenomenon in which a bad economy is good for Obama and a worse economy is even better. Rather, the situation has become chaotic and almost impossible to predict in view of all the emerging variables. But within the range of realistic possibilities, McCain may now have a roughly fifty-fifty shot at victory. Here's why:
1) Gas prices. Polls show the public wants lower gas prices and thinks oil drilling can help get them. And McCain and the Republicans have positioned themselves as the party of more energy and lower prices. They want to drill, and they want to build more nuclear plants. But instead of opening up new areas to drilling, Democrats want to tap the Strategic Petroleum Reserve. And who can forget Obama's response when asked what he thought of higher gas prices: "I would have preferred a gradual adjustment." One problem may be that Obama fashioned his energy plan when oil was a mere $60 a barrel. McCain seems to be smartly tweaking his policies on the fly—drilling, the gas tax moratorium—to appeal to voters furious about higher prices at the pump.
2) Stale Obamanomics. Like his energy policy, Obama's economic policy was crafted when the economy was clearly expanding, unemployment was below 5 percent, and the budget deficit was plunging. Now growth is sporadic at best, unemployment is rising sharply, and the deficit is likely to top a record $500 billion. Yet Obama still wants to raise investment, income, and payroll taxes while expanding spending. McCain, on the other hand, is talking about pro-growth tax cuts and balancing the budget by the end of his first term. Just as Obama's Iraq policy seems stuck in the past, so does his economic policy.
3) The Fannie and Freddie fiasco. Up until the announcement of the Paulson-Bernanke bailout, the mortgage mess and credit crunch looked to many like examples of free-market failure. But Fannie Mae and Freddie Mac are creations of a federal government trying to promote a specific economic policy—greater homeownership. And the artificial existence of these quasi-corporate creatures has contributed mightily to the housing mess, explains economist Brian Wesbury, by dominating the mortgage market "using subsidized credit" and pushing "private firms toward the fringes of the securitization process and into territory which included subprime and Alt-A loans." In any event, the Fannie-Freddie mess could be used by Team McCain to vividly display the incompetency of big government at the exact time Obama is arguing for more government involvement in healthcare and energy.
4) A skeptical public. America doesn't think too much of its government right now. Approval ratings of President Bush and Congress are minuscule. Indeed, pollsters will tell you that bad economies make voters skeptical of government rather than pushing them to embrace it. A recent Zogby poll showed that 46 percent of Democrats favored corporate taxes over taxpayer-funded federal programs as the best way to spur economic growth. Recall that a big corporate tax cut is at the heart of the McCain economic program. A big risk for Obama is that he will mistake a dislike of the GOP for a love of bigger government and overreach on policy and rhetoric.
Bottom line: McCain is still the underdog vs. Obama, but the race seems more winnable every day.