OK, here is a bit of what I think, and a bit of what I know, about the state of the economy as it affects the presidential race:
1) The John McCain campaign has suffered two terrible body blows in the past few weeks. First came the dramatic escalation in the credit crisis. Lehman bankrupt, Merrill Lynch merged, and AIG nationalized. The Paulson plan only served to put a period on the end of this sentence: The economy is totally messed up, and Republicans are to blame. Second was McCain's strangely detached performance in the first 15 minutes, the segment on the economy, of last Friday's presidential debate.
2) So does yesterday's rejection of the Paulson plan by House Republicans serve as the electoral knockout blow? Well, maybe among McCain supporters on Wall Street. I've heard from plenty of those folks, professional money managers and such, who are furious that the bailout/rescue plan went down to defeat yesterday and claim to be washing their hands of the GOP, at least for this election cycle. (But maybe longer.) They might not like the title, but Democrats are the party of Wall Street. Longer-term, this could portend a political realignment in which a more populist GOP becomes more focused on policies that directly help families, even if they aren't necessarily considered "pro-growth" by economic conservatives. (Note that Hispanics of both parties voted against the Paulson plan.) In that regard, Sarah Palin and Mike Huckabee might well be the future of the GOP.
3) But I am not convinced that the bailout bungle plays so badly in the Rest of America, despite the 777-point drop in the Dow Jones industrials. That decline, though painful, was hardly another Black Monday, though we may still get a Black Tuesday, Black Wednesday, Black Thursday, or a Black Friday if it looks like the rescue plan is stuck in suspended animation on Capitol Hill. (Maybe a couple of them.) So far, this still looks like mostly a Wall Street problem to much of America, most of whom have the bulk of their investment in retirement plans that they don't keep a particularly close eye on. What's more, falling oil prices should mean lower prices at the pump, the one place consumers most directly and tangibly interface with the macro economy. People may not know what the latest GDP numbers are, but gas prices they get.
4) Grudging acceptance of the need for a Wall Street bailout may indeed be growing. A new poll by Rasmussen shows support increasing to 49 percent from 24 percent. But is there any doubt that even if people come around to the belief that the Paulson plan is necessary, it will forever be one of the most unloved pieces of legislation in American history—right up there with the establishment of the income tax. Many GOPers see their pushback against it a key element of rebuilding the Republican brand and comeback in 2010.
5) So what does this all mean for John McCain? A great communicator could present a compelling narrative where corrupt Big Government (symbolized by Fannie and Freddie and its paid enablers in Washington) created the financial crisis and now, amazingly, claims to want to solve the problem through even Bigger Government that could cost American trillions of dollars. In a way, it is the issue John McCain was born to campaign on. I think McCain tried to clunkily begin that process during the debate, but it all came out as sounding like the same old stump speech that he could have given 18 months ago (and probably did). There is still time left, but not much. To put a new spin on the old James Carville formulation: 1) Reform vs. more corruption; 2) Big Government, stupid; 3) Don't forget taxes and energy.