Sunday, February 26, 2012

Weak Debate Performance and Romney's Money Overwhelms Santorum, Why $5 Gas is Good and Bad

Santorum Fading Fast in Arizona and Michigan
Rick Santorum missed a golden opportunity at this week's debate with probably his weakest performance to date.  No candidate hit a home run at what could be the final GOP debate of the year (there are none scheduled as of this writing), but Mitt Romney did what he came to do - dislodge the narrative that Rick Santorum is a principled conservative versus the more opportune Romney.

Santorum's defense of earmarks, No Child Left Behind and other votes in the Senate that are less than appealing to an increasingly conservative GOP primary and caucus base was strained to say the least.  I have often said that Senators in general make less appealing Presidential candidates than Governors for the simple reason that Senators cast votes for people to parse apart whereas Governors accomplish things.  Santorum's voting record clearly compromised his voice as an economic conservative and he did a poor job preparing to defend that record.

Aside from the structural differences of being a Senator, the fact is, Rick Santorum is not a purist economic conservative.  He has always voted and spoken of the need for government to intervene in things - he just wants the government to intervene in a different way than Democrats do.

And let's not forget Mitt Romney's flooding of the airwaves, the same tactic he used to wrestle the Florida primary away from Newt Gingrich.  The money matters, especially in a race where the electorate is so fluid and especially in primary states where people outside of the hardcore base of the GOP votes - people who do not follow every position and twist and turn of the race.

So, a week after he was trailing in Michigan and basically breakeven in Arizona, Mitt Romney appears reasonably comfortably poised to win both.  The latest polls have him up by 10% or more in the winner-take-all Arizona primary and up by an average of about 4% in the proportionally-awarded state of Michigan.

Neither of these losses will be utterly lethal to Santorum's campaign, as Super Tuesday, with a far more favorable map to him, is coming just a week behind.  But momentum matters.  It matters in terms of where the "Not Romney" voters go in places like Georgia and Oklahoma - do they all break for Santorum or do some go to Gingrich?  Where does the money, so crucial to compete in that many contests on the same day, flow?

Romney is, just like every other writing, the favorite to win.  A dual-win next Tuesday helps that case.  The key number to watch is the percentage of delegates that Romney has after Super Tuesday.  He will almost certainly be in the lead, but whether he crosses the 50% threshold of delegates awarded is the key to winning the nomination outright.

Of the likely delegates awarded in the 8 nominating contests to date, Mitt Romney has won 45% of the delegates - by far the most (Santorum and Gingrich each have 19% with Paul at 15% and the now-exited Perry and Huntsman carrying a combined 2%) but not an outright majority.  Arizona's winner-take-all delegates will help that.

But we will have to take stock in 9 days of where things stand.

Rising Oil Prices is a Mixed Blessing and Curse
2011 saw the highest average gas prices at the pump in history, even in inflation-adjusted terms, just edging out the 1981 gas crisis price (which, on an inflation adjusted basis averaged $3.31/gal) at $3.51/gal.   2012 is on pace thus far to break that record.

Higher gas prices are bad for the economy in many ways.  Petroleum represents 38% of all United States energy consumption and rises in gas prices permeate through costs to consumers in a number of ways including both the direct costs that they pay at the pump and in prices of all kinds of consumer goods, whose transportation is directly impacted by diesel prices.

Additionally, high gas prices (more specifically higher crude oil prices which drive gas prices) means more money going to exporters in unfriendly places like the Middle East and Venezuela which means a growing US trade imbalance and money flowing to governments that could use it to fund terrorism at worst and fund anti-American principles at best.

But high gas prices also drive economic incentives - mainly the economic incentive to reduce our dependency on oil altogether.

Virtually all of our other sources of energy are preferable to oil in most ways.  Let's examine the 5 major sources of energy in this country.

As I said above, oil leads the way with 38% of our energy consumption.  It has many problems.  60% of our oil need is sourced from foreign sources.  Proven US oil reserves would cover less than 3 years of national energy needs if foreign supply where cut off.  Oil is one of the highest carbon-producing forms of energy as well, second only to coal in greenhouse gas emissions.  In virtually every way except one, oil is an unappealing energy source.  That one reason is the reason it is still 38% of our energy consumption - it is very easy to build equipment that converts it to energy on a small scale.

70% of all oil consumption is used in transportation - primarily passenger automobiles and trucking.  There has simply been no cheaper design for portable transportation than the internal combustion engine and no cheaper engine design than one that runs on gasoline.

Natural Gas
Natural Gas is now 24% of our nation's energy consumption and that number is growing.  Natural gas is used in many ways - from home heating to industrial use (think big natural gas boilers and HVAC systems) to electrical generation.  It's advantages are that it is very cheap, thanks to shale extraction and rising proven reserves in the US.  It is easily burned to produce energy and natural gas power plants are far cheaper to build than any other kind.  It is more environmentally friendly than oil, giving off less carbon emissions per BTU.  And, as a net exporter of natural gas, it is an energy source that is entirely domestically sourced.  And we have enough proven reserves of natural gas to cover 100 years of energy consumption.

Natural gas has some barriers as well though.  While it is very cheap to supply and convert in stationary locations like homes, power plants and industrial uses, it is far more difficult to use as a fuel source in mobile vehicles like cars.  While the technology exists on a fairly economical scale to compress natural gas, those engines and systems are still more expensive than gasoline engines and the infrastructure to refuel is limited at this point.  In fact, natural gas only represents 2% of the energy for transportation and that is primarily where large municipalities have consciously put in the infrastructure, such as city buses or intra-airport transportation at hubs.

Finally, while the burning of natural gas is clearly less bad for the environment than gasoline, the extraction process that has enabled the natural gas boom - shale extraction - has questionable environmental consequences where it is extracted.

Coal now represents 22% of national energy use, a number that has been declining for a number of years.  Coal is abundant and cheap (with over 250 years of proven reserves), but has a number of drawbacks.  It is impractical for residential or transportation use (outside of trains) and poses environmental problems that not only including high carbon emissions per BTU but also lots of nasty particulate and sulfur emissions that lead to acid rain, lung cancer and a whole bunch of other unpleasant things.

Coal plants have been so heavily regulated since George Herbert Walker Bush signed the Clear Air Act in 1991.  Essentially, existing coal plants were "grandfathered" in and allowed to continue to operate, but new plants had to comply with emission controls so costly that no one has attempted to build a coal plant since.

Promise of "clean coal" technology has been out there for years, but no one has yet been able to figure out an economically viable way to convert coal into energy in a way that is environmentally friendly.

Nuclear power represents 8% of our national energy use.  It has many advantages - since it requires only atoms as an input, we have an essentially infinite supply of nuclear power.  But nuclear power is incredibly costly, which is one of the reasons that no new nuclear plants have been built in decades.  A new nuclear plant costs upwards of $1 billion to build and will therefore never be built without significant government subsidy.  Southern Company plans to build a new one, but only because of significant government loan guarantees.

Environmentally, nuclear produces zero carbon emissions, a welcome thing to those who dislike greenhouse gases.  The main drawback is that radioactive waste, that we have yet to establish a national strategy for disposal of, leaving nuclear power plants to continually store more and more waste on site, with no place to send it.

Renewables as a whole represent 7% of our national energy use and cover a broad range of technologies, from hydroelectric dams such as the Hoover Dam that convert water flow to electricity to wind turbines in the Northeast and rural California to solar panels across the sunny parts of the country.

Renewables possess all the advantages environmentally - zero emissions and unlimited supply.  They also possess the same key drawback as nuclear, on a capital cost basis they are not economically viable without government subsidies.  Costs, especially for wind and solar are coming down as scale builds, but at this stage, no one would invest on a large scale without tax credits or other subsidies.

So why are higher gas prices good for all of this?  As you can see, oil is the one source of energy that we cannot source our needs domestically and higher prices push the economics in favor of alternate energy technologies, which can be sourced domestically and are largely cleaner environmentally.  The free market is starting to take care of what the government has not solved.

So what could the government be doing?  There are a surprising number of things that we could do from a national energy policy standpoint that wouldn't cost much.  If you've read this space for a while, you've seen a number of these before:

(1) The Revenue-Neutral Gas Tax
An originally Republican idea, I simply can't understand why this great idea hasn't gained traction.  The concept is simple - you raise per gallon taxes on gasoline and reduce payroll taxes by an offsetting amount.  The net cost to the government is zero, but it creates an incentive that rewards consumers that reduce gas consumption and punishes ones who do not.

(2) Tax Imports, Seed Local Infrastructure
You could tax imported sources of energy and use the money to subsidize building the infrastructure to support alternatives - the building of natural gas filling stations, electrical plug-in stations for vehicles, etc.  This could be done at a net zero impact on the deficit.

(3) Set Renewable Targets for Electricity
Require an ever-increasing percentage of electrical generation come from renewable sources.  This leaves the market-place decisions about technology to the free market and forces power companies to examine the best strategy to push us to more renewable and ultimately builds scale that makes those technologies more economically viable.  California is blazing that trail, but we need to get on board nationally.

Energy policy is important both environmentally and from a national security standpoint.  You'd think that would be something that left-wing environmentalists and right-wing national security conservatives could find some common ground on.  I mean, does anybody WANT to be importing oil from Libya?

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Saturday, February 18, 2012

Employer-Provided Health Care: The Worst Imaginable Model, Why Santorum Would Lose to Obama by 20 Points

The Real Reason Obamacare Is All Wrong
The flap with the Catholic Church over contraception coverage for women has been quite an interesting ride.  First of all, who thought we would be debating condoms and birth control pills in 2012?  Second, the clear exposed divide between the Catholic church's (I believe honestly held) moral principles and its membership's beliefs was on full display.  Third, Rick Santorum's very socially conservative views being put on full display is a preview of things to come if he continues to be a serious candidate for the GOP nomination.

First, to the relevant controversy.  The notion that religious freedom extends to whether or not you have to obey legal regulations is patently absurd.  Bear in mind that we are not talking about Catholic churches themselves, simply the hospitals and schools that they own.  If you believe that religious freedom should exclude them from having to provide contraceptive coverage as a matter of moral belief, where would you stop?

Should Muslim-owned businesses be allowed not to pay taxes because they don't want to pay money to support wars against Muslims?

Should a mining company owned by Christian Scientists by allowed to ignore regulations requiring Doctors on site to treat workers in dangerous situations because they don't believe in modern medicine?

Should an Orthodox Jewish owned business be allowed to refuse to serve women because it has a belief about the role of women in society?

Religious freedom, as protected by the first amendment, is something that we should revere.  But it is not the only value in our society.  In fact, the constitutional protection itself was intentionally drawn narrowly.  All the First Amendment requires is that the Federal Government does not establish a state religion, not that it allows businesses owned by religious people to do whatever-the-hell they choose.

Birth control is broadly accepted in science, medicine and society.  It is safe, effective, legal, economical and prevents unwanted pregnancies and abortions.  There is zero reason not to include it in health care plans because a very small percentage of the population objects.

But the controversy reveals the broader problem with Obamacare in particular and our healthcare system in general.  The issue with Obamacare is that it reinforces the system that we have, once that exists primarily as an employer-provided health care model.

Employer-provided coverage is about the worst imaginable model for a number of reasons.  It leaves, all too often, the decisions around what health care you get up to your employer or to government regulation, which sparks the kind of controversies that we saw over the past two weeks.  Secondly, it makes your access to health care dependent on your job.  Get laid off?  No health care.  Change jobs?  Your health care might change.  Thirdly, it places a huge burden on employers.  Employers that provide good health care coverage can pay upwards of 15% of their payroll towards health insurance, a burden not borne in competing economies where the coverage is either government provided or non-existent.  Finally, it provides incentives that drive up cost, namely largely removing the patient from economic decisions related to health care.

Our backwards system is a product of our tax code.  Employer-provided health care is both income and payroll tax-exempt.  That means that if an employer and employee wanted to have an employee-purchased model, the employee would wind up paying far more in real dollars.

The simple solution, employed in the first-rate health care systems in Australia and France, is to have a basic level of coverage provided by the government and a secondary tier that is available to individuals to purchase out of pocket.  In other words, everyone has access to preventative and catastrophic care, care which is both cost-effective and morally essential to a first-world society.  Industry competitiveness and innovation is preserved through profit motive because of the second-tier of coverage, which is for more advanced coverage.

Obamacare's benefit is that it provides more access to the health care system to more people.  But it largely perpetuates what is broken about the system.

Would Santorum Be the Worst GOP Candidate Ever?
With Rick Santorum's wins so far in Iowa, Colorado, Minnesota and Missouri, his shocking lead in the polls in Michigan, his competitive polling in Arizona and his huge lead in Ohio, I guess we have to actually take the possibility of a Santorum nomination seriously (I'm still not betting on it, but to say I'm still as sure as I have been about Mitt Romney's prospects would be a lie.)

So what would a Romney candidacy mean?

Let's review - Santorum has likened homosexuality to sex with farm animals, has said contraception is morally wrong, is opposed to women in combat because of "emotions".  I actually have more respect than most for Santorum's economic message, which appears among GOP candidates to be uniquely courageous in discussing the needs of working-class Americans, but he certainly has the least distinction to draw versus Barack Obama because of his past support for government spending projects, unions and entitlement expansion. 

With an improving economy and more mainstream views, Barack Obama would utterly trounce Romney.  As we sit here today, Barack Obama is up 6 to 8 points head to head against Santorum, but that is before most of the general electorate really learns about Santorum.  I could easily see Santorum losing by 20 points nationally.  He would lose women massively, possibly by 30 or 35 points.  He would lose Reagan Democrats.  He would lose Northeastern Republicans.  Heck, Santorum lost his Senate re-election bid in Pennsylvania by 16 points.

He'd lose every single state Obama won in 2008.  He'd probably also lose Arizona, Missouri and Montana.  I could actually see him losing some classically solid Republican states such as Texas, the Dakotas, maybe even South Carolina and Georgia.  It would be a wipe-out.

The worst GOP wipe-out in history was Barry Goldwater's 1964 whomping, where he lost by 22 points, lost 44 states and won a mere 52 electoral votes.  My bet is that a Santorum candidacy might do even worse.

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Sunday, February 12, 2012

How Fates Can Rise and Fall in a Week, Can Congress Do Anything?

The Long March to the GOP Nod
Mitt Romney's nothing short of awful finishes in Minnesota, Colorado and Missouri (which didn't really count except for building on the image of a candidate suddenly in trouble, were capped by his (also symbolic, but meaningful from a perception standpoint) win of the straw poll at the hugely influential CPAC convention and his narrow win over Ron Paul in the Maine caucuses.

It seems that every week in this Republican nomination battle has a different storyline and more surprises.  But one thing that hasn't changed in a long time is my belief that Mitt Romney is the strong favorite to take the nomination.  His organization, money, experience and mainstream appeal (granted, this last piece hasn't been doing as well these days) make him the most likely candidate to win.  And he's still the "next guy in line" and I've written extensively on the advantage that provides in Republican nominating contests.

So where are we in the process?  We are now 8 states into the 50 state battles, plus the various territories (Washington DC, Guam, Puerto Rico, the Virgin Islands) that hold nominating contests or 15% of the contests have taken place.  2,118 delegates are awarded through nominating contests (168 are party leaders) and of those, 231 have essentially been awarded to date or 11%.  I say essentially because in most caucus states, the caucuses are technically "non-binding", meaning that actual delegate selection won't take place until the state conventions, but similar to the electoral college, the outcome is all but assured.

Delegate counts through the Maine contest are as follows:
Mitt Romney - 105
Rick Santorum - 43
Newt Gingrich - 42
Ron Paul - 36
Rick Perry (withdrawn) - 3
Jon Huntsman (withdrawn) - 2

Note: As always, my delegate counts will differ from the counts published by major news outlets, as they generally try to include how they believe the 168 party leaders will vote.  Since those endorsements are soft and can change, I don't consider them until very late in the process, when they could make the difference.

Romney has a sizable lead, primarily thanks to his win in Florida.  Florida is the only contest to date that was set up as Winner-Take-All and almost half of Romney's delegates (50 in fact) came from his Florida win.  The size of his campaign wallet and organization really paid off in that important contest (although made half as important as it could be by the RNC penalty for holding its contest early.

But Romney's sizable lead does have one major chink in the armor - he holds less than half the delegates and you need 50% + 1 to win a first a ballot nomination.  His 105 delegates represents 45% of those awarded to date.  If Romney's opponents could keep him below 50% all the way to the convention, they could broker the convention (deadlock it, in layman's terms) and force multiple voting ballots, during which anything could happen relative to the nomination.  Or one of them could cut a deal for their delegates for a VP or cabinet seat, although Romney's three remaining opponents that will continue to accumulate delegates, frankly don't seem to like him very much.

From here, the race takes a bit of a break this week.  After a long break from the debates (is anyone else starting to really miss those events?) there is CNN debate in Arizona on February 22nd.  The next actual nominating contests are primaries in Arizona and Michigan on February 28th.  Romney should win both of them handily.  Michigan is essentially Romney's second home state, where he was born and where his father was Governor.  Arizona has a heavy Mormon population and is far away from the rust belt appeal of Rick Santorum and the Southern appeal of Newt Gingrich.  Arizona's 29 delegates are winner-take-all and Michigan's 30 are proportional, unless Romney gets 50% or more of the vote (which is possible but not a lock), in which case it would become winner-take-all.

So Romney could potentially add significantly to his lead in the next 2 contests.  On March 3rd, Washington's caucuses take place, which have a significant prize, 43 delegates (awarded proportionally.)  Washington could be an interesting bell weather.  It is a moderate state, well outside of Santorum and Gingrich's areas of strength, but it is a caucus state, which have not been good to Romney (his win this weekend in Maine was actually his first caucus win of this cycle.)  Despite its sizable delegate prize, it is not likely to see a ton of campaign, except from Ron Paul, who could do quite well there, primarily because it is so close to Super Tuesday, on March 6th.

Handicapping the Super Tuesday states, it would appear likely that if the race were held today, we'd see a split decision:
Gingrich should do quite well in Georgia, Tennessee, Oklahoma and Virginia.
Santorum will make his mark in Ohio and should fare well in the caucus states of Alaska, Idaho and North Dakota as well as competing strongly in the Gingrich states above.
Paul will likely focus his fire on the 3 caucus states above, which may get less attention from the other candidates.
Romney should do extremely well in Vermont and Massachusetts and will likely focus his fight on trying to beat Santorum in Ohio and try to show up well, if not win, in Virginia.

The big questions between now and the results of Super Tuesday are:
(1) Will Romney emerge from Super Tuesday with more than half of the delegates won?
(2) Will either Gingrich or Santorum be damaged enough after Super Tuesday to drop out (I can't see them dropping out before then)?  I assume Paul will be in it for the long haul.

As the field emerges from Super Tuesday, we look ahead to nominating contests every week in March, and often multiple contests per week.  The big prizes the rest of the month of March are Illinois (69 delegates), Missouri (52 delegates), Alabama (50 delegates), Louisiana (46 delegates), Kansas (40 delegates) and Mississippi (40 delegates).  This looks like awful territory for Romney, so he needs a strong showing through Super Tuesday to carry him in these tougher contests.

This is the most fun Republican race I can remember in some time.

It's February 12th and I Have No Clue What Social Security Tax Will Be on March 1st
What a sorry state of affairs.  I have made no bones about the fact that I am not a fan of the payroll tax cut that was passed for 2011 as part of the deal to extend the Bush Tax cuts and I was not in favor of extending it into 2012.  Reducing Social Security taxes by 2% when there are already serious issues with funding future benefits is imprudent.

But putting aside the policy discussions, we have serious dysfunction with implementation of anything in Washington these days.  Both sides of the political aisle agree that the payroll tax cuts should be extended.  But we went all the way into the December recess before a last-second deal extended the cuts for January and February.

It is now February 12th and there is no deal in sight for the rest of the year.  At issue is how the cut will be paid for.  Democrats wanted to originally pay for it with a tax on millionaires, which was obviously a non-starter with the GOP.  The GOP wants to pay for it with cuts to discretionary spending.  Also at issue is how, if at all, to extend unemployment benefits.

What is so damaging in all of this is the uncertainty it creates.  Companies don't know what to put in their payroll software for tax withholding.  Individuals don't know how much money will be in the March 1st checks.

It's all so sad and embarrassing.  I'm sure the tax cuts will get extended...but we are probably lucky it is a leap year with an extra day between now and March 1st.

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Tuesday, February 7, 2012

Will Santorum Score a Meaningful Upset?

As votes start to come in, all signs point towards a Rick Santorum victory in the Minnesota Caucus.  This will no doubt upset the Romney freight train and cause a lot of discussion in the political world.  Santorum was unable to gain momentum out of his belatedly-declared Iowa Caucus victory.  Will this prove different?

Romney is heavily favored to win the Colorado caucus, but given his 60% win in 2008, will anyone really be impressed if he wins with a plurality?

Missouri is just a beauty contest, with no delegates at stake (those get decided in a March caucus and a later state convention), but if Santorum runs the table on Missouri and Minnesota tonight, does it build his narrative as the logical and viable alternative to Romney?

Fun stuff tonight.

Sunday, February 5, 2012

Why Romney Will Win the Nomination and Why It May Not Matter

Mitt Romney is surging.  With a decisive, although completely expected, win in the Nevada caucuses, Romney has 2 in a row.  Rick Santorum has clearly faded from serious contention, finishing a distant 4th in the race with a projected 11% of the vote (all votes were not in and counted as of this writing, so it could shift still.)  Ron Paul, as he always does, continues to outperform in caucus states, taking 18% of the vote in Nevada, but there is no conceivable map to him securing the nomination, although he will continue to make noise and try to pick off delegates where he can to support his cause of libertarian freedom.

And then there is Newt.  Defiant to the last, Newt held a press conference last night in lieu of a rally and continued to talk smack about Romney, essentially saying that there is no real choice in November if Romney is the nominee.  He has pledged to stay in the race until the end, regardless of the outcome.

The rest of the calendar for the month is somewhat quiet until the end.  We will see caucuses in Colorado and Minnesota on Tuesday, as well as a primary in Missouri which doesn't count (delegates are awarded in a March caucus - I'm not even sure all the candidates are on the ballot.)  Then Maine next week, then over a two week break until the bigger paydays of Arizona and Michigan.

After a Washington Caucus March 3rd, then, the real big prize, Super Tuesday, takes place on March 6th, with Alaska, Georgia, Idaho, Massachusetts, North Dakota, Ohio, Oklahoma, Tennessee, Vermont and Virginia all holding events on the same day. 

The conventional wisdom is that Newt Gingrich will try to survive until Super Tuesday, since he seems very unlikely, given the demographics, to win any of the races in between.  But even on Super Tuesday, while he seems sure to take Georgia and will have a good shot in Oklahoma, Tennessee and Virginia, it seems extremely hard for him to construct a map that gives him a lead coming out of Super Tuesday.

But the nature of delegate awards works to Gingrich's advantage to stay around and make hay, even if he ultimately loses. 

You see, it takes 1,144 delegates to win a majority of the 2,286 that will attend the Republican convention in Tampa including 168 party leaders and 2,118 that are awarded in the 50 primaries and caucuses over the winding primary season.

To date, because of a series of penalties to almost all of the early states except Iowa for violating party rules around the timing of their contests, only 140 have been awarded - and of those 140, Mitt Romney has only won 72 (this number will probably increase by a few when the final count is in from Nevada.)

Between now and Super Tuesday, the intervening contests will award another 202.  Then, on Super Tuesday, an additional 437 will be awarded. 

So, while the next few weeks will award more delegates than the first 5 contests to dates and Super Tuesday will award more delegates than all contests prior to it, at the end of the night on March 6th, there will still have only been 779 awarded, a mere 37% of the ones to be awarded in primaries and caucuses and far fewer than needed to lock up a nomination.

So Mitt Romney will have to solider on...and hopefully develop some better talking points than not being concerned about the poor.

If the Economy Soars, It's 1996 All Over Again
Since his first two years in office, the question on the table of political pundits has been which other Presidency the Presidency of Barack Obama will resemble at re-election: Jimmy Carter or Bill Clinton.

Both Carter and Clinton were swept into office as outsiders at a time when the economy was sputtering and people were looking for change.  Both made significant policy changes versus their Republican predecessors.  And both faced public backlash for changing too much too fast, losing many seats in the mid-term elections - in 1978 for Carter and in 1994 for Clinton.

Obviously, despite the parallels in their first two years, Carter and Clinton's arc diverged widely by re-election night.  In 1980, Carter was destroyed, receiving less than 45% of the two-party vote and only 41% of the vote overall (Independent John Anderson explains the difference) and lost 44 states.

In 1996, Bill Clinton was resoundingly re-elected, with the least competitive Republican showing since Barry Goldwater, garnering almost 55% of the two-party vote (50% of the vote overall, due to Ross Perot's second independent run) and winning 379 electoral votes in 30 states.

The difference between Carter and Clinton was the arc of the economy headed into the election.  The Carter era economy was still stagnant, with inflation still destroying savings and a high degree of national pessimism.  The economy was booming under Clinton, with the effects of the 1990/91 recession, caused by the savings & loan busts, long gone, the budget on its way to balance and unemployment falling fast.

Obama will not be at either extreme.  The economy will not be as bad as in 1980, nor as good as in 1996.  But how the economy does between now and November will have a profound impact on the President's re-election chances.

And on that front there is good news.  On Friday, the Bureau of Labor Statistics reported far better jobs news than expected, with official unemployment falling to 8.3%, it's lowest level in over 2 years and job creation was a net positive 243,000, the best result in 3 years and made even better by the fact that private sector job growth was actually 257,000, with a 14,000 reduction in government employment offsetting this to produce the total number.

It's one month, but it's a data point that confirms a trend - the economy is healing.  Job growth has been positive for almost two years now and has been accelerating.  Unemployment peaked at 10.0% in October of 2009 and has been falling since.

Lots of macroeconomic events could reverse the trend - the European debt crisis could torpedo the world economy.  Political conflict in the Middle East could cause a big spike in oil and therefore other commodities.  So an improved economy in November is not a lock, but now appears highly likely.

In addition to the economy always being the most important issue in a Presidential election, it is doubly true this time as the GOP really has precious little else to run against Obama on.

Foreign policy?  Would you want to make this the issue against the guy who got Bin Laden, killed a dozen top Al Qaeda leaders, got Qaddafi, exited an unpopular war in Iraq with dignity and is drawing down from an unpopular war in Afghanistan?  Good luck.

Social policy?  Obama is to the right of the American people on many social issues.  A narrow majority of Americans now favor legalizing gay marriage and legalizing marijuana (views to the left of the President) and a large majority continues to favor legal abortion.  Social issues may play well in a Republican primary, but running to the right of a President is a loser in a general election.

Health care?  If someone other than Mitt Romney were the nominee, this might play, as a majority still opposes Obamacare.  But Romney doesn't have a leg to stand on in this debate as he continues to do the tap-dance that his plan in Massachusetts, which, despite the protestations from Ann Coulter, obviously is nearly identical to Obamacare (and the model for it in many ways), was great for Massachusetts, but horrible for the rest of the country, he is just engaged in a debate he can't win.

That leaves the economy.  If it continues to improve, Obama is a lock for a second term.  If it falters, it might give Mitt an opening.

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