Since the beginning of their primaries, republicans have been desperately looking for an alternative to Romney. There was even a moment of considering Michelle Bachman - do I need to give any more proof of despair? No, I don’t think so. Along came Governor Perry, until the day he destroyed his chances with the “oops” 43 seconds of silence trying to remember the name of the agencies he would extinguish if he were elected. Then there was Herman Cain, who left his ignorance documented for posterity when he could not answer a question about Libya. Then came Gingrich, who won South Carolina but was incapable of responding to Romney’s attacks in Florida. Gingrich now puts all his hopes in the South, including Georgia, his home state by adoption. Ron Paul is still is the picture, backed by his millionaire, although nobody believes he could be – or even wants to be – the nominee.
Currently, Republicans love Rick Santorum. Rick Santorum might not win the nomination, and even if he does, he will lose to Obama. He will however be remembered as the guy that changed the discussion, at least temporarily. Instead of jobs, the economy, and the deficit, he discusses sexual orientation, abortion, Christianity, and contraceptives.
The truth is, we are probably better off … It is better listening to Santorum talking about religion than the economy. Santorum has a bad record as a congressman and had to use most of his time in the last debate defending himself. He voted for the Bridge to Nowhere that connects Gravina, an island in Alaska with less than 50 inhabitants, to Ketchikan (population 8,000). The bridge is as long as the Golden Gate and taller that the Brooklyn Bridge. Not only did he vote for that bridge but when it was time to choose between sending more funding to the bridge or helping the victims of Katrina, he chose the bridge. That is Santorum.
The road to the nomination is increasingly twisty. The Michigan primaries will be held in few days and Romney has a lead over Santorum so narrow that they are technically tied. The nomination process is very complicated as different states have different rules for the allocation of delegates. There are places where the winner takes it all (South Carolina and Florida, for example), and others that allocate proportionally (such as New Hampshire). Some are non-binding, and to complicate further, there are the super delegates who pretty much represent the establishment and can vote regardless of the primaries. To be the nominee a candidate must have 1144 delegates and if none of them have it at the time they go to the convention anything can happen.
Soon this enthusiasm with Santorum will end and hopefully the campaign will track back to real issues. In any case, the big beneficiary of this mess is Obama: while the congress approval has sunk to the lowest level in history, 9%, Obama’s approval rating has increased. Besides, 2012 has been good to the stock market and to Obama. People are more optimistic and if it wasn’t for the rise in oil prices that reached $109.77 last Friday, they would feel even better. The University of Michigan Consumer Sentiment has been rising since September.
The year started with a relief as the end of the world didn’t come, mainly because the Europeans – the ECB in particular – got their act together. Greece finalized the debt agreement last week and the private sector has until March 20th to adhere to the restructuring, the largest in recent history although smaller than the Argentinian in 2005 that imposed a loss of 76.8% to the banks. The labor market finally started to move in a positive way and the GDP was revised up. Bernanke helped by announcing the intention to keep interest rates lower until 2014. Corporates are borrowing at very low rates, less that 1.5% per year. The real estate market is showing improvement: ITB (I Shares Dow Jones US Home Construction), which tracks construction companies, rose 31% since November.
Despite the slow recovery, the fear of a recession has dissipated for the most part. At this point, slow is good enough.
The threat now is Iran: the rhetorical fight is escalating and the uncertainty has kept prices up. Realistically, Iran is not interested in a conflict and the probability of closing the Strait of Hormuz is low as it will be self-destructing for Iran. Nonetheless the increase on oil price is bad for the developing countries by increasing the risk of higher inflation. It is also bad for the emerging economies that are more susceptible to risk aversion scenery and for countries like China, India, Korea and Turkey who are Iran’s main trade partners. If the oil prices somehow stabilize and the tension over Iranian nuclear plans don’t escalate, things could go even better and as we know, what is good for the economy is good for the incumbent. Maybe the democrats could even win back the House and increase their majority in the Senate.
However, the Romney nomination will be a challenge for Obama. Watching the last debate I saw a more confident Romney, tackling the problems and avoiding radical positions in hopes of winning the independents. Besides, some themes will be back in full force and I am not sure the result will favor Obama: big government versus small government; deficit cuts versus tax increases; class warfare between the 1% and the 99%. It will be hard for Obama to extricate himself from the image of a big spender that wants to tax the rich, help the poor, and transform America in a socialist country. I know, I know, it is hard to believe but there are a lot of people who believe that (even some of my good friends).I wish the economic debate could transcend the ideological barriers and focus on the issues with pragmatism. I am in favor of fiscal responsibility, ending subsidies, and against bail outs. However, how does one conciliate those premises with economic growth and social responsibility in an era of crisis? Don’t be fooled….the crisis didn’t end yet although the symptoms might not be as visible and the stock market has been going up. I wish the next President, either Obama or Romney, would have the courage to put everything on the table or, as David Brooks said, “do a tax reform effort that simplifies government, frees the economy, and focuses social support on those who actually need it. A left-right tax reform alliance would break the political logjam as well the economic one” (NY Times, February 24th). Unfortunately, I am not sure either one can do that. It is a shame.