Davos Newbies

British elections are shorter, less money-driven and generally less dramatic than the Wagnerian opera of a US presidential election. But there is one aspect to a British general election that provides an electric theatrical moment. On the Friday morning after an election (British elections are held on Thursdays), the new prime minister and his/her family walk into their new home, 10 Downing Street.

The efficient moving vans have already hauled away the previous incumbent’s possessions and the transfer of power is immediate.

There are many reasons, not least the Constitution and the difference between a parliamentary and presidential system, why the US doesn’t have such a quick switch of administrations. But on November 5, 2008, the US is going to be facing an odd and potentially dangerous time. Economic challenges are going to be piling up on the docket, but there will be an uneasy interregnum with only a semblance of leadership. Robert Kuttner has an interesting reflection on the problem.

Assuming Obama wins, there will be a Democratic successor to Paulson and that Treasury will doubtless use the powers granted Paulson far more aggressively. But that will be after January 20. And at the rate that the financial system is collapsing, even three months is an eternity.

The two other key players in this morbid interregnum are Fed Chairman Ben Bernanke, whose tenure will continue into the Obama administration, and House Speaker Nancy Pelosi. Bernanke continues to expand the emergency powers of the Fed, now venturing into uncharted waters by having the central bank go into markets and buy unsecured short term commercial loans, a power not even granted Paulson by the recent legislation. It would be far better if Bernanke worked in concert with an overall strategy devised by the incoming administration.

Pelosi is on board for an emergency second stimulus package, to be enacted right after the election, this time in the range of $250 billion. At the rate the economy is cratering, she will get little of the usual resistance from Democratic blue-dogs and Republican foes of big government. Even “earmark” will become a good word again, since the whole country will be earmarked for help. But if the banking system goes down the drain, and housing foreclosures intensify, a fiscal stimulus will not be sufficient.

Obama, Bush, Bernanke, and Paulson would do well to avoid the mistakes of the Hoover-Roosevelt interregnum, a stand-off that made it even more arduous to climb out of the Great Depression once Roosevelt finally took office. As difficult as it may be, they need to negotiate a much bolder emergency program that Obama can carry out. And they should move right after Election Day, and begin the planning right now.

Bernanke, of course, will outlive the Bush administration so his role will undoubtedly be constructive. I suspect Paulson will be generally non-partisan in his desire to do the best for the country. But how much cooperation will there be from Bush? On past performance, my hopes aren’t high.

I know there are four weeks to election day, but that debate really nailed it. I’m feeling very happy about my May prediction of a landslide.

Plenty of people have mentioned this wonderful map from The Economist. I know the US state map is going to look a bit different on November 4, but the way things are trending, it might not be that different.

Maybe my recollection is poor, but I don’t think the word “China” even came up in either the first presidential debate (on foreign affairs) or tonight’s vice-presidential debate. I agree that Pakistan is a crucial issue, and the Middle East is a constant geopolitical concern for the US. But surely the paramount geopolitical issue of this century is the US relationship with China. Shouldn’t candidates be asked about this?

Just saying.

From Andrew Leonard:

On Jan. 20, 1993, the day Bill Clinton was inaugurated, the Dow Jones Industrial Average stood at 3,241, the national debt was 4 trillion, and the unemployment rate was 7.3 percent. After eight years of Clintonomics, on Jan. 20, 2001, when George Bush took office, the Dow had reached 10,588, the national debt was 5.7 trillion, and the unemployment rate was 4.2 percent.

Today, the Dow closed at 10,482, the unemployment rate is 6.1 percent (and possibly higher tomorrow), and the national debt, this very week, crossed $10 trillion.

The biggest surprise of the VP debate was that it was so unsurprising. I thought Biden was very, very good and Palin, although a bit scripted, did well given her shocking interviews of the last few weeks. It was pretty boring, in fact.

Update Of course Palin lied relentlessly. But what else could she do? That certainly wasn’t a surprise to me.

Tyler Cowen on why he thinks the Chinese will maintain their dollar holdings:

Bush, Bernanke, Paulson — we call them leaders.  The Chinese think of them as the customer service department.  I suspect the Chinese get straighter answers from them than we ever do.

I did a so-called ego search on Google 2001 for davos. My blog at number 3 and the World Economic Forum itself at number 4. Early evidence, if any were needed, of the potential power of blogs.

But institutions (and web indices) learn. Do the same search today and the Forum tops the list. The village of Davos itself has sadly gone backwards, from number 1 to number 3. I’ve slipped to 6th. Interestingly, the Davos Twitter stream is number 8.

No, not a comment on what our worrying economic times demand. It’s a welcome back to my friend Adrian Murdoch’s blog on things classical, Bread and Circuses. For reasons I never understood, when Adrian decided to stop blogging, he also decided to delete his blog. So not only was there nothing new, none of his delectable archives were accessible.

He’s back, and so are the archives. I’m delighted.

The bad banks continue to be bought up, there is no run on hedge funds next Tuesday, only mid-sized European banks fail, money market funds keep on buying commercial paper, and the Fed and Treasury continue to operate on a case-by-case basis.  Since Congress doesn’t have to vote for something called “a bailout,” it can give Paulson and Bernanke more operational freedom than they would have otherwise had.  The American economy is in recession for two years and unemployment does not rise above eight or nine percent.

That’s Tyler Cowen’s best case scenario. Not very good, is it?